Supply of Money in India – Exchange is of central significance in human life. An individual does not produce himself all that he needs for his existence. He depends upon many others for the satisfaction of his wants. This implies interdependence. Interdependence implies exchange. A thing that is commonly accepted as a medium of exchange is called money.
Example: A rupee in India is money as it is a commonly accepted medium of exchange there.
Supply of Money in India
When wants were not so multiple, goods were exchanged for goods. in the olden days, a cobbler would make shoes in return for wheat from the farmer; a farm worker would get grains as a reward for his labor, and so on, This system of exchange was known as a barter system. But with the multiplicity of wants and greater need for exchange, the barter system (a system where goods were exchanged for goods) proved to be an inefficient system of exchange.
It is then that man invented money-a common medium of exchange. Initially, coins of gold and silver were introduced as money. Subsequently, alloy metal was used for coinage, along with paper money. And, now is the age of plastic money in the form of cash cards, or e-money which is an electronic transfer of money in terms of credit/debit entries of the account holders in the banks. Thus, the origin (and evolution) of money is related to the need to facilitate exchange. Therefore, money is generally defined as a thing that is commonly accepted as a medium of exchange.
The origin (and evolution) of money is related to the need to facilitate exchange. Therefore, money is generally defined as a thing that is commonly accepted as a medium of exchange.
Though, initially invented as a medium of exchange, gradually money Found its other uses as well. People started using money as a store of value.
Savings are no longer done by way of storage of goods. Money is used as an Instrument of saving. Also, money is used as a measure of value. People now express the value of goods and services in terms of money. Besides, money is serving as a standard for a deferred payment (deferred payment are those payments which are made sometimes in the future).
Money is what money does. Therefore, it is defined as an instrument that serves as a medium of exchange, store of value, measure of value, and standard for deferred payments.
Supply of Money in India
Barter System of Exchange
Barter system of exchange is a system in which goods are exchanged for goods If (as a farmer) you have surplus production of rice, you are to look for a person who needs rice, and at the same time possesses (say) cloth, which you need for yourself, It means double coincidence of wants: your want for cloth must coincide with somebody’s want for rice, and you must have surplus of rice and somebody must have the surplus of cloth.
How cumbersome it is! What do you do these days? As a farmer, you sell rice for money, and as a cloth merchant, you sell your cloth for money. With money in hand, you buy whatever you wish to buy. Thus, rice is exchanged for money, cloth exchanged for money. Money acts as a common medium of exchange. No such common medium of exchange exists in the C-C economy (commodity for commodity exchange economy) where goods are exchanged for goods.
C stands for commodity. C-C economy is the one in which commodities are exchanged for commodities or in which goods are exchanged for goods. C-C exchange refers to the Barter System of Exchange. Hence, C-C economy is an economy dominated by the Barter System of Exchange.