We will answer today;Why Did Money Replace The Barter System.On account of the difficulties, people began to think that barter system could not solve the problem of exchange, so they gave up this system. As the first step of improvement of this system people began to use common things as a medium of exchange.
Why Did Money Replace The Barter System;5 Reasons You Must Understand.
In the early age, the people used goats, wheat and rice etc. as the medium of exchange. But goat, wheat or rice failed to remove the exchange difficulties. People tried to lind out such a medium of exchange which would be accepted by all, uniform in quality and easily measured.Ultimately these qualities were found in the metals like gold, silver and copper etc.
The government of every country introduced coin-money as the medium of exchange for transacting business. In succeeding ages, money gradually changed into different shapes and forms like paper money, bank money etc. The system of exchange through money is known as monetary system.
The use of monetary system or money has Replaced the barter system.
1.Because of Double Coincidence of Wants:
Money has eliminated this inconvenience by serving as a medium ‘ of exchange. In a money using economy goods are sold for money and in turn this money is used to buy other goods.
- Because of Measuring Value:
Money has removed this difficulty by functioning as a common standard of value. Money established the price mechanism all over the world. Now, the value of goods can be easily measured in money prices.
- Because of Storing Wealth:
This inconvenience has been removed by money because wealth can be easily stored in the form of money like currency notes, bonds, shares and certificates etc.
- Because of Subdivision:
Money has solved this problem by functioning as a medium of exchange because money is capable of being divided and it does not lose value after its division.
- Because of Credit and Advance:
Money has removed this inconvenience because the loans taken and their repayments are stated in monetary units, which make every thing quite clear and agreeable.
6.Because of Transferring Wealth:
There is no such inconvenience when money is used for the settlement of transactions. Wealth can easily be transferred from one place to another through money.
- Because of Revenue Collection:
The use of money has facilitated the revenue collection process. There is no inconvenience of revenue collection by tax department or government when money is used because money can conveniently be stored.
- Possibility of Specialization:
The invention of money led to specialization. The use of money makes the people to do what they can do relatively well and effectively. Specialization not only helps in reducing cost of production but also results in higher and quality production.
