Started From the Barter, Now We're Here

Lunch time in my middle school was absolute chaos. Nothing but loud kids in a cafeteria with a table full of teachers trying to make sure there were no food fights, actual fights, or iPods and phones out. (iPods were pretty much like iPhones with only the Apple Music app for those too young to remember). Most kids ate what they brought or picked up the best plate of trash food that public school had to offer in the cafeteria.

But there were some days where this girl named Leah was noticeably tired of the same turkey sandwich, chips, and cookies that her parents packed for lunch. On those days, an opportunity presented itself. I would ask her if she was going to eat her cookies, and she would look over at something on my plate that caught her eye. “Sure, I’ll give you my cookies for your tater tots” she said. Was this a fair trade? Ehh, maybe. But I had a sweet tooth that day (and every day thereafter) so I obliged and the deal was done. Kids next to me were also doing the same thing occasionally for different items. Little did I know, I was witnessing and participating in bartering - a practice as old as civilization itself.

Bartering is what happened before there was any form of cash in the world. No cash, coins, venmo, bitcoin, none of that. How do you buy and sell things? How do you value the things that you own? Well, you simply had to offer up what you had, hope somebody wanted it, and then offered you something you wanted in return. This could mean trading your chair for a pair of shoes or your phone for a new refrigerator. (Yeah, they're likely around the same price. That's wild, right?)

Today, we’re so accustomed to using paper money or digits on a screen to carry out a transaction. Swipes, taps, chips, CashApp, ApplePay, etc. It’s simple. It's instant. But before cash was king, you simply traded your goods or services with someone else. This was the barter system.

Let’s Make a Trade

Bartering started in Mesopotamia (present-day Iraq) around 6000 BC. Mesopotamia was ideal for farming and crop production. They had everything - fruits, vegetables, meats, herbs, spices, etc. But there wasn’t a Trader Joe’s that people could walk into, and there obviously weren't refrigerators. So, anything they couldn't consume, they began to trade for items that they couldn't produce themselves. Farmers would trade fruits and vegetables for clothes, while hunters would trade meat and skins for tools. Some regions even bartered with precious stones and metals, especially for larger transactions.

Bartering was a simple yet efficient way of exchanging goods and services without the need for money. People relied on their skills, resources, and networks to negotiate exchanges that worked for them. It was about finding that sweet spot where supply met demand. If someone had something that a lot of people wanted, they could use it to get something else they needed. The more people wanted something, the more valuable it became, and the more likely it was to be traded. Bartering allowed this to be done without relying on a centralized form of currency. No paper and no coins. Just your goods or services for someone else's.

What’s Fair?

One early flaw in the barter system was that goods and services were being exchanged without any fixed value or measure. Someone could bring goods of different sizes, weights, and qualities to trade, which made it difficult to figure out their actual worth. It’s not like they had price tags on things. Imagine going to the store today and the cashier eyeballs your groceries to decide what they're worth. Yeah, not ideal. This led to the development of the shekel and the hin as systems of measurement.

The shekel was used to measure weight and was divided into smaller units called minas and bekas. One pound today is about 4.75 shekels. The hin was used for measuring liquids like water or olive oil. One hin was about as much as 4 large Smartwaters (6 liters). For smaller amounts, they used logs, each about half a liter. Other forms of measurement were eventually introduced, but these allowed for consistent and accurate measurements of weight and volume. Once the value was established, it was easier to “fairly” trade.

I'll Just Do My Own Thing

Bartering worked for centuries until specialized trade came along. The idea behind specialized trading was that individuals or communities could specialize in the production of certain goods or services where they had an advantage and trade for goods or services that they needed more efficiently. Aka, people realized they had a special skill or advantage over others, so they focused on doing that thing. Fun fact: millennials aren’t the first generation to think they’re special.

In a simple bartering system, people would trade goods or services directly with each other. But with specialized trading, it became difficult to find someone who had what you needed and wanted what you had to offer in return. This is called the "double coincidence of wants." In other words, for a successful trade to work, both parties had to desire what the other had to offer. It would be like trying to find that one person who wants your new set of plates and has the exact pair of shoes you’ve been wanting.

Cash Cattle is King

The challenges of specialized trade led to a new form of exchange: commodity money. Instead of directly trading goods and services, people started using specific commodities that were more widely accepted as a medium of exchange, like salt, animal hides, or shells. These items, which were valuable because they were scarce or in demand, became a form of currency that allowed people to trade more easily.

In some regions, livestock became a popular form of commodity money. They were portable and valuable for transportation and agriculture. Cattle, sheep, and even camels were valuable assets that could be exchanged for other goods and services. Livestock became the 'cash' of choice. Your wealth was literally walking around on four legs.

Bartering Today

As societies grew more complex, the limitations of the barter system became more apparent. The need for a more universally accepted medium of exchange laid the groundwork for the evolution of coins, paper money, and eventually, digital currencies. While bartering hasn't disappeared completely – think of my trade with Leah – the progression to tangible and digital forms of currency has transformed our interaction and understanding of money. Today, money is mainly digits on a screen. But bartering was the first step in the journey.

Jay T.