The coincidence of wants problem (often "double coincidence of wants") is an important category of transaction costs that impose severe limitations on economies lacking money and thus dominated by barter or other in-kind transactions. In Economics and related disciplines a transaction cost is a Cost incurred in making an economic exchange Money is anything that is generally accepted as Payment for Goods and services and repayment of Debts. Barter is a type of Trade in which goods or services are directly exchanged The problem is caused by the improbability of the wants, needs or events that cause or motivate a transaction occurring at the same time and the same place.
In-kind transactions have several problems, most notably timing constraints. If you wish to trade fruit for wheat, you can only do this when the fruit and wheat are both available at the same time and place (and, additionally, only if someone wishes to trade wheat for fruit). That may be a very brief time, or it may be never. With money, (broadly speaking, any commodity used as a medium of exchange) you can sell your fruit when it is ripe and take the money. Money is anything that is generally accepted as Payment for Goods and services and repayment of Debts. An economic transaction or Trade involves the voluntary exchange of goods and services between two or more entities You can then use the money to buy wheat when the wheat harvest comes in. Thus the use of money makes all commodities become more liquid.
Besides barter, other kinds of in-kind transactions also suffer from the coincidence of wants problem in the absence of money. For example, when wealth is transferred during marriage, divorce, inheritance, and other crucial life events, or during the collection of taxes or tribute, it is improbable that this event will coincide with the recipient's desire for the commodities the payor can readily obtain, unless they are intermediate commodities, i. e. money. Money is anything that is generally accepted as Payment for Goods and services and repayment of Debts. In the absence of money, all of these transactions suffer from the basic problem of barter -- they require an improbable coincidence of wants and events.
Because of the severe costs imposed by the coincidence of wants in an in-kind economy, money tends to emerge naturally as some form of commodity money. Money is anything that is generally accepted as Payment for Goods and services and repayment of Debts. Commodity money is Money whose value comes from a Commodity out of which it is made
The term 'double coincidence of wants' is originally due to William Stanley Jevons, as discussed in Ostroy and Starr (1990), page 24. William Stanley Jevons ( September 1, 1835 - August 13, 1882) English Economist and Logician, was born in
See also
References
- W.S. Jevons (1875), Money and the Mechanism of Exchange, Chapter 1, paragraphs 5-6. The history of money is a story spanning thousands of years Related to this Numismatics is the scientific study of Money and its History in all its varied William Stanley Jevons ( September 1, 1835 - August 13, 1882) English Economist and Logician, was born in London: Macmillan.
- Carl Menger, "On the Origin of Money"
- Ostroy, Joseph M. This article is about the economist not about his son the mathematician Karl Menger. , and Ross M. Starr (1990), "The Transactions Role of Money", in the Handbook of Monetary Economics.
- Nobuhiro Kiyotaki and Randall Wright (1989), 'On money as a medium of exchange', Journal of Political Economy 97, pp. Nobuhiro Kiyotaki (born 1955 is a Japanese Economist and Professor at Princeton University especially known for proposing several models that 927-54.
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