The Double Coincidence of Wants

Thailand, payment on the water
Erich Hafele/age fotostock/Getty Images

Barter economies rely on trading partners with mutually beneficial needs to agree to deals. For example, Farmer A might have a productive henhouse but no dairy cow while Farmer B has several dairy cows but no henhouse. The two farmers might agree to a regular swap of so many eggs for so much milk.

Economists refer to this as a double coincidence of wants—"double" because there are two parties and a "coincidence of wants" because the two parties have mutually beneficial wants that match up perfectly. W.S. Jevons, a 19th-century English economist, coined the term and explained that it is an inherent flaw in bartering: "The first difficulty in barter is to find two persons whose disposable possessions mutually suit each other's wants. There may be many people wanting, and many possessing those things wanted; but to allow of an act of barter there must be a double coincidence, which will rarely happen."

The double coincidence of wants is also sometimes referred to as the dual coincidence of wants.

Niche Markets Complicate Trades

While it might be relatively easy to find trade partners for staples like milk and eggs, large and complex economies are full of niche products. AmosWEB offers the example of someone who produces artistically designed umbrella stands. The market for such umbrella stands likely is limited, and in order to barter with one of those stands, the artist first needs to find someone who wants one and then hope that the person has something of equal value the artist would be willing to accept in return.

Money As a Solution

Jevons' point is relevant in economics because the institution of fiat money provides a more flexible approach to trade than barter. Fiat money is paper currency assigned value by a government. The United States, for example, recognizes the U.S. dollar as its form of currency, and it is accepted as legal tender throughout the country and even throughout the world.

By using money, the need for a double coincidence is eliminated. Sellers need only find someone willing to buy their product, and there no longer is a need for the buyer to be selling precisely what the original seller wants. For example, the artist selling umbrella stands in AmosWEB's example might really need a new set of paintbrushes. By accepting money she no longer is limited to trading her umbrella stands only to those offering paintbrushes in return. She can use the money she receives from selling an umbrella stand to buy the paintbrushes she needs.

Saving Time

One of the most significant benefits to using money is that it saves time. Again using the umbrella stand artist as an example, she no longer needs to use her time to find such precisely matched trading partners. She instead can use that time to produce more umbrella stands or other products featuring her designs, thus making her more productive.

Time also plays an important role in the value of money, according to economist Arnold Kling. Part of what gives money its value is that its value holds up over time. The umbrella artist, for example, does not immediately need to use the money she earns in order to buy paintbrushes or whatever else it is she may need or want. She can hold onto that money until she needs or wants to spend it, and its value should be substantially the same.

Bibliography

Jevons, W.S. "Money and the Mechanism of Exchange." London: Macmillan, 1875.