In the world I’m creating, there’s no specific form of currency. People trade for goods- you could buy clothes from a merchant and in return, they could get food, valuable items, things that could be sold, etc. The merchant could then trade these items for others. I’m wondering if this is at all realistic, or if I would need to have some form of currency.
It's called barter, and it is maybe the first step in the development of an economy. (not yet proven, as per Molot's comment:
Actually, it looks like barter was never really a step in economy evolution, not really. " nor have anthropologists found evidence that money emerged from barter, instead finding that gift-giving (credit extended on a personal basis with an inter-personal balance maintained over the long term) was the most usual means of exchange of goods and services"
It is viable as long as time is not a factor in the trade (a bear fur in winter is worth more than in summer).
So, it is realistic as long as the society is not too evolved.
Yes or no, depending on the sophistication of your civilization
As the other answers have mentioned, a barter economy is an economy without money.
If you focus less on the specific definition of the word "money" and more on the process involved, what you discover is that there is no such thing as an economy that does not use money.
I have extra pigs, you have extra wheat. I want wheat, you want pigs. We haggle and strike a deal. My money looks like, smells like, and oinks like a pig: but it's still money. Your money looks like, bakes like, and ferments like wheat: but it's till money.
"Money" is a concept involving the exchange of goods. Today, it means an inherently valueless method of exchange whereby the value of the intended exchange is normalized through the use of the valueless method. That was a short and poetic way of describing fiat money. Fiat money (vs. pig and wheat money) is a medium of exchange with no intrinsic value.
Simple societies (especially those where one's time is not a common issue, as in salaries and wages) survive just fine without some normalizing medium of exchange. But it doesn't take long before you want to hire some low-IQ-big-muscles type to protect your pigs. Now you have a problem, because his life (despite the low IQ die roll) is more complex than just pigs and wheat.
More complex societies need some way to pay people for their time. And however that happens, it must accomodate the need for pigs, wheat, shaving cream, gambling debts, and other issues.
Note that last issue: gambling debts. Some things need to be easily transported. Herds of pigs representing your gambling losses are a pain to transport. Gold (for example) isn't ... so long as gold is seen as more valuable than pigs (and, therefore, you need less of it to represent a herd of pigs).
But even gold has problems. Have you ever heard the phrase, "I've been clipped!" or "I just nicked it!" to refer to robbery? It comes from people who clipped, nicked, and shaved coins to save up the fragments and melt them into a new coin. voila! Inflation! But, more to the point, there comes a point where even gold is a holy terror to move around. It's heavy. It's hard to hide in large amounts.
But a piece of paper isn't. Just write down, "50 pieces of gold" on a piece of paper, and so long as the other guy doesn't think you're kidding — it's worth 50 gold pieces (or 10 herds of pigs, it depends on how you look at it).
At this point you start getting big banks, bearer bonds, and other nasty things like... ugh... bond markets. Promises, promises. But.. hey... it's all backed by gold, right? And gold will buy pigs... Bacon... good...
Except that eventually you get to the point where there isn't enough gold on the planet to represent the value of your economy. That's where fiat money comes into play. At this point, you're just trusting everybody.
Yes, but it is probably more trouble than it is worth unless you actually use it to tell some cool story you cannot with currency. It changes the society too much.
The basic function of currency is that it allows us to measure value of goods and services and answer questions such as : "Is this sustainable?" (not decrease available resources over time) and "Is this profitable?" (increases available resources over time).
There are two things to note here.
First, being profitable is not necessary but being sustainable is. If your economy is not sustainable it will collapse and take your society with it. It will do it relatively fast too as people will think ahead and lose faith with your society well before it would otherwise collapse.
Second, accuracy is not that important. Currency and free market based economies have all sorts of issues and it only really becomes a problem when somebody tries to be smart and optimize their profits or growth. Or if you use derivatives... For a functional economy you just need to be able to tell if something is not sustainable. If you also can tell if something would make profit, ie. increase your available resources over time, you are golden.
Two (semi-)historical solutions are:
Planned economy If you plan your resource use in advance, you only need to verify that actions and outcomes match the plan. This does not require use of currency and in fact probably works better without. The downside is that this is a LOT harder to do than a market based economy for reasons that cannot be circumvented. But it is probably viable for a society that is very stable (read stagnant) or has very good information processing capability.
Status based allocation Basically feudalism. People have economic rights and duties based on their social status as allocated by their superiors in the social hierarchy. Works the same as a planned economy but replaces planning and the information processing it requires by forcing the economy and society into a rigid hierarchy that prevents things going off the rails with (usually) threat of physical violence.
A future society could combine status based allocation with a computer system that keeps track of your status, rights and duties in real time. This kind of system might allow social mobility and adapt effectively to changing circumstances. Note that the computer would do those allocations based on its economic predictions of future needs and resources. Basically doing the same work as is needed for a planned economy.
In such society, gaining or losing status would replace gaining or losing money so you could gain similar system of incentives as with currency based economy. So it might work fairly well if somebody could build it. But making incentive systems is notoriously difficult so probably not something we will see. On the upside you cannot and need not necessarily invest status to gain more status so maintaining social stability might be easier.
The answer to your question: yes, a "barter economy" is historical. It's just terribly inconvenient and will put a very low ceiling on the power of the local economy.
We started using coins because they are a more convenient trade item. Now, a coin's value was based on the actual metal in the coin, so arguably, everything was actually still barter. (The stampings on the coin simply certified that the coin hadn't been debased. Often, coins would get weighed before they'd be accepted in trade.) Even so, a coin-based economy is a dimension more powerful than a pure-barter one.
A fur merchant doesn't especially want 1,200 chickens clucking in her shop in exchange for a fur coat! And try transporting 1,200 chickens to market some time.... 1,200 heavy, metal coins wouldn't be a picnic, either, but they're a lot cleaner than chickens. Plus, a farmer who does have a whopping 1,200 chickens to sell for coin can try to find 1,200 housewives each looking to fill a stewpot, so his chickens will be worth a lot more than they'd be worth in aggregate to that staggered fur merchant. Most importantly, it's easier for the chicken farmer to save up ten coins a month than to reserve ten chickens a month for ten years in order to buy that fur coat. (Do chickens even live for ten years?) In short, all sorts of trades become possible with coins that no one would dream of without them.
If you don't stray into the powerful economy you're used to, however, go for barter!
Most reasonably complex civilizations have had some form of currency. The Mayans used chocolate (cacao beans); Indians on the east coast used wampum (beads formed from shells); the Micronesian island of Yap used enormous stone discs which were almost impossible to move (and so when the money changed ownership, it was generally left in the same place).
The Incans seem to be an exception. They had a planned economy, where instead of taxes, common people supported the government by contributing labor. They don't seem to have traded among themselves, but only with other peoples.
So it seems that you can certainly have an advanced civilization that doesn't have either money or trade. But it's not clear whether you can have a civilization that has extensive trade without having some commodity spontaneously turning into a standardized unit of worth, and essentially becoming currency (like cacao beans did for the Mayans).
The problem with not having a standardized unit of worth is that good barterers (maybe you should call them con men) can take advantage of the system:
Suppose I trade chickens for wheat, then trade wheat for hats, then trade hats for chickens. If I'm really good at bartering, I might end up with twice as many chickens as I started with, and then everybody else loses stuff and I gain stuff.
If the wheat, chickens, and hats all started in different cities, I've contributed to the general welfare by transporting things from a place where there were presumably too many of them to a place where there were too few. But if they all started in the same city, I'm just using my bargaining skills to live off everybody else without doing any actual work.
If there's a standardized unit, and everybody knows that a hat is worth two chickens, and 20 bushels of wheat is worth one chicken, it's easy to figure out how many bushels of wheat a hat should be worth, and you won't get fast-talking barterers taking advantage of everybody else.
Yes, it's called a barter economy.
A cashless economy only works at extremely low-tech environments or high-tech ones.
In a subsistence level economy, there would be no need for currency because everything would be of similar value. Og is good at making spears, Gruud is good at making arrowheads. They trade.
This becomes more difficult when Simon builds houses and Peter makes shoes. You can't trade shoes for a house.
Then, in a post-scarcity, high tech environment, barter could come back into play, but also a sort of reputation based system could evolve as well, where a good reputation could earn you perks, privileges and even goods.
In the early days of the 'net, before even the WWW, hackers traded on their reputation. The better a reputation you had, the more help/aid/assistance/tools you could get from other hackers. A post-scarcity economy could have something like that, with the same admonishion: "Don't be a taker"
This wouldn't be a true barter situation because people would just make things available when they no longer wanted or needed them. Think of the "free" listings on craigslist. It would work by ratings and reputation, with someone's ability to obtain things being affected on whether or not they were a giver or a taker. Givers would have access to more, takers to less. Again, this would not even be based on the VALUE of what was given or taken, just that one is participating in it.