What did peoples do before there was money?

Answer 1

They exchanged goods and services. It's called bartering, and it has a problem which I will explain.

There are ten of us and we all live in the same town. Our names are A through J.

A is a baker.

B grows wheat.

C is a dairyman.

D is a tailor.

E is a weaver.

F is a butcher.

G grows vegetables.

H makes leather.

I makes things from wood.

J is a shoemaker.

In order for any two of these people to transact business, they must each have something the other person wants. The problem is, some of those people do things that aren't very popular. Take B. He grows wheat. The only person who needs any wheat (we're assuming no one makes bread at home here) is the baker, and there's plenty of times when he's got all the wheat he needs. Similarly, the only person who needs E's cloth is the tailor, and the only person who needs H's leather is the shoemaker.

At this point one of three things have to happen.

The first is everyone can spend a lot of time making intermediate swaps. If the wheat grower wants some shoes, he will first have to exchange wheat for baked goods. He then takes the bread to the tailor who gives him pants, the pants to the leather maker who gives him a tanned hide, and the hide to the shoemaker who gives him shoes. Who has time for that?

The second is that K could move to town. He's a broker. He sets up and performs all these intermediate transactions...the wheat grower gives wheat to the broker and the broker makes all the swaps he needs to do to come up with shoes. That would cost you, and most people don't want to pay a broker unless they really need one.

The third, and what we've all done, is set barter aside except for some very limited transactions (newspapers will often exchange goods for ad space, and beauticians who work together will set up a "I'll do your hair if you do my nails" deal when they need services) and come up with something that everyone can use and everyone agrees on its value.