Why is money better than the barter system?

Expert Answers
pohnpei397 eNotes educator| Certified Educator

The main advantage of money over barter is that money is always going to be usable.  Barter is very often not possible.  This is because of the need for what is called a “coincidence of wants” (sometimes called a “double coincidence of wants”).

Think about how barter works.  You have to trade something you have for something you want.  The problem with that is that the other person also has to want the thing that you have.  This is the coincidence of wants.  Let’s say that I am a teacher.  If we have a barter system, I am going to have to find someone, for example, who wants to be taught and who has some chickens and rice for me to eat.  I will have to find someone who wants to be taught and who can make me clothes to wear.  In other words, I have to find people who have the things I want and who want the things I have to trade.  There are going to be many cases where this will not be possible.

Thus, the main advantage of money is that it can be exchanged for anything.  Anyone will take money because it is always valuable to them.  By contrast, the things that I have to barter might not be valuable to various people and so it will be much harder to find chances to trade.

teachersage eNotes educator| Certified Educator

One prime advantage of money is that it is almost always more portable than goods. Say that you earn your income through raising cattle. If you had to bring cows with you to trade every time you needed something, this would quickly become cumbersome. It could also be costly to have to transport the cows, eating into profits. Money, in contrast, is designed to be small, convenient, and portable.

Also, money comes in manageable units. Getting back to our example, a whole cow is a valuable commodity, but what if all you need is some small bit of cloth or some grain? What you need is worth far less than the cow, so what do you do? Do you give away the cow for less than it is worth, or do you accept a pile of goods you don't really need, which you are now faced with storing or trading? Money is far more flexible and convenient. If you can sell the cow for money, you can get it converted into small bills or coins and use these to buy only what you need, and save or invest the rest. Money was invented because it had these advantages.