Trade, barter and money

Trade is the voluntary exchange of goods and services. Two parties are needed: one sells, the other buys, and both benefit. Trade within a country is national trade; international trade crosses national boundaries. Countries trade to get goods they cannot produce themselves, or can buy more cheaply from others.

The first form of trade was barter: goods were exchanged directly for other goods, without money. Suppose a potter needs a plumber's services: he can get them only if the plumber happens to want pots. Finding such a match is hard, and that is barter's great problem. Barter still survives in places: at the Jon Beel Mela, held every January in Assam, people still exchange goods without money.

Money solved the problem by being something everyone accepts in exchange. Before coins and notes, many things served as money: cowrie shells, salt, cattle, precious metals, even rare objects. The word 'salary' comes from the Latin salarium, payment made in salt, since Roman soldiers were partly paid in salt.