Title is super pretentious, but let me explain: I’ve just realized why money is necessary to solve a big problem with bartering, and in so doing, I’ve probably discovered the first thirty seconds or so of a lecture on basic economic theory.

If we think back to a time before money existed (“money” being a thing that represents value without [primarily] having value in itself), people had things that they did not want, and wanted things they did not have. Naturally, sometimes you would have something I want, and I would have something you want, so we could exchange those things and we would each be happy, which is called bartering.

However, what happens when there are three people, each of whom has something another person wants and wants something another person has, but none of whom want anything from the person who wants something from them?

In other words, what if we have three people, Alice, Bob, and Cindy:

Alice has apples and wants a bicycle.

Bob has a bicycle and wants candy.

Cindy has candy and wants apples.

In this case, nobody wants to trade directly with each other. Either these three people have to find each other and barter simultaneously (and this becomes more impractical the bigger the cycle), or else one of them has to trade what they have for something they do not want, and hope that the person with the thing they do want won’t change their mind or their price.

This is a messy and terrible situation that is solved by money. Alice can give Bob money for the bike even though she has nothing of real value that he wants. (Sorry Alice.) Then Bob can take the money and pay Cindy, and Cindy can pay Alice, each getting what they want despite not having anything of actual value to their trading partner. Money has allowed the three to exchange items, and if the three items are the same price, all the money ends up back where it started¹; money merely facilitated the exchange of value where the exchange was not possible before. Neat!

Of course, money creates all kinds of other problems, like the fact that it’s susceptible to counterfeiting, or that it doesn’t actually have any intrinsic value so its perceived value can be easily manipulated. But the advantages obviously far outstrip the dis, and as they say, if one invents the ship, one can’t but invent the shipwreck.

1. Except they all lost money because of sales tax. And the buyer had to pay it for some reason. Despite the buyer being the one who is losing money already. And despite the fact that it’s called “sales” tax, not “purchases” tax. ↩︎