Monday, December 6, 2010

How the concept of money came into being



The concept of money is an important one in this world that we live in. Money is what drives everything that we see. The buildings, roads, electric power stations, plants, railways, military, goverment et cetera and the list is endless. Anything and everything that we see on a daily basis has a value attached to it, the value of money. It is a huge paradox to me that things that we are able to purchase in reality are enabled by a concept which is so virtual, money. Exchanging something like a mansion, a car, or a computer for a pack of green notes? Well, the barter system looked more logical, or does it?
So how has man evolved to think and use money, a stock of notes, to buy everything that he needs....well almost!! Barter system was an exchange of goods of similar value or based on the current demands of the exchanging parties, the state of urgency to procure goods that determined the success of the exchange. However, as seemingly evident, since the exchange was based on goods, one of the parties would gain more worth of that exchange while the other would lose some. Morever the barter exchange had it's own pitfalls. Imagine going to the market to buy a bag of rice for which u take a bag of wheat. You've got loaded both ends, is'nt it. There needed to be a standard way of evaluating the cost of items.
One of the most important reasons was the "coincidence of needs" if we can term it that way. The exchange of items was a complicated one. Say two farmers need to exchange their commodities, their goods would have to be perishable around the time of exchange. If their commodities were seasonal fruits, then a third commodity was need to trigger the exchange.Thus came in the concept of money that served as a standard measure.
Coins were potable, durable and more importantly easily divisible for different needs of purchase. This concept could have actually opened the doors of flexibilty in trade. It removed all the problems in the conventional barter/non-monetary exchanges.

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