Barter works better than money.

While surfing the wibbly web, I came across this guy called Kyle. Kyle has done an interesting experiment. He has proven, in no uncertain terms what early man knew all along.

Barter works better than money.

His experiment of starting with a red paper clip and trading it to ultimately get a house in one year's time is something that flies in the face of common wisdom of "money" or "finance" if you will and as these things do, it got me thinking.

BTW, you can see what he did and how here: One Red Paper Clip

If you really think about it, paying money for objects is infact a kind of barter. Goods, in exchange of "money"

In the early days, people exchanged what they had plentiful for what they lacked or had less of. Now, we all barter with a common commodity (if I may call it that) and that is "money" so in a way, the barter system never stopped, it just evolved with us.

But since everyone now has some money (and some have loads) the barter system got a little skewed. As more and more people started getting more and more money, its value started going down and people had to pay up more money to get what they wanted.

Come to think about it, this is possibly one of the simplest explanations for how we get inflation. Granted that it isnt perfect but it does get the point across.

In theory (this is entirely my opinion) if we start bartering again, we might might end up paying a lot less for a lot more. To take an extreme example, if some one is stuck in a dessert and is thirsty, would he rather have water or a bagful of diamonds?

In barter, the value of goods traded may not be the same in monetary terms. But, in their perceived values to the parties trading, they might be equal.

Consider another example of stamps. Sweden 1855 Three Skilling Yellow is perhaps the most expensive stamp in the world, fetching over 2 million dollars (US) at an auction. The only reason the stamp is worth this much "money" is because that is the perceived value of the stamp by the collector.

Now consider a situation where there is no money and the owner of the stamp is not a collector but an auto enthusiast, while the collector is the owner of a vintage car he doesnt much care for. They will both trade and feel that they got a steal because for each, the perceived value of what they received is far far more than what they gave away.

It's amazing to speculate how we would've gone about life had money not been invented.

If you have something you want to trade for a paper clip, let me know. It should preferably be a house because I don't have the patience shown by Kyle to go around trading for a whole year!

In return, I will make my offer better than his. You are no longer limited to a red paper clip. I will get you one in any color you like!