The Advantages of a Monetary System Over a Barter System
Barter – goods and services were traded without the exchange of money. However, before trade could occur, there had to be a “double coincidence of wants” . E ach trader had to have something the other wanted. I’ll trade you a chicken for a pair of shoes. I would love to sell you these shoes but I can’t eat chicken, due to my bad teeth, caused by smoking. In a barter economy a chicken farmer who wants to buy shoes may have to first trade chickens for apples and then apples for shoes because the guy selling shoes wants only apples . Money eliminates this problem.
Or, a heart surgeon might accept only certain goods ( like pineapples ) but not others ( like broccoli ) b ecause he doesn’t like broccoli. You are lucky you are a pineapple farmer and not a broccoli farmer. I hate broccoli.
. <ul><li>It is less expensive to use money. </li></ul><ul><li>Using money saves time and time is money . </li></ul>The “calculation of exchange” by bartering is much slower than the “calculation of exchange” in a monetary system . It is less expensive to use money. The “calculation of exchange” is fast and easy because whatever the price is, you pay that amount. $2.00 Here’s $2.00 for one gallon.
. <ul><li>Let’s say that I own a pig . If I want to buy a “jukebox” , I don’t want to trade the whole pig. </li></ul>
<ul><li>So – I have to negotiate how much of the </li></ul><ul><li>pig I want to give up for the jukebox . </li></ul>
<ul><li>This negotiation will not be fast and easy . </li></ul><ul><li>I decide on the rear part of the pig [ plus the curly tail ]. </li></ul>I had to do some calculations on how much of the pig I wanted to give up.
“ Perhaps I Will Not Miss This.” However I’m not ready to become a pig angel just yet….. Because I would miss my girlfriend too much.
I get my chainsaw and do a little cutting . “ Take that.” This is not “fast and easy” . It took time to start the chain saw. There is also a clean up cost . In fact, this is “slow and hard” on both the pig – and me. OUCH …. You now know why some become vegetarians.
<ul><li>Money is also easier to tax . </li></ul><ul><li>So a monetary system is better than a barter system . </li></ul>T he m onetary system enables the “calculation of exchange” to go much faster.