Barter and Monetized Systems of Exchange - Essay Example

? Part I: Barter and Monetized Systems of Exchange Exchange of goods and services people produce and want is critical to satisfying the diverse wants of everyone. Such exchange is possible by using either the barter system or money as a medium of exchange. The barter system and monetized system of exchange have been predominantly used in societies with different political, economic and social situations, and they have both advantages and disadvantages. Barter is carried out without using money. Money is, on the other hand, is anything widely accepted in exchange for goods and services (Sexton, 792; O’Sullivan, 243). Different items have worked as money at different times. For instance, tobacco in America, chisels in China, gold until the gold standard was abandoned in the 1930s and paper currencies thereafter. Barter was prevalent medium of exchange before the advent of money. It remains the principal form of exchange even today in tribal and traditional societies where political institutions are primitive, economies are not yet monetized and social systems are based on traditional practices and communal support. Even in advanced societies and economies like the United States, barter is still carried out to a limited extent in rural areas and public and charitable activities. On the other hand, modern societies and economies like that of the United States rely on money as the main medium of exchange. They have the highly developed political institutions to regulate money and prevent exploitation, manipulation and profiteering that money makes possible; they have monetized economies that help create and accumulate wealth; and they have social awareness that is necessary for people to trust an intrinsically worthless currency note, a mere piece of paper with the central bank’s assurance in small prints, as a medium of exchange. Barter and monetized systems of exchange have their own advantages and disadvantages (benefits and costs). Barter’s Advantages: The barter system has several advantages. First, it is a simple system to operate if there is coincidence of wants. Second, the use of resources is limited to meeting one’s wants that prevents under- or over-production and wastage, because the market cannot be manipulated and excess value cannot be safely stored for long. Third, since commodities and services are exchanged directly, there are no foreign exchange fluctuation or balance of trade and payment crises. Fourthly, the division of labor is clear, as one produces what one has the means to do. Barter’s Disadvantages: The barter system has several serious disadvantages too. First, coincidence of wants might be difficult unless the net is cast widely, which makes trade cumbersome. Secondly, in barter, there is no common measure of value making it difficult to ascertain, say for instance, how many loaves of bread would be equivalent to a cow if one wants to sell bread and the other cows. Third, in many cases the commodity one wants to sell, as the cow here, might be indivisible to sell in parts to buy a few loaves of bread. Fourth, commodities and animals often deteriorate in value fast and cannot be stored for long, which makes accumulation and storing of wealth difficult. Fifth, barter makes deferred payment and contractual deal problematic. Sixth, transporting bulky commodities from place to place becomes cumbersome in a barter system of exchange. Money’s Advantages: To avoid repletion of what has been already said, money takes care of all of the disadvantages of the barter system of exchange. Sexton describes the functions of money as a medium of exchange, a measure of value, as a store of value, and as a means of deferred payment (792-794). Briefly speaking, when money is used as a medium of exchange, there is no need for coincidence of wants. Money represents the common measure of value; it is divisible into small and large amounts; it can be stored almost forever if it is put away safely; it makes deferred payment easy; and it can be transported easily. Money’s Disadvantages: Money comes with several disadvantages. For instance, it has been a source of political and economic instability, inequality of income, growth of monopolies, overcapitalization, misuse of capital, hoarding, black money, and moral and social corruption (Sinha, n. p.). The money’s storability and manipulability makes all these vices possible. In conclusion, the barter system was and still is prevalent in traditional societies, while the monetized system of exchange has been the hallmark of modern societies. Both systems have their strengths and weaknesses. Now money has become the predominant medium of exchange in the United States and around the world, though some pockets of barter exchange still exist. Part II: Ethics of Market Behavior Market, where millions of producers, traders and buyers participate and compete pursuing their self-interest and greed, is a chaotic place. It is a double-edge sword. It helps people buy what they want and sell what they have and lets them satisfy their wants and needs. It also allows the smart ones to make millions and billions by reaching customers, defrauding the gullible, and exploiting the market and stifling competition. Market also brings booms and busts, and makes some and break others. Like science that helps produce bombs to take lives and medicine to save lives, market can be a tool for both good and bad. As Athens was transforming into a market economy, Greek philosophers, like Plato and Aristotle, worried about greed and excesses the market would promote, called for moderation. Plato in his book, Republics, warned that excess generates reaction and produces a change in opposite direction (quoted from Financiaphilosopher, n. p.). Aristotle in his books, Topics and Politics, criticized trade and wealth acquisition for the sake of making money, which has no natural terminus or end objective like satisfaction of wants and which would lead to corruption of individuals and societies (Younkins, n.p.). Critical of the principle of production for making profit, he described such profit as abnormal wrong (Magoulas, 4). Evidence suggests that Aristotle was right, but only partly. Human greed and the opportunity the market offers to pursue greed has led to moral and ethical corruption in individuals and societies. For example, Bernie Madoff used the market to defraud people of $64.8 billion (Neumeister and Hays, n.p.). US banks packaged subprime housing loans and marketed them as good securities to make money and earn handsome bonuses for bankers; this led to the 2008 recession, the gravest after the 1930’s Great Depression, from which countries are still struggling to recover. Energy companies in the United Kingdom have been accused of charging exorbitant prices to increase profits in times of serious difficulty for household (Badwen, 15). People kill their relatives to get insurance money. Families have broken due to row over money that market helps to create and accumulate. At the same time, markets have proved as an instrument of economic prosperity and social progress around the world. The United States, Western Europe and Japan have reduced poverty and become prosperous tapping market-offered advantages. After pursuing market-oriented policies in a globalizing world, China and India have been able to obtain double-digit and 7-8 percent growth respectively; and nearly half a billion people escaped poverty between 2005 and 2010 (Nationalpost.com, n. p.). Younkin rightly says Aristotle failed to mention the role of markets as a useful public service (n.p.). In sum, while Greek philosophers including Aristotle were right in their apprehension about the market as an instrument of making money for its own sake, markets have made it possible to make optimum allocation of scarce capital, promote efficiency and competition, reduce poverty and destitution and advance economic and social progress worldwide. Thus, if used prudently, the market can be a force for good, which Aristotle seems to have overlooked. Works Cited Badwen, Tom. “Ofgem Vows to Crack Down on Confusing Energy Tariff.” The Independent, News, 15 October 2011. Print. Financialphilosopher “What Would Plato Think of Greek Financial Crisis?” Fiancialphilosopher.com. 12 April 2010. Web. 16 October 2011. Magoulas, Charalampos. Yan Ying’s Soup, Aristotle’s Aesthetic Harmony and Market Economy. n.d. Web. 15 October 2011. Nationalpost.com, “End of Poverty: What Globalization Did That Aid Could Not.” News.nationalpost.com, 28 May 2011. Web. 16 October 2011. Neumiester, Larry and Tom Hays. “Madoff to Plead Guilty to 11 Counts Faces Up to 150 Years In Prison.” Huffingtonpost.com. 10 March 2009. Web. 15 October 2011. O'Sullivan, Arthur and Steven M. Sheffrin. Economics: Principles in Action. New Jersy: Pearson Prentice Hall, 2003. Print. Sexton, Robert, L., Exploring Economics. 4th ed. Mason, OH: Thompson Southwestern, 2008. Print. Sinha, Apairuta, “What Are the Disadvantages of Money?” Preserve Articles. n.d. Web. 16 October 2011. Younkins, Edward W., “Aristotle and Economics.” Rebirth of Reason. n.d. Web. 15 October 2011. Read More