BARTER SYSTEM AND MONEY

Barter system

Meaning:-

Barter system refers to a system where people do Direct exchange of goods against goods without use of money.…

Economic Exchange without the money is referred to as barter exchanges. An economy based on barter exchange is called C.C Economy(Commodity for Commodity Exchange Economy).

Problems of Barter system

1-Lack of double coincidence of wants:-

Double coincidence of wants means the situation, what a person wants to sell and buy must coincident with what some other person wants to buy and sell.

2- Lack of common measure of value:-

Even if buyer and seller of each others commodity happen to meet, the problem arises 

in what proportion the two goods should be exchanged.

3- Lack of standard of deferred payment:-

There is problem of future payment or contractual payment in barter system. exp:- if you hire some to repaire any commodity, it was difficult in barter system to ascertain, at what term we should pay him.

4- Difficulty in strong wealth:-

In barter system, it was difficult to store because it involves storage cost and the fear of capital.

5- Lack of divisibility:-

lack of divisibility of goods makes barter exchange difficult. Exp:- If an individual wants to sell his horse and get in exchange rice equal to the value of half of his horse, he cannot do so without killing his horse.

Money-Meaning And Its Functions

Meaning of money:-

Money is anything that is commonly accepted as a medium of exchange.

Money may defined as ‘ anything which can be acceptable by the people in exchange of goods and services or in repayment of debts’.

Functions of money:-

The main function of Money is to ‘provide the facility of exchange of goods and services and help in carrying out trade smoothly’.

(A)- Money as The Medium of Exchange:-

Medium of Exchange is the basic or primary function of money. People exchange goods and services through the medium of money.

(B)- Money as a Unit of Account or Measure of Value:-

The unit of account function means that money unit is treated as the standard unit for quoting prices and for borrowing and lending activities.

(C)- Money as the Standard of Deferred Payments:-

Deferred payments are payments which are contracted to made some time in the future.

The use of money as the standard of deferred or delayed payments immensely simplifies borrowing and lending operations because money generally maintain a constant value through time.

(D)- Money as a Store of Value:-

It means money can be stored for use in future. It serves as a store value of goods in liquid form. By spending it, we can get commodity in future.