How Salt Overcame the 'Double Coincidence of Wants' to Become Early Money
The word ‘Salary’ stems from the Latin word ‘Salarium’, which means ‘Salt money’
Hi Plebs,
In the era before modern money, economies relied on barter - directly trading goods and services between people. However, barter systems faced a major constraint called the "double coincidence of wants." For any trade to occur, it required that both parties happened to have the exact item the other wanted at that specific time.
For example, a shoemaker hoping to trade a pair of shoes for a loaf of bread from the baker could only make that deal if the baker simultaneously needed new shoes. The odds of such a happy coincidence are low for many goods and services. Skilled craftsmen like watchmakers face an even greater hurdle getting their specialised products matched up with what others wanted to trade.
Some commodities, however, have traits that make them more widely "marketable" and able to circumvent the double coincidence of wants constraint. One such good that organically emerged as an early form of money was salt. In the words of economist Carl Menger and the Austrian school of economic thought, salt was more "saleable" than most goods.
Salt possessed several valuable attributes that allowed it to become a broadly accepted medium of exchange. It had inherent demand for uses like flavouring food and preserving meat and produce. Yet salt was also durable enough to last without spoiling, portable enough to carry, divisible into smaller amounts, and reasonably fungible with one unit being substitutable for another.
Importantly, in some regions and eras salt was also scarce enough that acquiring more of it was desirable yet not so scarce as to be unavailable for use as a medium of exchange. Menger theorised that in a barter system, craftsmen like watchmakers would be wise to accept payments in salt, even if they didn't need it themselves at that moment. They could then turn around and trade that salt to merchants like bakers who did have demand for it, finally obtaining desired goods like bread.
As more people in a barter economy began accepting salt as a medium of exchange, it set off a reinforcing cycle. Each new person accepting salt made it even more useful as a trading instrument for everyone else, since it exponentially increased the number of counterparties to exchange with. People began stockpiling salt as a store of value, knowing they could rely on its ability to re-trade later on.
Eventually, the values of all goods and services became denominated in units of salt, cementing its role as a unit of account. With its three key functions of medium of exchange, store of value, and unit of account, salt fully transitioned into being used as money in various societies across the ancient world.
The monetary role added a new "premium" to the value of salt, beyond just its utility for food preservation and seasoning. This liquidity premium is what incentivised people to accept monetary good like salt in exchange for more directly consumable items like bread and shoes that met more immediate personal needs. It overcame the subjective theory of value by making salt universally desirable.
Salt's unique properties solved the double coincidence of wants problem that prevented many direct barter transactions from occurring. Its history as an early money demonstrates the powerful market forces that inevitably gave rise to a widely accepted lubricant for facilitating trade in the absence of modern currency. While salt may seem an unassuming monetary instrument today, it played a crucial role in the origins of money and market exchange.
Cheers, and onwards with Bitcoin
