Financial Education #6: The Barter Economy

localgrower (63)in LeoFinance • 4 years ago

The History of Trade

Thousands of years ago before the invention of money the means of exchange was barter. Barter is simply trading one good or service directly for another. These goods included livestock, arguably the first ever currency. Cattle, sheep or pigs would have been traded for someone else's fish or silk. This provided stability in trade and fair exchange rates were found, this also provided a stable economy. However, barter had inefficiencies of its own:

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The Coincidence of Wants

The problem of barter was that there would need to be a lot of probabilities fall into place. There were problems of divisibility, physicality, timing and demand. Let's take the example that there is a trade between one person who has a cow and another who has a fish. This trade would be somewhat unfair as cows would be much more valuable than a fish. Dividing a live cow into 10 pieces obviously would be impossible. Yes, the other person may have the 10 fish to facilitate a fair trade but the other person may only want one fish. This trade is contingent on the fact that you have found someone with a good or service that you need, you have a good that the other person needs. Moreso, you would need to physically be there with them at the same time and the same place. Given the low probability of this, the off chance that it did happen gave this dilemma the name, 'the coincidence of wants'.

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Solving The Problem

What solved the 'coincidence of wants' was the invention of money. Money is a brilliant tool that allowed us to overcome these challenges. Money allowed us to store up our economic energy, from our labour and specialised skills, and use this as a medium of exchange. In the begininng and early cultures, gold and silver were used, as these were sound forms of money. This gave the people faith in their trade as the money that they used yesterday for trade bought them a certain number of goods would buy them the same number of goods in the future. This is what gives all monies and currencies confidence. However, we are quickly starting to see the fall in confidence of fiat currencies.

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The Solution Has Been Comprimsed

Money has been an incredible invention that has allowed economics and society to have so much more efficiency and freedom. However, this is what all of us 'crypto heads' and 'gold bugs' keep on banging on about. The money that has solved all of these problems is no longer money. Here is a quick extract from my 'Financial Education #3 post to summarise: 'In 1944 countries came together and agreed that their currencies would be backed by the US dollar. The US dollar at the time was backed by gold at $35 per ounce. There was no such thing therefore as foreign exchange as all the rates were fixed between the currencies. However, the US continued to print currency to fund wars such as Korea, Vietnam and more. Other countries started to recognise that because of the dollar printing, the rate for 1oz of Gold being $35 was a lie. Countries that held US Dollar lost confidence in the currency and decided to purchase large quantities of gold. Instead of trusting the US and relying on the peg, countries such as France decided to take ownership into their own hands.'

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Sound Principles

What made money money was its charactersitics. The point I want to get across is that sound money is a solution to government corruption of money. There a certain cryptocurrencies which fall under the bracket of 'sound money'. It is important to educate yourself on what is going on behind the scenes with regard to fiat currency.

Financial education is really important, especially right now. COVID is happening and there are significant health and social reciprocations. Yet it is important to understand the financial implications too and what is going on behind the scenes. Please continue to read my blogs about financial education and crypto as they come out. This is aimed to educate people who know nothing about these topics with the aim of having some protection when an inevitable financial collapse happens.

Currently, if you are new to this, you are not too late. The talk in crpyto is that if you aren't already in you are too late. This is not true. This is not true for gold or silver either. There is still an opportunity to educate yourself and make appropriate decisions for yourself!

Please upvote, reblog, and comment! I look forward to your thoughts on these topics too as I want to get this discussion going! Thank you.