Barter

Barter is a rude form of exchange, based on directly swapping goods for goods without the intermediary of money. Exchange becomes more important as individuals specialize in the production of goods and services. Money considerably facilitates exchange because everyone accepts it in trade. In a money economy, individuals devoting all their energies and skills to the production of one commodity, such as cattle, can trade cows for money, and use money to buy groceries, televisions, automobiles, and so on. In an economic system based on barter, a cattle rancher must find someone who wants to trade cows for everything else he or she may want to acquire. To buy a television, the cattle rancher would have to find someone with more televisions than he or she needs for personal use, and who is in need of a cow. The cattle rancher, having more cows than needed for personal use, will trade a cow for a television. Economists call this conglomeration of circumstances a double coincidence of wants.

Barter exchange is necessarily time consuming and inefficient. It is hard to imagine someone working in a propeller shop, making propellers for airplanes, receiving pay in a bundle of propellers, and then trading propellers for everything they need. Money simplifies exchange and results in a constant ratio in the exchange rate between propellers, and say, televisions.