Before money, people used a system known as bartering to trade. Bartering is the direct exchange of goods or services. You have probably bartered many times in your life without realising it. If a parent has ever said they will do something for you only if you tidy your room first, this is a form of bartering. You agree to do something in direct exchange for another thing. Systems like this may seem normal within a family unit but quickly become too complicated for a whole society.

The earliest human societies were groups of farmers. It is possible to imagine these farmers bartering. For example, if one grew wheat and another grew vegetables. They could directly exchange some of their crops quickly, and both benefit. This system had advantages. Each farmer could concentrate only on growing one crop and would be able to do this far more efficiently. However, humans quickly moved from only farming to living in larger groups that needed a far more comprehensive range of goods and services.

Imagine a tailor with a broken shop door. Without money, he has to find a carpenter willing to repair the door in exchange for some clothes. He also has to barter with the farmers to get wheat and vegetables to eat while he makes the clothes for the carpenter. But what if the carpenter or the farmers do not need any new clothes at that time? And how does he pay for the cotton he uses to make the clothes? And what if he needs a haircut? The direct exchange of goods or services quickly becomes too complicated.

Humans learned this very quickly. Almost as soon as they started living in towns, they developed a form of currency, an indirect way of exchanging goods, to allow people to trade.