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Barter trade and the development of money


Barter trade is the act of exchanging one good or service for another good and service, for example a farmer might exchange a dozens of chicken eggs with the baker for bread.

Limitation of barter trade.

Double coincidence of wants-trade will not occur unless both parties want what the other trader needs.

Some goods may be invisible- some goods could not be divided into smaller bits for exchange hence this was inconveniencing.

There was lack of a standard measure of value-hence it was difficult for traders to agree on how much each item would be exchanged for.

Difficulty in transport-some commodities were difficult to carry around hence they could not be carried around as they were bulky.

There was a difficult in storing the goods- some goods were perishable and hence they could not be stored as they were losing their value.

Standard of differed payment – making future payments in by form of goods and services was difficult

Goods produced may have been of poor quality-this could have been probably being caused by lack of specialized hence poor quality goods or it could have been triggered by lack of competition

Development of money.

Due to the many problems that were experienced during barter trade this lead to several cultures developing money

Function of money.

Money is anything that acts as a medium of exchange, store of value or standard of value

  • Medium of exchange -when is been used for the purpose of buying and selling of goods and services
  • Store of value- when you get money today and still used it in the future to buy goods and services
  • Standard of value-when you are using it to measure the worth of a good or service
  • Unit of account-provides a common measure of the value of goods and services been exchanged
  • Basis of credit- many facilities loans as borrowers use money to obtain goods and services

Characteristics of money

Portability-money can be carried from one place to another

Durability-it is not subject to wear and tear

Divisibility-money can be broken down into smaller pieces

Stability-money’s value does not vary too much

Acceptability-people agree that money represents what is supposed to represent

Non portable money.

Some places like the pacific is

and of yap use large stones as their medium of exchange

evolution of money.

Across time many things have served as money

Commodity money.

This is whereby scarce minerals, metals or agricultural products are used as a means osf exchange

Representative money.

Developed as an alternative to commodity money


●Money is an item, or commodity, that is agreed to be accepted in trade.

●Barter is a type of trade that doesn’t use any medium of exchange, in which goods or services are exchanged for other goods and/or services.
●Barter is used in societies where no monetary system exists.
●A transaction is possible if there is a coincidence of wants, i.e. each party must be able to supply something another party desires.

3 Characteristics of Money
●Medium of Exchange
●Unit of Accounting
●Store of Value

Medium of Exchange
●People accept money in trade for goods and services.

Unit of Accounting
●A standard numerical unit of measurement of the market value of goods, services, and other transactions.

Store of Value
●Money can be saved and used in the future.

Types of Money
●Commodity Money
●Representative Money
●Fiat Money

Commodity Money
●Coins containing precious metals are an example of commodity money. The item was traded because it held value. For example, the value of the coin depended upon the amount of gold and silver it contained.

Representative Money
●Representative money is tokens or pieces of paper that are not intrinsically valuable themselves, but can be exchanged for a specific commodity, such as gold or silver.

Fiat Money
●Fiat money is similar to representative money except it can’t be redeemed for a commodity, such as gold or silver.
●People are willing to accept fiat money in exchange for the goods and services they sell only because they are confident it will be honored when they buy goods and services.

Money Supply M-1
●Demand Deposits
●N.O.W. Accounts
●Travelers Checks

●Currency consists of coins and paper money

Demand Deposits
●Checking accounts that are held in commercial banks

N.O.W. Accounts
●Negotiable Orders of Withdrawal – checking accounts held in savings banks (thrifts)

Travelers Checks
●Check issued by a financial institution which functions as cash but is protected against loss or theft.

M-1 Distributions (1996) in Billions
●Currency – 379.3
●Demand Deposits – 413.6
●NOW Accounts – 314.7
●Travelers Checks – 8.7
●Total – 1117.3
_ was not often used in the early Virginia colony.

A medium of exchange (currency, which includes coins and paper bills)

Trading/exchanging of goods and services without the use of money

Buying a good or service now and paying for it later

A good or service owed to another

Money put away to save or to spend at a later time

_ people had paper money and coins to use to buy goods and services.

Few people had _ and _ to use to buy goods and services.
paper money, coins

_ was commonly used instead of money.

_ was used as money (A farmer could use this to pay for goods and services).

Tobacco was used as _ (A farmer could use this to pay for goods and services).

Farmers and other consumers could also buy goods and services on _ and pay their _ when their crops were harvested and sold.
credit, debts

Colonial Virginia had no _.

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