What was the basis of early economies?

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Economy is a system of exchanging goods and services for an agreed upon value, often contributing to the growth of wealth in a society. When we talk about economy today, we often think of monetary values and their representation of wealth. It is easy to forget that an economy can...

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Economy is a system of exchanging goods and services for an agreed upon value, often contributing to the growth of wealth in a society. When we talk about economy today, we often think of monetary values and their representation of wealth. It is easy to forget that an economy can exist without money, which serves as a third-party or placeholder for value, but this has been the case in early stages of economic development. Though it is possible for a young economy to involve money, historically complex economies have emerged from a more simplified system of trade and barter.

Early on in the settled history of humans, people were more likely to engage in a system of direct trade for goods and services. For example, a person might help tend their neighbor's crops in exchange for hauling water. With goods, a person might exchange one of their chickens for a loaf of bread. What is important to mark about these kinds of exchanges is that the two parties involved agree upon the value of the goods and services being exchanged. Needs and wants play very heavily into this kind of system. Imagine one person has a great crop of lentils, more than they can eat- a surplus- but another person's crops have not done so well. This surplus of lentils offers the opportunity for profit, depending on what the individual without lentils is willing to give or do in exchange. 

At the risk of sounding teleological, the next step in the development of economy is the differentiation of labor. The idea behind differentiation of labor has to do with needs versus energy expenditure. Trying to be self sufficient (even in a large family or country) requires spending a lot of time and energy to ensure that all needs are met. Differentiating labor- assigning specific jobs to specific people- allows for more consistent and higher quality production. Have you ever heard someone say they would rather put all of their energy into doing one thing really well, rather than doing two things passably? The same philosophy applies here. Differentiation of labor allows the society to function as a collective production unit rather than lots of little production units coexisting. Here, too, surplus can arise and offer the potential for growth.

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