The coincidence of double wants and its relation to money.
The coincidence when two parties, each holding goods that the other party wishes to have, that’s called the coincidence of double wants.
This is the condition for a barter economy/transaction to be agreed upon. Otherwise, in the absence of money, if a person wants to trade good A for good B, they have to find another person willing to trade good B for good A. This is achieved by having a phenomenon called “coincidence of wants”. A “double coincidence of wants”.
What is money?
I’m sure people don’t usually ask themselves or around these sorts of questions. I find that people are usually busy minding their own daily lives. But actually, this is quite important. Because we work with it, we trade it, on a day to day basis. Willingly or unwillingly.
And how do we trade it? We offer and provide services in return for money.
But those services are not cheap. They are expensive! They cost a lot. They take from our time, (our most precious resource)our mental activity and physical activity. And it ends up being converted into money. A commodity. Like oil or gold.
Money is just a commodity.
A means, artificially created by humanity in order to evolve from a barter economy.
Let’s take an example. If John wants ( 1st want ) to sell something (in spring let’s say), in order to get something else in return, he needs to find another person, Amanda, who wants ( 2nd want) to sell her product or service. That’s barter. That was one type of economy.
It’s the phenomenon where items are exchanged directly without any monetary medium.
Money is often defined in terms of the three functions or services that it provides. Money serves as a medium of exchange first, as a store of value, and as a unit of account.
Having money means that you can sell your products or services and implicitly exchange them for something else, at a later date. For example, if money wouldn’t exist, the farmer wouldn’t have been able to buy something unless Autumn, when he would harvest his work from the field. But using money, as a commodity, he gets to trade his product for this commodity called money, and store it so that when winter comes, to have “value” to buy food for his family.
Lesson: Money depreciates in time. That’s called inflation. Whenever you hear the words “bailout” – the so-called “financial assistance” to a failing business or economy to save it from collapse – or “injection of capital”. That means that governments are printing money. That’s what is diluting the well of money in the world.
Why would you save money, if you know that money depreciates in time?
That’s not a very wise decision.
Why would you deposit money in the bank, when YOU are paying for it? You’re not getting the real interest. You are basically paying banks. Because you are storing value in their “vaults”. You are giving them the possibility to loan your money, nine times! And what’s the interest rate these days if someone wants to make a loan?
So you store £50.000 in a bank at a 0.8% interest rate / year.
The bank then takes your money, loans your money, using the leverage system; so in total, it loans £450.000 at an average interest rate of >7% / year. – Source
Please think again before you decide to safely deposit your money in a bank. I know it feels safe. But look at what happened in Greece in 2015.
As economies break down, so does trust in the digital ways we pay. Cash inspires confidence—at least until the ATMs dry up.
Source
Cyprus in 2013.
This is not a moment to sleep on it. This is your life. Learn how money works. Learn how to bring value to the market place. Learn how to leverage your time better.
Learn how to (be)come a capitalist.
This is an amazing video explained by one of the best – Ray Dalio. I recommend you take some notes.
Next lesson: What is an IOU. How to deal with IOUs.
The Bank of England sets the bank rate (or ‘base rate’) for the UK. The current rate is 0.1%. 😉
Become financially literate.
Enjoy life,
Ionut Furnea
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