Double Coincidence of Wants

The double coincidence of wants is the condition that must be met for a direct exchange of goods or services, known as barter, to take place: each party must have something the other wants, and both must want to trade at the same time, in compatible quantities. If a baker wants shoes but the shoemaker wants fish rather than bread, no direct trade is possible, however useful each would find the other's goods.

The concept is the standard starting point for explaining why money exists. When everyone accepts a common medium of exchange, a seller no longer needs to want what the buyer produces; it can accept money and spend it later, on something else, with someone else.

The problem was described long before it had a name. Adam Smith's Wealth of Nations (1776) imagined a butcher with more meat than he needs and a brewer and baker who would like some, but who have nothing the butcher wants in return. Smith argued that prudent people would come to hold some commodity that others would accept in exchange for their produce.

The phrase itself is usually credited to the English economist William Stanley Jevons, who in Money and the Mechanism of Exchange (1875) identified the "want of coincidence" as the first difficulty of barter. Jevons also noted related problems: the lack of a common measure of value and the difficulty of dividing goods into small amounts.

Money splits one barter trade into two separate transactions, a sale and a purchase. The baker sells bread to whoever wants it for money, then uses that money to buy shoes. Neither trading partner needs to want the other's goods. Money performs this role because it is accepted by nearly everyone, and it adds two further functions that make trade easier:

• As a unit of account, it gives every good a single price, instead of a separate exchange ratio against every other good.
• As a store of value, it lets the seller hold purchasing power until the right purchase arises, solving the timing half of the problem.

Commodities with good monetary properties, such as durability, divisibility and portability, became early money in many societies, including metals that were later struck into coins. Where coins of different quality circulate together, people tend to spend the worse and hoard the better, a pattern known as Gresham's law.

Anthropologists have long challenged the idea that money arose from barter. Studies of small-scale societies found little evidence of economies based on regular barter between neighbors; anthropologist Caroline Humphrey wrote in 1985 that no example of a pure barter economy had ever been described. Within close communities, people more often relied on gifts, obligations and running accounts of who owed what, which avoids the coincidence problem without money changing hands.

This credit view of money's origins, associated with writers such as Alfred Mitchell-Innes in the early twentieth century and David Graeber in Debt: The First 5,000 Years (2011), holds that records of credit and debt came first. Instruments such as the medieval tally stick are often cited as examples. Barter, on this account, appears mainly between strangers or when a monetary system breaks down.

The double coincidence of wants remains a useful teaching tool even so. Whether or not barter economies ever existed on a large scale, the problem it describes is real whenever trade happens without a shared medium of exchange.

The problem reappears when money fails. During hyperinflation, or when banknotes are scarce, people revert to barter or adopt substitute currencies such as cigarettes or foreign cash, and trade slows because coincidences are hard to find. Businesses that trade goods for goods across borders, a practice called countertrade, face the same matching issue and often need intermediaries.

Digital barter exchanges and community currencies try to reduce the problem by keeping a central ledger of credits, so members can sell to one participant and buy from another. In the informal economy and in mutual savings groups such as rotating savings and credit associations, shared records serve a similar function. These systems work because they recreate the core feature of money: a claim that third parties will accept.