*BARTER SYSTEM.
There was a time when money did not exist. People used to exchange goods for goods. Such a system for the exchange of goods without the use of money is called a barter system.
*DIFFICULTIES IN BARTER SYSTEM.
1. Lack of Double Coincidence of Wants:
Trade under barter requires a double coincidence of wants. The lack of this double coincidence is the biggest inconvenience of the barter system, so trade under barter remains limited,
2. Lack of Common Measure of Value:
In the barter system, there is no common measure of valuation. Suppose two persons are ready to exchange goods. But how to determine the relative prices of their goods. What quantity of one good be given in exchange
3. Indivisibility of Goods:
Many goods are not divisible. Sometimes this fact also becomes an obstacle in exchange. For example, a person possesses a chair and wants to get a pen. The value of a chair is much more than one pen. Thus the problem is how to divide the chair into small pieces.
4. Difficulty in Storing of Value:
Many a time people need to store value (eg. wheat). However, in the absence of money, it will be difficult. Suppose a farmer produces surplus wheat. His income comes from selling wheat. He desires to store a part of his current income for his old age. But in the absence of money, it is impossible since he cannot store wheat for many years. Similar is the case with many other commodities.
5. Difficulty in Borrowing and Lending:
In a barter economy, borrowing and lending goods are very difficult.
for example, a person lends some quantity of wheat during a period of famine. Now if the same quantity of wheat is returned during this time when wheat is absent, naturally he will be a loser.
6. Difficulties in Government Taxes:
If there is no money, the government will have to collect taxes in kind and pay its employees in the same form. But how absurd it would state is receiving its share and paying salaries in the form of wheat, cloth shoe fruit, eggs etc.
7. Difficulty in Transfer of Wealth:
This difficulty arises when someone intends to shift his wealth free place to another. It is almost impossible to find a person in another city wh can exchange his property for yours in one city.
MONEY.
KINDS OF MONEY.
FUNCTIONS OF MONEY.
*CHARACTERISTICS OF GOOD MONEY.
*The quantity theory of money.
*MONEY.
WHAT IS MONEY?
Money is one of the most important elements of economic science. It is truly a great invention of man. Everybody is familiar with it and uses it in one form or the other. Money is running through the economic system as blood is running in our bodies.
"Money is anything that is widely used in payments of debts."
(Morgan)
"Anything which is widely accepted in payment for goods or in the discharge of other kinds of obligation."
(Robertson)
"Money is the modern medium of exchange and the standard unit in which prices and debts are expressed."
(Samuelson).
*KINDS OF MONEY.
There are many kinds of money. The following is the main classification.
1. Currency:
The money issued by the government as the official medium of exchange is called currency. It is of two types.
-Nane Metallic Money:
Metallic money consists of coins such as the ten-rupee coins in Pakistan: The importance of metallic money has decreased because of paper money.
-Paper Money:
Paper money means the currency notes issued by the Central Bank Paper money came into use about two hundred years ago.
2. Deposit Money:
This is the most modern form of money. Demand deposits (current accounts) in the banks are called deposit money. This money is used through cheques and drafts. However, a cheque in itself is not money. It is the deposit used through cheques which is money.
3. Near Money:
Deposits of banks which are not operated through cheques e.g. IX deposit, the government securities, bonds, Prize bonds and documents like Defence Saving Certificates are called near money. These can be convenient for money very easily.
4. Electronic money:
The use of the internet and online transaction for buying and selling f goods, transfer of money, and transactions through debit and credit and credit cards is called electronic money.
*FUNCTIONS OF MONEY.
1. Medium of Exchange:
This is the first and the primary function of money. Originally money was invented to act as a medium of exchange. In the barter economy, people have to face many difficulties. With the use of money, these difficulties and inconveniences are removed. Now there is no need for double coincidence of wants required in the barter economy.
2. Measure of Value and Unit of Account:
Money serves as a standard measure of value. A monetary unit (e.g. rupee in Pakistan) is used as a yardstick for measuring the relative values of different goods.
3. Store of Value:
In the barter economy, a very important problem was: in what form one should store wealth. Most people want to put away part of their current income for use in future. But in the absence of money how they can do so.
4. Standard of Deferred Payments:
Money is also used to make payments at some future time. Borrowing and lending take place in terms of money, which makes it possible to compare the values of commodities at different times.
5. Means of Transferring Value:
The transfer of value from one place to another is quite convenient with the help of money. A person may sell his movable or immovable property someplace for money and use the same to buy property at some other place. This money increases the geographical mobility of people.
6. Medium of Government Payments:
The government receives payments or dues such as taxes and fees in money form and pays salaries, and pensions in terms of money.
*CHARACTERISTICS OF GOOD MONEY.
a. General acceptability:
General acceptability is the main attribute of good money. Money should be generally
acceptable for the exchange of goods and services.
b. Stability:
Since money is measuring yard to measure the value of goods and services, its own
the value should remain stable.
c. Storability:y
Good money should possess the quality of storability. It should be printed or minted on
a material which can be stored.
d. Recognisability:
Money should be moulded or printed in such a way that it is easily recognizable.
e. Economical:
Good money should have a quality for the economy. The cost of printing or moulding money should be less than its face value.
