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People have been doing business for centuries, starting with the trading of goods. Why...

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lilylee | Student, College Freshman | Salutatorian

Posted September 17, 2013 at 10:18 PM via web

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People have been doing business for centuries, starting with the trading of goods. Why would it be good or bad to go back to trading, thus eliminating the exchange of money. Remember that each person has an estimate of what is valuable to him or her and can make decisions based on what he or she wants to trade.

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted September 17, 2013 at 10:47 PM (Answer #1)

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In essence, what you are talking about here is a return to bartering.  Instead of paying money for things, we would barter one thing for another.  Returning to bartering would be very inconvenient and would reduce the amount of economic activity that could occur.

The major problem with bartering is the need for a coincidence of wants.  What this means is that two people must each have what the other wants in order for a trade to occur.  Let us say that I have chickens and I want some rice.  What happens if the person who has rice does not want chickens in return?  I can no longer get any rice.  At the very least, I must spend time finding out what the person wants and then going and finding someone who will give that to me in exchange for my chickens.  This would be time consuming and inconvenient.

Because of this problem, the invention of money is seen as a major step forward for economies.  Money allows any two people to make an exchange.  It does not involve any problems with mismatched wants such as described in the previous paragraph.  We would not want to return to a system of bartering.

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