World Population by Income

"Subsistence economy" is a synonym for extreme poverty. It means you are very near the threshold of survival. There is no surplus---so if you miss your target of hunting and gathering, and have a crop for a few bad days it starts to get painful, possibly deadly (most people who really live in subsistence economies suffer through a few famines---the reality is that is really rare today for people to live at subsitence levels---and usually it's because of war or extremely bad government policies). The poor in the US are far above subsistence. (I've been about as poor as you can be in the U.S.---that is to say I've been homeless---believe me, it was never a life or death struggle to eat. Always there was someone giving food away [usually churches], and if not people would give you money if you asked for it enough. There was even always shelter available so long as you were willing to follow the rules of the people giving the shelter.).

A barter economy would never be anything other than a subsitence economy. Barter economies suffer from a really big problem. You are a baker with bread and want some milk. You come across a rancher that needs shoes and has some milk. The shoemaker has some shoes and needs bread. If they could all three get together they could all be made better off by trading. Even if they all know each other, unless they are all nearby each other quite a lot of effort needs to be expended in order to make the trade happen. Usually they all go without unless there is a coincidence of wants.

Now say they do all know each other. They can overcome this problem by devise a system of tradeable IOUs that they can trade for items. The baker can give the rancher an agreed upon number of IOUs for milk (which generally won't be more than he thinks the milk is worth), the rancher can in turn give the shoemaker some of those IOUs for shoes, and the shoemaker can give the baker some IOUs for bread. It doesn't even matter how many IOUs you start with. So long as everyone agrees to participate this trade that wouldn't have happened in a barter system except coincidentally---and many others beside---happen. People are better of. What I described of course was a well-functioning monetary system . It is so much better than bartering it doesn't even need to be all that well-functioning to be better than bartering. You can have a shitty monetary system with crazy inflation and people will still be better off than with bartering---the costs of overcoming the problems with bartering like this "coincidence of wants" are quite large. Barter economies end up being subsistence economies. That is there is little to no economic surplus. What you have to eat this week is not going to be there next week. And since we are talking about the whole economy, there isn't going to be any charities handing out free food---charity requires surplus if it isn't to be self-sacrifice.

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