Double Coincidence of Wants
Categories: Financial Theory, Econ
It sounds like a noir movie from the 1940s. Black and white. Evil, shadowy figures. Guys who talk with marbles in their mouths. Or maybe the manner in which an economist would describe flirting...right before she graphs a supply curve of swipe-right-worthy dates on Tinder.
But the term has a totally different, non-romance-related meaning for economists. It refers to the very limited conditions that have to exist in order for bartering to work.
In most basic terms, it describes the rare situation where two parties each have something the other wants and both are willing to make the exchange. The perfect barter situation.
Bartering is when you trade a good or service directly for another good or service. You agree to mow your neighbor’s lawn if he’ll bake you some of his special oatmeal chocolate chip cookies. That’s barter. It doesn’t happen very much in modern economies...mostly because we skip the bother and...just use money.
Nowadays, when you want to buy something, you typically use what’s called a medium of exchange. Specifically, you use money. A currency representing a value...the worth of which everyone agrees upon.
You go to the store, pick up a pint of Double Chunky Choco-Marshmallow Fudge ice cream. You hand over the cash, and the treat is yours. If you don't have cash on you, or if you're buying your Double Chunky Choco-Marshmallow Fudge online (delivered next day via drone in convenient dry-ice packaging), you can use some kind of cash equivalent: a credit card, Paypal, Venmo or Apple Pay...something like that.
Point is, you use some sort of currency. The currency represents a medium of exchange. It can be used in any commercial venture, because everyone will take it. Instead of directly trading goods and services, the goods and services can be traded for the medium of exchange, which can then be used to get other goods and services.
That’s how things work in the modern economy. You trade some medium of exchange, i.e. use money, to buy what you need.
Okay, so…a bunch of aliens appear out of nowhere. They blast the Earth with nuclear destructo rays just for target practice. Then they fly off to blow up some stuff near Alpha Centauri. Most of the world is destroyed. Civilization has fallen apart. People wander the destructo-scarred wasteland in small, warring bands. There are no more Treasury Departments. No more central banks. No more Paypals or credit cards or Apple Pays. No more money at all. No medium of exchange whatsoever. If the roving, post-apocalyptic tribes want to trade for something, they need to barter.
Here's where the double coincidence of wants comes into play. If you want a pint of Double Chunky Choco-Marshmallow Fudge, you can't just stroll down to the store and pick it up. Instead, you first have to find someone who, among the starving remnants of humankind, still makes premium specialty ice cream. That search represents the first "want" in the double coincidence of wants...you want the Double Chunky Choco-Marshmallow Fudge. You find someone who keeps alive the nearly forgotten art of Double Chunky production. But to get it from them, you have to have something they want. That’s the second “want” in the double coincidence of wants. You need to have something that they want...at the same time they have something that you want. All you have are a couple knives, some tattered rags, and a few pieces of dried rat meat. To get the ice cream, the other guy had better want a knife, some torn-up clothes, or nearly inedible chunks of salted vermin. Otherwise, no deal.
To barter, each party has to have something the other one wants. That's the double coincidence of wants. There has to be a coincidence of both people wanting something that the other person has. But it makes bartering...inefficient. Using a medium of exchange works much better, because you don’t need to actually find someone who wants what you have to offer. You just trade what you have for money and then use that money to get what you want.
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Econ: What is the Double Coincidence of ...89 Views
And finance Allah Shmoop what is the double coincidence of
wants All right well it sounds like a new R
movie from the nineteen forties Black and white evil shadowy
figures Guys who talk with marbles in their mouth You
know like that Well or maybe the manner in which
an economist would describe flirting you know right before she
grabs a supply curve of swipe right were the dates
on tinder But the term has a totally different non
romance related meaning for economists It refers to the very
limited conditions that have to exist in order for bartering
to work well in most basic terms the double coincidence
of wants describes the rare situation where two parties each
have something the other wants And both are willing to
make the exchange the perfect barter situation right Okay so
flee Bartering like this guy Different parts Bartering is when
you trade a good or a service directly for another
good or service You agreed to mow your neighbor's lawn
if well she'll bake you some of her special oatmeal
chocolate chip cookies That's barter It doesn't happen very much
in modern economies mostly because well we skip the bother
and just use money well Nowadays when you want to
buy something you typically use what's called a medium of
exchange and specifically well you use money At least in
America you do currency representing a value the worth of
which everyone generally agrees upon You go to the store
pick up a pint of double chunky Chako marshmallow fudge
ice cream You hand over the cash and the treat
is yours if you don't have cash on you or
if you're buying your double chunky Chako marshmallow fudge online
while delivered next day via drone inconvenient dry ice Amazon
packaging Well you can use some kind of cash equivalent
like a credit card or a PayPal account thing You're
venmo or apple pay or something like that The point
is you can use some sort of currency The currency
represents a medium of exchange right It is a medium
itself and you agree on the number of units of
that currents to make the exchange affair on both sides
released Acceptable It can be used in any commercial venture
because well everyone will take it instead of directly trading
goods and services that goods and services can be traded
for the medium of exchange which can then be used
to get other goods and services right It's called liquidity
Essentially its financial liquidity and dollars are trusted as a
medium of exchange so they're the most liquid currency in
the country Well that's how things work in the modern
economy Anyway You trade some medium of exchange that is
you use money to buy what you need Okay so
a bunch of aliens appear out of nowhere They blast
the earth with nuclear destruct O raise jazz for target
practice Thanks guys Then they fly off to blow up
some stuff nearer Alfa Centauri Yeah Most of the world's
destroyed civilization has fallen apart People wander the destruct O
scarred wasteland in small warring bands There are no more
Treasury Department's No more central banks no more paper towels
no more credit cards or Apple pays no more money
at all No medium of exchange whatsoever If the roving
post apocalyptic tribes wanna trade for something well they need
barter Here's where that double coincidence of wants then comes
into play right It's a coincidental that both sides double
of them want the same thing If you want a
pint of double chunky chocolate marshmallow fudge Well you can't
just stroll down to the store and pick it up
Instead you first have to find someone who will dwell
among the starving remnants of humankind Still makes premium specialty
ice cream That search represents the first want in the
double coincidence of wants You want the double chunky chako
marshmallow fudge You find someone who keeps alive the nearly
forgotten art of double chunky production But to get it
from them you have to have something they want That's
the second one In the double coincidence of once you
need to have something that they want at the same
time that they have something that you want You getting
all this Well all you have are a couple of
knives Cem tattered rags and a few pieces of dried
rat Well to get the ice cream the other guy
had better want a knife set Born up close aren't
nearly inedible chunks of salted vermin Otherwise no deal no
barter Nothing happens well to barter than each party has
to have something the everyone wants That's a double coincidence
of wants There has to be a coincidence of both
people wanting something that the other person has at that
time But it makes bartering inefficient That hold double coincidence
thing is rare a lot rarer than when people have
the amount of dollar bills in their pockets to just
go buy stuff Using a medium of exchange works much
better because you don't need to actually find someone who
wants what you have to offer like that physical good
You just trade what you have for money and then
they use that money to get what they want So
you teach people to speak Albanian You want some Chinese
food for dinner In the barter system you have to
find someone who makes Chinese food and who also would
like to learn Albanian Yeah double coincidence of wants or
you have to go through a complicated series of transactions
to get what you want You teach Albanian to a
person who makes key chains They give you some key
chains for your trouble You trade a few key chains
to someone who owns an orchard for a few bags
of apples You then take those apples to the Chinese
restaurant for a plate of chow mein You have to
spend all day figuring out a series of transactions that
gets you from Albanian lessons to Chinese dinner Money cuts
through this process you don't need the double coincidence of
wants for transactions that happened Just one want at a
time plus some cash at least until the trigger Happy 00:05:21.713 --> [endTime] space travelers show up Roman Everything's over Yeah