1. Module: Money and Banking
Topic: Barter System, its Inconveniences and
Solution
Week 1
Mr. Aamir Waheed
Department of Commerace
2. Lecturer Objectives
This lecturer aims:
To Understand the Definition of Money in
Different Perspectives?
To Understand the Barter System
To Understand the Inconveniences of Barter
System
Ch 1 -2
3. Lecturer Objectives (Cont’d)
To Understand the Mechanism Through
Which Money has Removed Inconveniences
of Barter System
Ch 1 -3
4. What is Money ?
“Money is any item that is generally
acceptable in exchange for goods and
services.”
Economists define it as something that
serves as a medium of exchange, a unit of
accounting, and a store of value.
Ch 1 -4
5. Barter System
The economic system which functions
without the use of money is given the
name of barter system. In other words
the economy which lacks any monetary
media and the goods are exchanged with
goods directly is a representative of barter
system. Accordingly, we find that barter
system is furnished with the followings:
Ch 1 -5
6. There is a direct exchange of goods and
money is not employed for transaction of
goods and services.
All the activities pertaining to consumption,
distribution and allocation are performed
on the basis of values of goods, not on the
basis of money.
Ch 1 -6
7. Inconveniences of Barter System
Lack of Double Coincidence of Wants:
Under barter system, the goods were
exchanged directly with the goods. But such
situation may be attached with the lack of
double coincidence of wants in between
buyers and sellers.
Ch 1 -7
8. Inconveniences of Barter System
Difficult to Store the Goods:
In barter system the goods served as money
or the goods possessed the quality of
"reserve purchasing power". Accordingly,
people had to store them for future
transactions.
But so many goods, particularly which were
perishable like milk, eggs, and vegetables
could not be stored for a long time.
Ch 1 -8
9. Inconveniences of Barter System
Lack of Common Measure of Values:
Under barter system the values of
commodities were expressed in terms of
some other commodities. For example if in
an economic system 1000 goods are
produced and this system operates without
the use of money, then the value of each
one good will have to be represented in the
remaining 999 goods.
Ch 1 -9
10. Inconveniences of Barter System
Payments in The Future:
It was not possible to transact the goods on credit,
i.e. the goods in exchange will be provided after
some time period - a situation contradicting the
philosophy of barter system. Moreover in barter
system one could hardly represent the future
activities and future transactions in some
"Measure". Again if the trading parties are agreed
upon some common measure then there may rise
the issue of their value at the time of payment.
Ch 1 -10
11. Inconveniences of Barter System
There are some other inconveniences which
are associated with Barter System.
Such As:
Difficulties of Transfer of Wealth
Specialization not Possible
Lack of Subdivision
Ch 1 -11
12. How Money Has Removed
Inconveniences of Barter System
The use of money converted the barter
system into monetary system, which
makes helps to cope up on the
deficiencies of barter system.
Ch 1 -12
13. How Money Has Removed
Inconveniences of Barter System
Money removed the difficulties of barter
system in following ways:
Removed the difficulty of double
coincidence of wants
Serves as unit of Account
Ch 1 -13
14. Removed the difficulty of store
Reducing the transaction costs
Ch 1 -14
15. Assignment # 1
Lecture: 2 Marks: 5
Broadly Discuss the Monetary Policy and
Fiscal Policy of Pakistan.
Ch 1 -15
