Merijn Knibbe on barter

Merijn Knibbe on barter:

Barter economies do not exist. Never have, never will. Barter does exist, but has always been a rather insignificant side show. Coordination problems in non-monetary economies are solved, but not by trade. They are solved by division of labor and production based upon age, gender, caste, whatever (just like we still do, to a large extent, in a monetary economy). And upon 'parties'. In many economies, weddings, funerals, 'the Potlatch' and the like are a non insignificant way to distribute goods (and prestige, and connections, well, the whole gift exchange thing). In present day South Africa, your funeral may very well be the largest expenditure of your entire life.

If you think about this, the 'mutual coincidence of wants' is not a problem of non-montary economies. These economies have solved this problem (see above). It's a problem of monetary economies. This problem sometimes shows as a liquidity problem. You want to buy a house, you have the income, but you don't have the money. A mortgage solves this liquidity problem. It sometimes shows as a search problem. Habits and instititions and the like have, of course, solved much of that problem (the monthly pay check, pension funds, the grocery store, the entire theory of 'whole sale' is in effect based upon they way in which this solves parts of the problem). Farmers do not stand along the road - they have established routines to sell their products. Even then, these solutions are weridly expensive. Banks, insurance companies, grocery stores, malls, cash registers, whatever. Together, the macro costs of markets and the macro costs of money will easily ben 15% of GDP

And if you think even deeper, it turns out that the essence of prices is stickyness. If they weren't sticky (sometimes only for a minute, sometimes for fifteen years like my mortgage interest rate), they would not exist, in a market economy. In a market economy, you agree upon a price - which is impossible without stickyness (and indeed, in my definition of a market, post transaction 'shadow prices' which can only be known 'the morning after' are anathema to real market behavior: the very essence of a market is that people know about prices (or at least about the algorithm used to define a price) before making a transaction. And that's why money exist. It's the sticky price par excellence.