In a world where money and currency were never invented, and never will, how is international trade different from our world?

Question

This is something that I've been thinking a lot about. Before there was currency the way that people traded goods was through bartering their goods and services in exchange for other goods and services.

If money and currency had never been invented (developed?), would international trade at the scale that we have today be possible?

Trading had a very significant effect on old-world establishments, and greatly helped them grow. The environment directly around the colony could only sustain a certain amount of people, and soon enough it became neccesary to the survival of said colony to start importing goods from other places in order to be able to keep growing. Without a standarized currency, such as gold, would this have been possible?

Answer 1

People traded internationally before the invention of currency

The pop idea of barter prior to the introduction of currency is an invention, and it has little to do with how people actually traded. The idea that people were limited to on-the-spot exchanges of say two chickens for a sword and a cabbage is completely ahistorical. In fact, people were making complex, and temporarily disjoint trades long before this idea was formalised into currency. Debts were simply recorded and settled in terms of goods rather than abstracted into currency. This trading was smaller scale than it could be with currency but not directly different in kind.

Currency was a formalisation of existing practice

Currency didn't spring into being out of nothing, it came into being because it formalised trades that were already being made. The first currency was precious metal, traded by weight, which was later stamped into coins of known weight. Ancient Japan used rice as an accounting unit since it was the staple on which other things depended. Conceptually, goods can be thought of as a form of currency with a complex exchange rate between them, and so the conceptual step from trading in goods to trading in currency is not a big one.

So, what does this mean for a world without currency?

How could we scale up these pre-Currency practices to a global economy on the modern scale? The answer lies in the concept of debt. A debt is nothing but a promise to deliver, and there's no reason that these can't be traded. Thus, I, a chair-maker take to you, a grocer, a promise to make a chair, I trade this promise for my weekly shop. But the promise is worth more than the weekly shop so you also give me a promise for 8 gallons of beer that the local brewery paid with. I can then "spend" that promise elsewhere.

At first, this is just barter, but we can scale it up to a global level through the introduction of markets and clearing houses. Just as today stocks are traded on stock markets, I can take the beer promise to the clearing house, and find it's value in anything else by finding what the market will offer and trade it to a promise for whatever thing I want that I can then take to a local provider to get that thing. This requires that providers permit interchange, which will require legal controls, guilds, or other co-operation, but - remember - this is exactly what we're doing right now except that we abstract it into currency so it's operation is not implausible.

Overheads will be higher, there are more middlemen, and it introduces new complexities but the system should be capable of scaling up to modern industrial scale. The introduction of computing power and mass communication actually makes it much more practical.

The difficult question remaining is why on Earth your civilisation didn't make the small leap from here to currency.

Answer 2

An alternate system of currency would probably evolve.

There are several examples of alternate currencies in the past where either currency didn't exist or lost all its value.

• During the time of the Silk Road, kernels of pepper were valued as the same mass of gold, so you could pay with pepper instead of money.
• Luxury goods like pelts, porcelain and silk were often used as currency and only "consumed" by the noble and wealthy
• Right after the end of WWII the German currency lost all its value and people in Germany traded in cigarettes instead

So would global trade be possible without standarized currency, such as gold?

Yes, but it would be more complicated. There would probably be specialized traders who complete a circle of trades to increase their belongings. The caravans of the Silk Road did exactly that: they started with silk, porcelain and spices in the east, traded these goods for gold, gems and glass in the west, returned east and traded these for more silk, porcelain and spices...

There would be no stock market, or at least not the speculative kind of today. The great differences in living standards would be spread differently over the world. Countries with natural resources would be rich, even those of the third world. Countries that neither have natural resources nor produce any goods of value would be poor, even those in the first world.

There would also be less international travel and tourism. You would have to travel with a trailer of trade goods in order to pay your visit in a foreign country.

The world would probably be less intellectually developed. How would you trade goods for scientific research, after all?

Answer 3

International trade at the scale of our present world would be impossible, I fear.

Barter is effective at meeting the exchangers' needs at the moment it happens: if I want a bottle of wine, I can exchange my extra leather sandals for it. And that's more or less how some sort of international trade developed in the past. We have examples of trade goods moving along Europe way before moneys where invented.

Being bound to the moment and to the needs, it's hard to scale it up: who would ever want 10k pairs of leather sandals for 10k bottles of wine? But before that, who would take a trade journey loading themselves with 10k pairs of leather sandals which take the place of something else, not knowing if anybody will ever want them? And also don't forget that coins do not rot along the travel.

The obvious solution is to use one pair at a time in exchange for something else (food, shelter, water, you name them), but that goes back to small scale trade.

Answer 4

A different perspective from the other answers.

Currency, as it has been pointed out, needs to retain value, be desirable enough to exchange readily for goods and services, and have a high enough value to weight ratio to make it preferable for trade. Currency also needs to be divisible into small enough denominations to make small transactions feasible.

In a world without fiat currency, there are few things that hold these 3 traits, with bullion (precious metals) being the most obvious one.

The one valuable thing that most people overlook is land. Land holds value, is desirable by everyone, and is divisible into small enough denominations due to something known as shareholding (not commonly used to refer to a portion of a parcel of land, but could be used as such in a different world), and is easily transportable if a record of deeds is maintained, which also reduces its weight to value ratio to that of the deed that represents the parcel.

While this gets close to currency, there are a few key differences between land and bullion. Land is prohibitively expensive to manufacture, where mining can produce bullion at relatively cheap rates. By the same note, its much harder to destroy or irretrievably lose land (though still not impossible). Land is definitively backed, with a somewhat easier way to verify its existence, which makes it harder to scam someone with falsified notes, and easier to trace when they do. Land is also more difficult to hold illegally (unless the government in the area is doing the illegal seizure) which ties the security of trading in land to the confidence in the government that presides over that land (similar to how fiat currency works in todays market).

This would likely alter how nations are perceived (as trade of land between sovereign nations would be much more common), but it would facilitate global trade and value exchange, which would allow the explosive economic growth we see today with fiat currency (albeit, more restricted as we cannot grow the money supply.).

Answer 5

The short answer: precious metals.

Why? Money really solves a few problems:

1. Value-to-weight ratio: Money is worth much more per kg than, say, potatoes. This is helpful if you want to buy something expensive, or (because we're trading internationally), a hold full of things.
2. Exchange. This is the big one - everyone wants money, so it's much easier to trade goods & services for money than it is for other goods and services directly.
3. Relatively constant value: Inflation and counterfeit currency aside, you can be reasonably sure that the pound someone gives you today will buy you a pound's worth of something tomorrow, or next week.

If you don't have currency, then your people will need to solve these problems some other way. There are a bunch of different things that could be used (other answers have suggested several), but historically the most common solution to this problem has been precious metals, particularly gold or silver.

They're pricey (so solve the first problem), widely desired (the second), and because they tend to be relatively pure and stable, their value can be easily calculated from weight, and they won't go off (the third).

Answer 6

The invention of currency is a pretty obvious solution to problems that are immediately apparent to anyone trying to do large scale trades. Even the simple IOU* script quickly becomes a tradable thing, which is why in history we had “letters of mark” and similar devices long before modern accounting.

The implication that currency would never be invented in a trading society implies some interesting cultural values. Interstellar trading without FTL engines, for example, likely will never have currency — the traders come to a given world only once every few hundred years. They can’t ever establish a currency that has value among the connected planets.

If you ask me to devise a planet like this, I might suggest an ocean world of tiny, floating islands. A single island is big enough for a family. The islands drift together, trade happens, then they drift apart again, not to be encountered again in any person’s lifetime. Establishing a common language will be hard enough, much less a currency... how do you convince Island A that if they give you their manufactured cloth from the cotton on their island, and you give them some chips of pretty metals, that those metals will have definite value when A trades with Island B tomorrow? Can’t be done.

That’s my solution to this question’s challenge. The key takeaway is this: To undermine currency development, you have to undermine cultural development. How you do that is open to your imagination. ———

• IOU = “I owe you” pronounced letter by letter in English was one of the earliest ways of recording a debt for later repayment.

Answer 7

Without a standarized currency, such as gold, would this have been possible?

Quick clarification, gold is not a currency: gold coins are currency.

And for what it's worth, there's nothing magical about primitive gold/silver/bronze currency. It's just a valuable metal being traded around in standardized weights with a stamp that helps show that it really is the standard weight. Fiat currency is a little magical, but don't ask too many questions or the magic goes away.

Talking about how to trade without currency

Several answers have suggested precious metals, durable luxury goods, and other things as potential ways of facilitating trade, but I think that the generalization from these is what's important. Anything valuable and relatively easy to transport can fulfil the role of currency Star Trek uses gold-pressed latinum, Dune has currency but uses spice frequently, Total War Shogun II uses rice (sortof,) prisons used cigarettes, children used to use marbles (stretching the point, I know.) Point is that humans are more than willing to barter for something kind of like currency.

Also, old-school international commerge would sometimes have avoided the use of currency, since goods are easier to use in countries which don't officially support your currency. The infamous triangular trade pattern for Britain, Africa, and the Americas involved a great deal of barter, even though British traders had access to currency.

Therefore, the only real difference in trade is that your traders will have to use valuable goods always instead of sometimes when they make purchases or sales, since they don't have standardized forms of payment. I don't see this making much of a difference to international trade.

Answer 8

There is also the possibility that trade, meaning 'transfer of ownership', does not exist. If the concept of property does not exist, or is different.

Perhaps there is world-scale cooperativism, or perfect communism, or property belongs to some all-powerful individual entity. Or property is meaningless because all needs and wants can be freely fulfilled.

Answer 9

Money is such an obvious and natural concept, that it effectively can't not be invented.

There are roughly three kinds of money:

1. Commodity money is just any suitably rare commodity. It must be sufficiently hard to get that it maintains value, but still common enough that everybody may possess some for the purpose of exchange.

   Precious metals or gem stones are most suitable, but (as mentioned by the other answers) pepper seeds, pelts, bird feathers, sea shells, carved stones and, in absence of anything better, even cigarettes were used as money. And there is really no distinction that would make gold more of a money than cigarettes!

   It is unimaginable that a global society would not get at least to this stage. Basically every human society with non-trivial organisation in history invented commodity money, often independently.

2. Representative (commodity-backed) money bring the idea a step further. Instead of carrying the (potentially heavy), there is a storage that gives out notes that certain amount of the commodity stored there belongs to the holder—a bank.

   It is a slightly less obvious idea, but still easy to establish, because the first bank can be easily established by anybody with the right idea. As long as the bank notes can be exchanged for the real commodity, it does not require any other backing, agreement or government enforcement.

3. Fiat money does require general agreement or government provision. However, once most trade switches to representative currency and nobody exchanges it for the commodity it represented any more, dissociating it from the commodity becomes the obvious step.

   First the banks—and more importantly the governments—will get a growing itch to give out more money than they have of the backing commodity, relying on the fact that almost nobody converts it any more. And when the disproportion grows too big, they'll cancel that promise—and everybody gets stuck with the now completely free floating fiat currency.

   This is relatively recent evolution. US Dollar was commodity-backed until 1971.

Now free floating fiat currencies have their advantages. Their amount adjusts to the economic performance, which smooths out price fluctuations and somewhat compensates for regional differences. The main disadvantage is that they permit hyperinflation.

Economy that didn't evolve fiat money will be somewhat less efficient. The amount of commodity(-backed) currency is governed by production of that commodity and not needs of the economy, which leads to situations where there is too much or too little money in some region and that in turn leads to large fluctuations in prices. That makes planning harder and forces long-distance traders to work at higher margins, which is what reduces the efficiency.

So without modern fiat currency, international trade would exist, and would quickly settle on one or a few commodities that would become currencies. Expect it to be somewhat less efficient, and expect it to make the good trading companies and centres disproportionately richer (similar to how it was in middle ages) as they would be bearing the rate risks and would get paid for it.

Answer 10

No

You cannot have international trade as we do today without "money."

Money is a financial instrument representing value. Barter requires that all the goods be present at the time of negotiation. That doesn't and cannot happen in our modern world. If only the futures market is considered, there isn't a real good being bartered, but the promise of a real good. That promise, represented on paper or electronically, is a financial instrument representing value. AKA, money.

It's impossible to negotiate futures, stocks, bonds, contracts, or anything else without "money." Remember, money is a financial instrument representing value. The moment such an instrument appears (basically, the first time a contract to buy anything appears, a contract that could subsequently be sold without the bartered materials being present), you've created money.

Getting from those financial instruments to the paper currency and coinage we have today is simply a process of standardization.

In other words, it's unavoidable unless you delete the entire structure of financing from your world. That's improbable if not unbelievable.