Everything in this world is a commodity. Food, land, shelter, clothes, electricity, water, mode of transport and man himself. The thesaurus defines commodity as a product, service, goods or article of trade. Commoditization led to the birth of economy; and all this started thousands of years ago with the birth of civilization. The most important factor in an economy is money. So does that mean when there was no concept of money there was no economy? The answer is always hidden in the question itself.  That is the beauty of economics. If we can ask the right questions to ourselves, we will definitely get the right answers.

So, I ask myself how did the concept of money originate?

To arrive at the answer we have to travel back to the beginning of civilization. There was no money at that time. All we had was land, water, trees- pure natural resources. Then man invented the science of agriculture. He learnt how to tame animals and domesticated them. But not everybody raised all the crops or farmed all the animals. I couldn’t cultivate rice, wheat, pulses, vegetables, fruits and everything. But I needed to have all. If I cultivated only rice, I needed pulses, oil etc to prepare my meal. How would I get them? This is when the world was commoditized.

I have ample amount of rice and you have enough of pulses. But I need pulses and you need rice to prepare your lunch. What do we do? We trade. I will give you a part of my rice and in exchange I will take a part of your pulses. I am happy. You are happy. Deal done. (In short this is what barter is)

But what if he doesn’t need my rice anymore? What if he chooses to exchange his extra pulses with someone’s extra wheat? What do I do? Where do I get my pulses from? Now I need to find someone who needs my extra rice. But, what if I do not find someone to exchange my rice with? Soon all this rice will be a waste. It will be of no value. This problem is known as the Double Coincidence of wants.

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Double Coincidence of wants:

The coincidence of wants problem (often “double coincidence of wants”) is an important category of transaction costs that impose severe limitations on economies lacking money and thus dominated by barter or other in-kind transactions. The problem is caused by the improbability of the wants, needs or events that cause or motivate a transaction occurring at the same time and the same place.

In-kind transactions have several problems, 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 money, (broadly speaking, any commodity used as a medium of exchange) you can sell your fruit when it is ripe and take the money. You can then use the money to buy wheat when the wheat harvest comes in. Thus the use of money makes all commodities more liquid.

</Wiki> Source: wikipedia.org/

So, the value of a commodity depends on time and the demand for it. If I don’t  exchange the rice soon, after a few months it will be damaged. There will be no value for it. This is when money came to the poor man’s rescue. Now he could sell all his rice to a middleman(dealer) in return for money and with that money he could buy pulses, vegetables, oil, fruits and what not. His sumptuous lunch was finally prepared. Thanks to the concept of money.

All great civilizations realised the importance of money thousands of years back and if we recall our history lessons in schools we can find references to the use of coins at that time for trade. Money gave us the flexibility to buy and sell commodities.