1 BY: VIKRAM.G.B Lecturer, P.G Dept of Commerce Vivekananda Degree College, Bangalore-55 Module– 1:- MONEY Evolution of Money Barter System:- Before the evolution of money, exchange was done on the basis of direct exchange of goods and services. This is known as barter. Barter involves the direct exchange of one good for some quantity of another good. For example, a cow may be exchanged for 3 sheep or 4 goats. For a transaction to take place there must be a double coincidence ofwants. For instance if the cow-owner wants a sheep or goat, he has to find out a person who not only possesses the sheep or goat but wants to exchange it with the horse. In other cases, goods are exchanged for services. A doctor may be paid in kind as payment for his/her services. The economies of the world long back shifted to the money system. Prior to that there used to be a barter system. The barter system was one of the earliest forms of trading. It facilitated exchange of goods and services, as money was not invented in those times. The history of bartering can be traced back to 6000 BC. It is believed that barter system was introduced by the tribes of Mesopotamia. This system was then adopted by the Phoenicians, who bartered their goods to people in other cities located across the oceans. An improved system of bartering was developed in Babylonia too. People used to exchange their goods for weapons, tea, spices, and food items. The popular item used for exchange was salt. Salt was so valuable at that time, that the salary of Roman soldiers was paid in salt.The main drawback of this system was that there were no standard criteria to determine the value of goods and services, and this resulted in disputes and clashes. These problems were sorted out with the invention of money, but the barter system continued to exist in some form or another. Difficulties of Barter System:- A few major difficulties of the barter system as follows:- 1. Want of Coincidence:- The first difficulty in the barter system of exchange is that there has to be a double coincidence of wants. Two persons can have barter exchange only if their disposable possessions mutua lly suit each other's needs. In barter trading, thus, two parties must agree on their mutual exchange, which is possible only if there exists a double coincidence of wants. That is, one party must want a commodity which the other party wants to dispose of and the former must have disposable possession of the commodity that is desired in exchange by the latter. In a barter, therefore, a person who wants to exchange his goods for some other goods has not only to find another person who possesses what he needs but who, at the same time, has a desire for what he has to offer. In practice, it is difficult always to have such double coincidence of wants and, therefore, there are delays in transactions, and a considerable amount of time and effort is wasted in effectuating the exchanges.
