Question

How does money overcome the shortcomings of a barter system?

Answer 1

Money overcomes the shortcomings of the barter system in the following manner:

1. Money solves the problem of double coincidence of wants. For example, if a person needs wheat in exchange for tea, then he/she must search for a person who is ready to trade wheat for tea. Money made the need for such searches redundant.
2. In a barter system, it was very difficult to measure the value of one good in terms of another. For example, it is difficult to calculate the value of a cow in terms of wheat.
3. It was very difficult to store goods, especially perishable goods (fruits, meat, etc.) for the purpose of value storage. Money serves this purpose.
4. The contractual or future payments are much more difficult to be made in a barter system. For example, a worker working on a contract basis could not be paid in terms of rice or chairs.