Evolution of Money: From Barter to Electronic Banking
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BARTER SYSTEM AND
EVOLUTION OF MONEY
Introduction
-
Money is something which is generally accepted
as a medium of exchange. It is one of the most
basic and significant inventions of mankind.
Before money came into use, exchange took
place through barter system, i.e. , goods were
exchanged for goods.
Definition
-
Barter means direct exchange of goods or barter
refers to exchanging of goods without the use of
money. For example, corn may be exchanged for
cloth, house for horses, fruits for utensils and so
on.
Simple system
No Question of Under- Production, or of
Un-Employment or of Over- Full
Employment
No Problems of International Trade
Ideal Utilisation of Natural Resources
No Problem of Concentration of
Economic Power in one hand.
Barter system involves various difficulties
and inconveniencies which are discussed
below:
Double Coincidence of Wants
Absence of Common Measure of value
Lack of Divisibility
The Problem of Storing wealth
Difficulty of Deferred Payments
Problem Of Transportation
INVENTION Of MONEY
:
In order to overcome the difficulties of barter
system money was invented.
According to Crowther-
“Money is one of the most fundamental of all
man’s inventions. Every branch of knowledge has
its fundamental discovery. In mechanics its
wheel, in science fire, in politics vote. Similarly, in
economics, in the whole commercial side of
man’s social existence, money is the essential
invention of which all the rest is based.”
DEVELOPMENT OF MONEY:
The origin of money is not known because
of non-availability of recorded information;
its deep rooted in antiquity. The evolution of
money has been a secular process and shall
continue to remain so, but the development
of money in the present form can be
historically traced as it has passed through
different stages in accordance with the
growth human civilisation.
These stages are discussed below:
Animal Money
Commodity Money
Metallic Money
Paper Money
Credit Money
Electronic banking Stage
Main types of money exist in a modern economy
:
1.Metallic money:
Standard Money
Token Money
2.Paper Money:
Representative Paper money
Convertible Paper Money
Inconvertible Paper Money
Fiat Money
3. Credit Money
4. Near money
According to Walker,
“Money is what money does.”
Crowther defines it, “anything that is
generally acceptable as a means of
exchange and at the same time act as a
measure and store of value.”
On the basis of the constituents of money, the
following four approaches to the money are
generally followed:
Traditional Approach:
M= C+DD
(where C= currency, DD= demand deposits)
Monetarist Approach:
M= C+DD+TD
(where C= currency, DD= demand deposits, TD= time
deposit)
Liquidity Approach:
M=C+DD+TD+SB+S etc
(where C= currency, DD= demand
deposits, TD= time deposit, SB= saving
bank deposits, S= shares)
The Central Bank Approach:
M= C+DD+TD+NBFI+CUA
Various functions of money can be classified
into three broad groups:
1.Primary Functions:
Medium of Exchange
Measure of Value
2
.
Secondary Functions:
Standard of Deferred Payments
Store of Value
Transfer of Value
3. Contingent Functions:
Distribution of National Income
Maximisation of Satisfaction
Basis of Credit System
Liquidity To Wealth
THE END
Money has evolved from the barter system to electronic banking through various stages like animal money, metallic money, paper money, and credit money. The invention of money was crucial to overcome the limitations of barter, leading to the ideal utilization of resources and solving issues like the double coincidence of wants. The development of money has been ongoing throughout human civilization, shaping the way we exchange goods and services.
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Presentation Transcript
BARTER SYSTEM AND EVOLUTION OF MONEY
Introduction- Money is something which is generally accepted as a medium of exchange. It is one of the most basic and significant inventions of mankind. Before money came into use, exchange took place through barter system, i.e. , goods were exchanged for goods. Definition- Barter means direct exchange of goods or barter refers to exchanging of goods without the use of money. For example, corn may be exchanged for cloth, house for horses, fruits for utensils and so on.
Simple system No Question of Under- Production, or of Un-Employment or of Over- Full Employment No Problems of International Trade Ideal Utilisation of Natural Resources No Problem of Concentration of Economic Power in one hand.
Barter system involves various difficulties and inconveniencies which are discussed below: Double Coincidence of Wants Absence of Common Measure of value Lack of Divisibility The Problem of Storing wealth Difficulty of Deferred Payments Problem Of Transportation
INVENTION Of MONEY: In order to overcome the difficulties of barter system money was invented. According to Crowther- Money is one of the most fundamental of all man s inventions. Every branch of knowledge has its fundamental discovery. In mechanics its wheel, in science fire, in politics vote. Similarly, in economics, in the whole commercial side of man s social existence, money is the essential invention of which all the rest is based.
DEVELOPMENT OF MONEY: The origin of money is not known because of non-availability of recorded information; its deep rooted in antiquity. The evolution of money has been a secular process and shall continue to remain so, but the development of money in the present form can be historically traced as it has passed through different stages in accordance with the growth human civilisation.
These stages are discussed below: Animal Money Commodity Money Metallic Money Paper Money Credit Money Electronic banking Stage
Main types of money exist in a modern economy: 1.Metallic money: Standard Money Token Money 2.Paper Money: Representative Paper money Convertible Paper Money Inconvertible Paper Money Fiat Money 3. Credit Money 4. Near money
According to Walker, Money is what money does. Crowther defines it, anything that is generally acceptable as a means of exchange and at the same time act as a measure and store of value.
On the basis of the constituents of money, the following four approaches to the money are generally followed: Traditional Approach: M= C+DD (where C= currency, DD= demand deposits) Monetarist Approach: M= C+DD+TD (where C= currency, DD= demand deposits, TD= time deposit)
Liquidity Approach: M=C+DD+TD+SB+S etc (where C= currency, DD= demand deposits, TD= time deposit, SB= saving bank deposits, S= shares) The Central Bank Approach: M= C+DD+TD+NBFI+CUA
Various functions of money can be classified into three broad groups: 1.Primary Functions: Medium of Exchange Measure of Value 2. Secondary Functions: Standard of Deferred Payments Store of Value Transfer of Value
3. Contingent Functions: Distribution of National Income Maximisation of Satisfaction Basis of Credit System Liquidity To Wealth
