1 Analysis‎ > ‎Economics‎ > ‎01 Value and Price‎ > ‎

04 The Market

The problems of;
  • coincidence of wants - the chance of finding another body with the complimentary bid offer pair, and
  • divisibility - that you cannot sell parts of a live cow
do not cause problems in the real world because it is rare that some body will offer one thing and only accept one other thing in exchange. This isn't the real market.

Most bodies going to the market are usually not biding for one specific thing in exchange for another specific thing;
  • Some offer a variety of things, but are bidding for a few specific types of thing, they are often called sellers. 
  • Some offer a few specific types of thing, but are bidding for a variety of things, they are often called buyers.
What might these specific types of thing be? It depends on the market but in an ancient Egyptian street market the "specific things"  might well have been grain or lamp oil, both being of general value and therefore usable as a medium of exchange i.e. form of money.

Having something that can be exchanged for a wide variety of classes of thing, can be an advantage. If you are unsure what you want at the moment you can save it and exchange it later for something you are sure you can use. Thus exchange value is not only determined by what something may be exchanged for, but it is increased if the thing can be exchanged for a wider variety of things.

A class of thing that can be exchanged for a wide variety of things is said to be convertible and is often described as a liquid asset. Such classes of things can be acquired purely for their exchange value, thus they become not only a medium of exchange but also a store of value.

If such a class of thing is also something that is uniform, in that its value is proportional to the amount of it, and it can be easily exchanged in any amount, then it can be used as a unit of value. Grain can be used in this way.

You can exchange a chicken for some measure of grain, which you accumulate with grain from other exchanges and then exchange for maybe a cow.
You can keep account of your assets and liabilities by expressing them in terms of amounts of grain. Thus grain becomes a unit of account.

Within a society bodies will tend towards using the most convertible things as mediums of exchange, and as more bodies use a given thing that thing then becomes more convertible as it is accepted by more bodies in exchange for other things. Because something used as a mediums of exchange is also used as a store of value it means those storing value will also be storing a quantity of that thing and so large quantities of convertible things end up being stored away.

Early societies used grain in this way and also other commodities such as wheat, barley, cooking oil or lamp oil, copper, silver and gold. All are easily convertible in the market place.

Egyptians calculated the value of goods and services in units that were directly related to the necessities of life. Payments were made in the form of standard loafs of bread, beer, grain, meat and cloth rations. Later, the calculation was made in terms of the weights of metals, such as copper or silver, though rarely did these metals ever change hands. Rather, their weight was used as a reference for value. From article about ancient Egyptian trade

Interestingly barter is still used. See the International Reciprocal Trade Association

(C)2010 Tom de Havas. The information under this section is my own work it may be reproduced without modification but must include this notice.