It’s bewildering – money causes so many problems and often becomes unfathomably complex. Step beyond your humble budget and it’s like stepping into an abyss. From Greece’s unmanageable debt burdens to hedge funds and the Byzantine complexity of retail banking, it’s easy to feel like money got us into more trouble than we can handle.
Wouldn’t it be great if we ditched money altogether? The fantasy of a friendly barter economy is a great daydream on a stressful day – personally I would raise chickens. I like their sweet, mindless natures and they say it’s less of a hassle than keeping goats. Also I like omelettes.
If that daydream is precious to you, read no further, because I’m about to stomp all over it.
Here’s a picture of a sort of agricultural barter economy – swapping things you have for things you need with other people who have those things and want the things you have.
Simple, right? Let’s work out a simple example:
Number one. You have to go and meet the person who has the stuff you want (pig farmer – cause I want bacon with my omelette). That means you go to market day! Sounds fun, but if the Mr Pig Farmer isn’t there, you go home with no bacon and have to try again next time. Better hope you live close to where the market happens otherwise all these market trips are going to eat all your time.
Secondly, please realise that a pig is a very large animal. That’s a) a LOT of bacon, and b) there’s more to the pig than just the bits that make bacon. For delicacy, I’m going to draw a veil over the many, many uses of the many, many parts of the pig. But anyway, it gets a bit tricky buying a specific one tenth of a pig (enter the first of many middlemen – the butcher).
On to issue three: I have lots of eggs at home, more than I can eat, so that’s what I bring to market (schlepping a load of eggs, all the way, without breaking the damn things). Better hope everyone loves eggs. Better hope that there aren’t 50 other people bringing eggs to market, otherwise they’re not exactly worth much. Imagine having that worry – you’re bringing four dozen eggs to market, but you have no idea what they will be worth when you get there. Prices are tricky too – either every sale is a negotiation (exhausting for everyone) or prices must be published in every possible exchange – 1 pound of bacon is 2 dozen eggs, OR 4 dozen apples, OR a pound of fish OR…
Issue four is that I’m pretty screwed if my hens become distressed and stop laying eggs. If I don’t have an impressive stockpile of eggs (and remember, they don’t stay fresh forever), that means I’m going hungry until those precious hens relax and start laying again.
Okay last one, I promise. Issue five: think about the last example with stressed chickens – that shouldn’t really be a problem, right? Your fellow villagers probably don’t want to see you starve, so maybe you can get a loan. Maybe the Pig Farmer (or the Butcher maybe) are cool with you bringing eggs in a few weeks when you have them. That’s debt, plain and simple, but it’s not simple in a barter economy. How do you both agree and remember how much you owe? Is it an agreed number of eggs? What if everyone has eggs a month from now and they’re not worth much by the time you pay this guy back? The value of eggs just isn’t stable enough to make contracts for the future.
So here’s the bottom line. We need money, and we need it for a few, important reasons:
1. It’s a store of value – money is easy to store and doesn’t have a problem with staying fresh, so you can hoard up value and be covered if there’s a catastrophe or a string of lean months. Future proofing!
2. It’s a medium of exchange – easier to bring to market than four dozen eggs, and everybody agrees on and trusts in the value of those little bits of paper (or shiny coins, or cowrie shells, or plastic tokens). Sellers can set their prices, and they can’t turn down someone who offers the right amount of money.
3. It’s a unit of account – everyone agrees what it’s worth, and it comes in little bits so that you can talk about very exact amounts of money (it’s hard working out the decimal points of an egg). Also, if you need credit or you’re taking on debt, both parties will have the same idea about the future value of that contract so those obligations are predictable – that means you can plan your financial future!
Money. Let’s all agree that it saves us time and pain – the barter daydream is actually a nightmare.