Here's something to think about: suppose you buy an assortment of candy from the grocery store and distribute a uniform collection of pieces to a room full of middle school students.
Some students will like the sour candy; others won't. Some will like coconut; others won't. Some will love nuts; others will hate them.
Now you let the students talk to each other and trade candy. The ones who like sour candy but hate coconut will trade with the students with the opposite preference, and so on.
At the end of the trades, everybody is happier with their new bundle - why would they have traded otherwise? So value has increased. But this is magic - no new candy was produced! Through trade we have increased overall value - the exercise was positive sum.
With some effort you can see that a middle man might add value by expediting trades - connecting people who like coconut with people who hate it (suppose there are thousands of students in the class who all speak different languages).
And you can see how fiat currency might make things easier. Rather than having to come up with the barter value of coconut candy and sour candy to nuts, you can convert both to a single unit and then trade units.
Some students will like the sour candy; others won't. Some will like coconut; others won't. Some will love nuts; others will hate them.
Now you let the students talk to each other and trade candy. The ones who like sour candy but hate coconut will trade with the students with the opposite preference, and so on.
At the end of the trades, everybody is happier with their new bundle - why would they have traded otherwise? So value has increased. But this is magic - no new candy was produced! Through trade we have increased overall value - the exercise was positive sum.
With some effort you can see that a middle man might add value by expediting trades - connecting people who like coconut with people who hate it (suppose there are thousands of students in the class who all speak different languages).
And you can see how fiat currency might make things easier. Rather than having to come up with the barter value of coconut candy and sour candy to nuts, you can convert both to a single unit and then trade units.