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Thursday, 4 February 2016

Why did the need of Money arise over Barter system?

In ancient times, people led a simple life without much needs and demands. In those days, the concept of barter system was prevalent in which people exchanged goods with each other as and when their need would arise. But in the present era, man’s needs and demands have gradually increased and money has taken an important place in our lives. Life without money is unimaginable. We cannot even think about how to lead our lives without money. Our needs have increased so much and demands have become so complex that they cannot be satisfied through the direct exchange of goods. Hence, the need of money arises here.

Image credit: livemint.com
An economist Robertson has defined money as “Anything which is widely accepted in payments for goods or in the discharge of other kinds of business obligations”. Money performs various important functions which are stated below:
  • It acts as a medium of exchange. This is the most important function of money. All sales and purchases take place through the use of money. It has eliminated the problem of double coincidence of wants involved in the barter system.
  • Money is accepted as a common measure of value. Money helps in expressing the price of any commodity which was not possible in the barter system where people used to exchange goods with one another without the involvement of money. Now the value of any commodity can be expressed in terms of money. Money assigns a value to any good or commodity.
  • Money also acts as a means to transfer of value. Value can be transferred from one person to another with the help of money. Money has high efficiency in transferring the values from one place to another or even from one country to another.
  • Money has made the distribution of national income easier. The liquidity of capital can be maintained with the use of money which has a general acceptability. It also facilitates the credit system in an economy.
Money plays an important role in the proper functioning and development of an economy. It helps in production, consumption, distribution, trade operations, capital formation, economic development, dealing with public finance etc. Hence, it is very clear that without money life seems to be disastrous and the daily dealings in sales and purchases would not have been possible without the involvement of money.


Article by Anisha Dutta
She is a content evangelist who believes that the Science of today is the Technology of tomorrow. 
She can be reached at https://twitter.com/Anisha_Dutta29

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