Q1.
Imagine that you are a farmer and that people use a barter system where you live. You need a whole variety of things — a pair of new shoes, a sweater, and medicines for your grandmother. But you only have an ox that you can spare. How would you be able to exchange the ox for all the different things you need from different people or places?
Answer
I would have to break the single big exchange into a chain of smaller exchanges, because no one person is likely to have shoes, a sweater and medicines all together and want an ox in return.
Step 1 — Find someone who actually needs an ox.
Step 2 — Since one pair of shoes is nowhere near the value of an ox, swap the ox for several bags of wheat instead.
Step 3 — Carry the wheat to the cobbler; bargain over how many bags equal one pair of shoes.
Step 4 — Carry the remaining wheat to a second person for the sweater.
Step 5 — Carry what is still left to a third person for the medicines.
Step 6 — Take the leftover bags home and store them safely for next time.
Step 2 — Since one pair of shoes is nowhere near the value of an ox, swap the ox for several bags of wheat instead.
Step 3 — Carry the wheat to the cobbler; bargain over how many bags equal one pair of shoes.
Step 4 — Carry the remaining wheat to a second person for the sweater.
Step 5 — Carry what is still left to a third person for the medicines.
Step 6 — Take the leftover bags home and store them safely for next time.
So the ox is first turned into a good that is divisible — wheat — and only then spent in parts.
Tip: notice that wheat is here doing the job of money. It is acting as a rough medium of exchange. That is precisely how real money began.