From Barter to Money

Class 07 Social Science

People exchanged goods or services for other goods and services. This system is called the barter system. Today, we use coins and notes to buy and sell things. People also use their mobile phones and computers for such transactions.

The barter system was the earliest form of exchange. People used commodities such as cowrie shells, salt, tea, tobacco, cloth, cattle (cows, goats, horses, sheep), seeds, etc.

Why Do we Need Money?

People who depended on the barter system would face many problems in making an exchange in their everyday lives. They would have to find someone who wants the exact item that they want to give, and in return are also able to offer exactly what the other party wants. This scenario is called double coincidence of wants.

Even if there are two people who want each other’s goods and are also willing to make an exchange, other issues could arise - in what proportion should the two goods be exchanged? In such cases, it becomes difficult to compare the value of one good against another. If one of the people feels that the exchange is disadvantageous, they would not be interested in the exchange. This is because there is no common standard measure of value.

Basic Functions of Money

As the types and numbers of things that were being exchanged grew, and the distances across which barter was beginning to take place became longer, it became clear that there was a need for a different system. A common medium of exchange would make trade easier and so, money came into existence. As more and more people began to use it for transactions - buying and selling goods and services - it became the accepted method of payment.

Money acts as a store of value that can be used later. For example, if the farmer uses money instead of wheat as a medium of exchange, he can keep the money for a longer time and use it for making purchases later.

Money also serves as a common denomination that measures the value of goods and services, and enables the comparison of goods and services in terms of their prices.

The fact that money is accepted as a way of making deferred payments makes money a standard of deferred payment.

The Journey of Money

Coinage

Coins were among the earliest forms of money. During those times, rulers would issue coins that were used by the citizens of their respective kingdoms for transactions. So different kingdoms would have their own coinage. The minting and issue of coins was controlled entirely by the rulers. Over time, the coins of powerful rulers were accepted across various kingdoms and not just their own. This facilitated trade across geographies.

The coins were made from precious metals like gold, silver, and copper or their alloys. In ancient times, the two sides of the coins - the head (obverse) and the tail (reverse) - had different kinds of symbols and motifs engraved on them. These included nature motifs like animals, trees and hills, and those of kings or queens, and deities. For example, the coins of the Chalukyas had a Varaha image (avatar of Viṣhṇu) on one side and decorated three-tiered parasol on the other.

Paper Money

It became difficult to carry a large number of coins. Storing the coins also became a problem. The search for a more suitable alternative ended with the use of paper money. Paper money or currency was first used in China and was introduced in India in the late 18th century.

While coins are used for smaller denominations, paper currency is used for higher denominations.

New Forms of Money

As time has progressed and technology has advanced, other forms of money have come to be used today.

Apart from tangible forms of money such as coins and paper notes, money has taken intangible forms that we cannot touch and feel. This is called digital money which is in electronic form.

Different payment methods like debit cards, credit cards, net banking, UPI (Unified Payments Interface), etc., are also used for transactions. These mediums directly transfer money from one person’s bank account into another.