Double Coincidence of Wants

It sounds like a noir movie from the 1940s. Black and white. Evil, shadowy figures. Guys who talk with marbles in their mouths. Or maybe the manner in which an economist would describe flirting...right before she graphs a supply curve of swipe-right-worthy dates on Tinder.

But the term has a totally different, non-romance-related meaning for economists. It refers to the very limited conditions that have to exist in order for bartering to work.

In most basic terms, it describes the rare situation where two parties each have something the other wants and both are willing to make the exchange. The perfect barter situation.

Bartering is when you trade a good or service directly for another good or service. You agree to mow your neighbor’s lawn if he’ll bake you some of his special oatmeal chocolate chip cookies. That’s barter. It doesn’t happen very much in modern economies...mostly because we skip the bother and...just use money.

Nowadays, when you want to buy something, you typically use what’s called a medium of exchange. Specifically, you use money. A currency representing a value...the worth of which everyone agrees upon.

You go to the store, pick up a pint of Double Chunky Choco-Marshmallow Fudge ice cream. You hand over the cash, and the treat is yours. If you don't have cash on you, or if you're buying your Double Chunky Choco-Marshmallow Fudge online (delivered next day via drone in convenient dry-ice packaging), you can use some kind of cash equivalent: a credit card, Paypal, Venmo or Apple Pay...something like that.

Point is, you use some sort of currency. The currency represents a medium of exchange. It can be used in any commercial venture, because everyone will take it. Instead of directly trading goods and services, the goods and services can be traded for the medium of exchange, which can then be used to get other goods and services.

That’s how things work in the modern economy. You trade some medium of exchange, i.e. use money, to buy what you need.

Okay, so…a bunch of aliens appear out of nowhere. They blast the Earth with nuclear destructo rays just for target practice. Then they fly off to blow up some stuff near Alpha Centauri. Most of the world is destroyed. Civilization has fallen apart. People wander the destructo-scarred wasteland in small, warring bands. There are no more Treasury Departments. No more central banks. No more Paypals or credit cards or Apple Pays. No more money at all. No medium of exchange whatsoever. If the roving, post-apocalyptic tribes want to trade for something, they need to barter.

Here's where the double coincidence of wants comes into play. If you want a pint of Double Chunky Choco-Marshmallow Fudge, you can't just stroll down to the store and pick it up. Instead, you first have to find someone who, among the starving remnants of humankind, still makes premium specialty ice cream. That search represents the first "want" in the double coincidence of wants...you want the Double Chunky Choco-Marshmallow Fudge. You find someone who keeps alive the nearly forgotten art of Double Chunky production. But to get it from them, you have to have something they want. That’s the second “want” in the double coincidence of wants. You need to have something that they want...at the same time they have something that you want. All you have are a couple knives, some tattered rags, and a few pieces of dried rat meat. To get the ice cream, the other guy had better want a knife, some torn-up clothes, or nearly inedible chunks of salted vermin. Otherwise, no deal.

To barter, each party has to have something the other one wants. That's the double coincidence of wants. There has to be a coincidence of both people wanting something that the other person has. But it makes bartering...inefficient. Using a medium of exchange works much better, because you don’t need to actually find someone who wants what you have to offer. You just trade what you have for money and then use that money to get what you want.