How Money Solved The Problem Of Barter System?


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Iris Phillips answered
Bartering had a range of problems, but the main one that needed to be resolved was the need for the so-called coincidence of want. In other words, each party had to be in possession of a commodity the other party actually needed or wanted. At times this proved to be extremely difficult.

  • Commodities and the Coincidence of Want
One example of the difficulty bartering presented is the exchange between a wheat farmer and a farmer producing fruit. A direct swap of commodities was rarely possible, as most of the produced fruit would have spoiled by the time the wheat was ready for harvesting.

  • Intermediate Commodities
The solution for this difficulty was to trade the fruit as it ripened for an intermediate, non-perishable commodity in demand throughout the year, such as gold, copper or wine, for instance. It could then be exchanged for wheat when the time was right.

  • Commodity Money
The various intermediate commodities used were eventually standardized into commodity money. This overcame the problems of simple bartering and made trade of all other commodities easier. Cultures all over the world ultimately developed commodity money in some way. In ancient Africa, India and China, for instance, cowry shells were used. In Japan's feudal system, a unit of rice per year, the koku, was used for trade. The shekel, a term first used in Mesopotamia around 3000 BC, was a unit of weight and currency.

  • Use of Metal and Coins
Metal, or pieces of metal were used as commodity money for a long time, due to their durability, portability and ease of division. Over time, these pieces of metal developed into early coins. The first known stamped coin, bearing a turtle, dates back to 700 BC. Over the centuries, these coins developed into money as we know it today.

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