Meaning and Functions of Money

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Barter system is a system in which goods and services are exchanged directly for other goods and services without using money. It is also called C-C economy, where C stands for commodity. Example: clo…

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Barter became difficult because people had to find someone who wanted their goods and also had the goods they needed. This made trade slow and uncertain. Money was needed to make exchange easier and f…

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Double coincidence of wants means two people must want each other's goods or services at the same time for barter to work. It is rare in real life, which is why barter is difficult.

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The five difficulties are: lack of double coincidence of wants, lack of common measure of value, lack of divisibility, problem of storing wealth, and lack of standard of deferred payments.

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In barter, there is no common unit to compare the value of different goods. So the exchange ratio has to be fixed in an uncertain way. This can make one party suffer in trade.

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Some goods cannot be divided into parts without losing value. For example, a horse cannot be divided to exchange it for smaller goods. Money solves this problem because it is divisible.

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Standard of deferred payments means a system in which future payments can be made easily and fairly. Money serves this function because loans and instalments can be fixed in money terms.

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In barter, future repayment is difficult because the same goods may not be available or may change in quality. Money avoids this problem because repayment can be made in a fixed money amount.