The barter system
If you have an extra eraser and a friend an extra pencil, you swap; that is barter.
Barter is the exchange of goods and services for other goods and services without money. It was the earliest form of exchange, with evidence worldwide. Money is a common tool everybody accepts for payments in exchange for goods and services.
Key points
- Commodities such as cowrie shells, salt, tea, tobacco, cloth, cattle (cows, goats, horses, sheep) and seeds were used. Yap's giant Rai stones, the Aztec copper Tajadero and the Solomon Islands' feather coil Tevau were money-like too.
- Barter survives today: Assam's Junbeel Mela (since the 15th century, Morigaon; Tiwa, Karbi, Khasi, Jaintia communities; hill produce like roots, vegetables, fruit, herbs exchanged with plains people for rice cakes). Old clothes for new utensils; book swaps.
- Easy : Barter? → Exchanging goods/services without money.
- Medium : A modern barter example? → Junbeel Mela.
- Exam-type : Which commodities served like money in barter?
Barter = goods ↔ goods; money = money ↔ goods.
Do not think barter has ended; it continues at some fairs.
Goods-goods = barter. Memory clue : 'Va-Va': goods-for-goods exchange.
Spot the difference
| Point | Barter | Money |
|---|---|---|
| Exchange | Goods/services for goods/services | Money for goods/services |
| Example | Eraser for a pencil | Notes, coins, UPI |
| Time | Earliest system | Developed later |
Practice questions
- 1What is barter?
- 2What is money?
- 3Name four commodities used in barter.
- 4What are the Rai stones of Yap?
- 5Write features of the Junbeel Mela.
- 6What barter do you see in your area?
- 7Why is barter considered the earliest?
- 8Cause–result: who benefits from exchanging old clothes for utensils?
Show answers (try them yourself first)
- 1Exchanging goods/services without money
- 2A common tool of exchange everyone accepts
- 3Cowries, salt, tea, cattle
- 4Giant stone discs of Yap used as money
- 5Since the 15th century, Assam; hill goods for plains rice cakes
- 6Old clothes for utensils; book swaps
- 7It existed before money
- 8Households shed unwanted items; vendors gather resalable material
Problems of barter and the need for money
A farmer has an ox and needs shoes, a sweater and medicine; but how can he give half an ox?
Main problems of barter: 1) double coincidence of wants, 2) no common standard measure of value, 3) divisibility, 4) portability, 5) durability. As trade grew these made a common medium necessary and money came into existence.
Key points
- Double coincidence: each wants the other's goods. No common measure: how much wheat for one ox? If one feels cheated, no deal.
- Divisibility: part of an ox cannot be exchanged. Portability: taking an ox everywhere is hard. Durability: stored wheat rots or is eaten by rats.
- With money the farmer can sell the ox, keep the money and buy shoes, sweater and medicine as needed from different places.
- Easy : Double coincidence? → Each wants what the other has.
- Medium : Durability? → Ability to last long.
- Exam-type : Name any three of the five problems.
Five problems: Du-Mā-Vi-Vā-Ṭi.
Do not confuse portability and divisibility: one is carrying, the other splitting.
Du-Mā-Vi-Vā-Ṭi: double, measure, divisible, portable, durable. Memory clue : 'Du-Mā-Vi-Vā-Ṭi' = the five problems.
Spot the difference
| Problem | Meaning | Ox example |
|---|---|---|
| Double coincidence | Each wants what the other has | Finding one who wants an ox and has shoes |
| No common measure | Hard to compare values | Shoes for an ox is unfair |
| Divisibility / portability / durability | Split, carry, keep | Cannot trade half an ox; wheat rots |
Practice questions
- 1Write five problems of barter.
- 2Explain double coincidence with an example.
- 3Why is a common measure of value needed?
- 4What is divisibility?
- 5Explain durability with an example.
- 6How does money solve the farmer's problem?
- 7What would you use instead of an ox?
- 8Cause–result: why did growing trade increase the need for money?
Show answers (try them yourself first)
- 1Double coincidence, no common measure, divisibility, portability, durability
- 2Need someone who wants the ox and has shoes
- 3To compare values of goods
- 4Ability of a thing to be split into portions
- 5Wheat rots or is eaten by rats
- 6Money can be stored and spent anywhere
- 7Money
- 8Distances and variety grew, needing a medium
Basic functions of money
A shopkeeper quotes prices in rupees; we compare milk, books, rides with the same measure.
Four basic functions of money: 1) medium of exchange 2) store of value 3) common denomination (measure of value) 4) standard of deferred payment.
Basic functions of money
In the app you can move this figure with your finger.
Open in the appKey points
- Medium: the farmer takes money and buys from any shop. Store of value: wheat rots, money does not, so it can be used later.
- Measure: prices make comparison easy. Money is the common tool for pay and purchases for the tailor, farmer, teacher and all.
- Deferred payment: if short of money, pay part now and the rest later; money makes such instalments possible.
- Easy : Store of value? → Save money today for use later.
- Medium : State four functions of money.
- Exam-type : How does money ease comparison of goods?
Medium-store-measure-deferred.
Money is not just for spending; it stores and measures value.
Mā-Saṃ-Mā-U: four functions. Memory clue : 'Mā-Saṃ-Mā-U' = medium, store, measure, deferred.
Spot the difference
| Function | What it does | Example |
|---|---|---|
| Medium of exchange | Makes trade easy | Pay money to buy |
| Store of value | Can be used later | Keep money after selling the ox |
| Measure of value / standard of deferred payment | Compare prices / settle later | ₹50 in hand, book ₹100; pay rest later |
Practice questions
- 1State the four functions of money.
- 2Explain store of value with an example.
- 3What is a common denomination?
- 4What is a standard of deferred payment?
- 5You have ₹50 and a ₹100 book; what are the options?
- 6How does a shopkeeper use money?
- 7Why is saving hard without money?
- 8Cause–result: why is money a better store than goods?
Show answers (try them yourself first)
- 1Medium, store, denomination, deferred payment
- 2Wheat rots, money keeps
- 3Value of goods/services in one measure
- 4Accepting part now, rest later
- 5Ask for credit, instalments, buy later
- 6Pay wages and buy using sales money
- 7Goods rot, hard to carry
- 8Money lasts, is easy to carry and divisible
The journey of money: coins, notes, digital money
Vegetable sellers keep a QR code card; customers pay by phone.
Money changed form over time: cowries → metal coins → paper notes → digital money (debit/credit cards, net banking, UPI). Rulers issued coins; coins of powerful rulers came to be accepted in other kingdoms, boosting trade.
The journey of money: coins, notes, digital money
In the app you can move this figure with your finger.
Open in the appKey points
- Ancient coins were made of gold, silver, copper or their alloys, called kārṣhāpaṇas/paṇas, with punched symbols called rūpas. Variants of 'paṇa' are still used for money: paṇaṁ (Tamil, Telugu, Malayalam), haṇa (Kannada).
- Coins bore animals, trees, hills, kings, queens and deities on both sides. Chalukya coins show a Varāha and a three-tiered parasol; Chola coins a tiger (850–1279 CE). Roman gold coins found at Pudukkottai and in Kerala–Tamil Nadu show India's maritime trade; scholars conclude trade favoured India.
- Paper money: carrying many coins was hard; paper currency first appeared in China and in India in the late 18th century. Today the Reserve Bank of India (RBI) issues notes; no one else may. The ₹ sign was adopted in 2010, designed by Udaya Kumar (IIT Bombay). 1 anna = 1/16 of a rupee.
- Digital money: intangible; cards, net banking, UPI transfer directly between bank accounts. A QR code (quick-response) holds the receiver's account details; Krishnappa's customers scan it to pay.
- Easy : Who issues notes in India? → RBI.
- Medium : What were ancient coins called? → Kārṣhāpaṇa/paṇa.
- Exam-type : What do Roman coin finds show?
What happened before? About 2,500 to 2,700 years ago, in the kingdom of Lydia (today's Turkey), early coins were made of electrum, a natural mix of gold and silver. Because the mix varied, it was hard to know a coin's true worth. In the middle of the 6th century BCE King Croesus had gold and silver separated and struck coins of pure gold and pure silver, showing a lion facing a bull.
What happened next? In India the Paper Currency Act of 1861 gave the government the sole right to issue notes, ending that right for private banks. The Reserve Bank of India began work on 1 April 1935; its first note, a five-rupee note with King George VI's portrait, was issued in January 1938.
Cowrie → coin → note → digital.
Digital money is not fake; it is real money in bank accounts.
Ka-Nā-No-Di: cowrie, coin, note, digital. Memory clue : 'Ka-Nā-No-Di' = four stages.
Spot the difference
| Form | Period/example | Feature |
|---|---|---|
| Barter/cowrie | About 6000 BCE | Commodity as money |
| Metal coins | From about 600 BCE | Kārṣhāpaṇa/paṇa; rūpa symbols; ruler's control |
| Paper/digital | Paper notes; 1861 official; UPI 2016 | RBI control; direct from bank account |
Practice questions
- 1State the sequence of forms of money.
- 2Write features of ancient Indian coins.
- 3What is an alloy and why used for coins?
- 4What conclusions come from Roman coins?
- 5Why was paper money needed?
- 6What is the RBI's role?
- 7How is payment done by QR code?
- 8Cause–result: what happened when carrying coins became hard?
Show answers (try them yourself first)
- 1Cowries, metal coins, paper notes, digital money
- 2Gold/silver/copper, kārṣhāpaṇa/paṇa, rūpa symbols, animal-king-deity images
- 3Mix of two or more metals; makes the coin strong
- 4India's maritime trade with Rome, in India's favour
- 5Carrying many coins was hard
- 6Sole legal issuer of notes; security
- 7QR holds receiver's account; scanned by phone
- 8Paper money arose