Barter economy

Trading of goods or services directly for other goods or services, without using money or any other similar unit of account or medium of exchange. Although barter represents the earliest form of trade discovered by primitive man that made possible a more extensive division of labor beyond the limited bounds of a family or small clan grouping, it quickly encounters some practical limits to its efficiency as the division of labor becomes still more extensive and more specialized. Bartering requires what economists refer to as a "double coincidence of wants." That is, for a voluntary barter exchange to take place, it is not enough for you just to find someone who has the exact good you want to acquire -- he must also happen to want to "buy" the particular good that you have to trade for it at the same time. Finding someone whose immediate needs exactly complement your own in this precise way may take quite a lot of searching, which is costly in terms of time and effort. The alternative partial solution to this matching problem is to make one or more intermediate swaps with still other people in order to acquire some other item that will be more acceptable to the owner of the item you desire -- but this will also tend to be very time-consuming. The more complex the division of labor, the more finely specialized the population's productive roles, and the more numerous the variety of goods and services produced in an economy, the more costly and cumbersome barter trading will become because the likelihood of any two people having a double coincidence of wants shrinks dramatically. History strongly suggests, in fact, that the (sometimes gradual, sometimes amazingly rapid) replacement of a barter economy by an exchange economy employing some form of money to facilitate trade is a near-absolute necessity before much economic development beyond a rather primitive tribal level can occur.