The coincidence of wants (often known as double coincidence of wants) is an economic phenomenon where two parties each hold an item the other wants, so they exchange these items directly without any monetary medium. This type of exchange is the foundation of a bartering economy. Double coincidence of wants means that both of the parties have to agree to sell and buy each commodity.
Understand this system, problems arise through the improbability of the wants, needs, or events that cause or motivate a transaction occurring at the same time and the same place. One example is the bar musician who is “paid” with liquor or food, items which his landlord will not accept as rent payment, when the musician would rather have a month’s shelter. If, instead, the musician’s landlord were to throw a party and desire music for it, hiring the musician to play it by offering the month’s rent in exchange, a coincidence of wants would exist.
In-kind transactions have several limitations, most notably timing constraints. If you wish to trade fruit for wheat, you can only do this when the fruit and wheat are both available at the same time and place (and, additionally, only if someone wishes to trade wheat for fruit). That may be a very brief time, or it may be never. With a medium of exchange you can sell your fruit when it is ripe and take the medium of exchange; then use that to buy wheat when it is harvested, without the need for a coincidence of wants.
Besides barter, other kinds of in-kind transactions also suffer from the coincidence of wants problem in the absence of a medium of exchange. Romance, for example often relies on a double coincidence of wants. If Max likes Mallory but Mallory does not like Max, then the two cannot meaningfully exchange the benefits of romance. If this coincidence of wants occurs, though, a mutually beneficial relationship is established.
As another example, when wealth is transferred during marriage, divorce, inheritance, and other crucial life events, or during the collection of taxes or tribute, it is improbable that this event will coincide with the recipient’s desire for the commodities the payer can readily obtain. All of these transactions require an improbable coincidence of wants and events.
William Stanley Jevons and Ross M. Starr use the term ‘double coincidence of wants’ for the same concept.[verification needed]
- ^Nick Szabo (2002),Shelling Out: The Origins of Money, Chapter 4
- ^Black, John (2009). A Dictionary of Economics (3 ed.). Oxford University Press. ISBN 9780191726637. Retrieved 7/10/2019. Check date values in: |accessdate= (help)
- ^Ostroy, Joseph; Starr, Ross M. (1990). The Transactions Role of Money. Handbook of Monetary Economics.
- S. Jevons (1875), Money and the Mechanism of Exchange, Chapter 1, paragraphs 5-6. London: Macmillan.
- Carl Menger, “On the Origin of Money”
- Nobuhiro Kiyotaki and Randall Wright (1989), ‘On money as a medium of exchange’, “Journal of Political Economy” 97, pp. 927–54.
Ofer Abarbanel is a 25 year securities lending broker and expert who has advised many Israeli regulators, among them the Israel Tax Authority, with respect to stock loans, repurchase agreements and credit derivatives. Founder of TBIL.co STATX Fund.