Theme –II Production, Exchange and Livelihood from 8th class Social Studies Text Book
Trading without Money :
Mohan has come with ragi to Shyamala to buy mangoes. Shyamala made two equal heaps of the ragi. She gave Mohan a few mangoes that together weighed as much as one of the ragi heaps. The rate at which the mangoes were exchanged is – ‘half as much as the grain’. There can be other rates too, such as ‘equal to the grain’.
In some villages of Adilabad district, children exchange toys made from bamboo for rice. This system of exchanging goods directly against other goods without the use of money is called the Barter system.
The blacksmiths used to mend the blades of ploughs or wheels of a bullock cart not for cash but for a fixed amount of grain after every harvest.
Are you aware of any exchanges that are done without money? You may have bought things in exchange of old clothes, plastic, newspapers, hair, paddy etc. Discuss the transaction.
Answers : Yes I have experience of exchanging steel vessels in exchange of old clothes..
yes I have seen my mother exchanging things for plastic items like buckets etc..
In another example, Gopal has a goat and he wants to exchange it for rice. He goes to Seenu. Seenu wants a goat but he has jowar and not rice. Gopal meets Ramu who produces paddy. But Ramu does not want to exchange his paddy for the goat, he wants to buy jowar.
Complete the following table:
| Gopal | Seenu | Ramu |
Wishes to buy
| Rice | Goat | Jowar |
Wishes to sell | Goat | Jowar | Paddy/Rice |
What can we conclude from the above table?
Explain in your own words why exchange is not possible between Gopal and Seenu.
Will the use of money help? Fill in the blanks.
If Gopal exchanges his goat with ....... for money, then uses this ......... to buy rice from ......... Now ....... can use this money to buy ......... from Seenu.
Ask your parents how washermen, barbers, neeti kaavalikaru were paid for their work in villages and towns.
If we use money, for the exchange of goods, there will be no problem in exchanging commodities. Then, a person who has something in excess will not have to necessarily find another person who needs it and has something also to give in return. Money acts as an intermediary or an in between step, something that is held for some time because it can be used further. We saw these situations in the above examples. Money can be exchanged for goods because it is acceptable to all. Those who wish to sell something will accept money as a payment and similarly, those who wish to buy something will only have to offer money in exchange. Any commodity or service can be exchanged for money, and money can be exchanged for any commodity or service. Money, by itself, may have no use. It is needed because of the role it plays in the process of exchange. One can also borrow and pay back in the form of money.
How can money be used in the transactions between Gopal, Seenu, and Ramu? Explain with the help of a flow chart.
If the role of money, as described above, was stated as a medium of exchange, would you agree? Explain.
Answer :
Yes , Money would solve the problems of barter system.
In a barter system, how do people in your area pay to a person who cuts their hair? Discuss.
Gopal : How many bags of rice will you give for this goat?
Seetaiah: Four bags.
Gopal: I Need Two Bags of Rice. Will you give wheat for the remaining two bags of Rice.
Seetaiah: I don’t have wheat, if you want I can give you edible oil, pulses.
Gopal : I don’t require pulses, I want sugar.
Gopal: I will give ….............
Seetaiah: I will give …................................…
Under the barter system, to make the exchange possible, it is necessary to determine the value of a commodity in terms of another. If one has to do this for many commodities, it can be quite cumbersome and does not facilitate exchange or trading. It is not convenient. Other forms of exchange also evolved that we will read about later. However, in some situations, barter system is still used and found useful, especially in rural areas.
For how much rice should Gopal exchange his goat?
If money was not used by you or any of the traders in your santalu or
weekly market, imagine what would happen? Describe the situation in a paragraph.
Do you think money can act as a measure of value of the goods and services?
Explain.
Gopal has a goat, and wants to buy a matchbox. Is it a fair exchange for him? He cannot give a part of the goat for a matchbox, because the goat is not divisible. But, with money, you can buy small items also. Money is divisible – there are Rupees and Paise.
You can see that commodities like vegetables should be exchanged immediately, because they are perishable. This problem is solved when commodities are sold for money. Money is durable, and it can be kept for future use. Also, holding of commodities like sheep, goats or bags of rice requires a lot of space and maintenance and you need carts and trucks to carry your goods for exchange to the market. However, money does not require much space to keep, it can be carried about anywhere in a bag or purse. It is portable.
Evolution of Money :
People all over the world practiced barter system and also encountered the problems with this system. When trading became more widespread, more goods were bought and sold. They were also transported over long distances. In such circumstances, use of some form of money evolved in all societies. For example, in very early ages, people used grains and cattle as money. But, these were difficult to transport and stock. Durability was also a problem since they could be attacked by disease etc.
Over time, people preferred scarce and attractive metals as a medium of exchange. Copper, bronze, silver and gold are durable, can be divided into parts and be carried around. Since they were scarce, they became acceptable by all. However, some problems remained and new problems came up. For every exchange, the metal had to be weighed and later on, traders were not sure about the quality of the metal. What one might get in exchange may not be pure gold or silver. After some time, there was a serious problem of trust in the quality of metal that was used as money for exchange.
This provided an opportunity for various rulers of the kingdoms to come up with a system that was suitable for them and also solved some of the above problems. This led to minting of coins with standard size, weight, and purity from the Royal Mint. It was not necessary to weigh them each time, there was greater assurance of purity and they were easy to carry. In the Roman period, “Besant”- a gold coin, was the standard currency and in the Mauryan period, “Pana” a silver coin, was the standard currency. Coins became the acceptable form of money by traders and people.
Why were metals preferred for use as money?
Do you think minting of coins was a good idea?
In what ways would minting of coins benefit the rulers? Can you think of
three different reasons?
Paper Money and Emergence of Banks :
People who had to buy and sell in large quantities had to carry large amounts of gold or silver coins for their transactions. So, they started looking for safe places to keep them. They went to goldsmiths, where their money would be protected. The goldsmiths charged fees for keeping their valuables safe and making them available whenever they wanted. This practice became popular and the trust in some of the goldsmiths or shroffs grew.
These goldsmiths would also give loans and had branches in many cities, leading to a new system of paper money or hundis. For example, Somu is a machinery tools merchant of Vijayawada, he has to go to Hyderabad to buy machinery from Chandu. It is dangerous to carry gold coins for payment all the way to Hyderabad. So, he keeps his ten gold coins with a goldsmith, and takes a receipt issued in his name. The receipt would say, “I promise to pay 10 gold coins”. Now, Somu buys the machines from Chandu. He gives the goldsmith’s receipt to Chandu and tells him to collect the 10 gold coins from the goldsmith as payment. But he goes to Sayeed who sells iron and steel, and gives him Somu’s receipt for 10 gold coins in exchange for steel. He tells Sayeed that he can collect the gold from that same goldsmith. Since the goldsmith is known to all and is trusted for always paying up the receipts that are brought to him, Sayeed accepts the receipt easily. Somu’s original receipt has now circulated in the economy, and is being transferred from one person to another and all accept this as a means of payment. Because of the trust created, such receipts began to work as a new form of money.
The early bankers in India such as Jagatseths of Bengal, Shahs of Patna, Arunji Nathji of Surat, Chettiars of Madras enjoyed such wealth and reputation that their receipts – paper money called hundis- were accepted throughout the country and outside too.
Let us look at a different story about the emergence of banks. In 1606, Amsterdam was a major trading centre in Europe. Here, there were 846 types of silver and gold coins recognised by the government that could be accepted for exchange. However, traders were always suspicious of each other – everyone would doubt the purity and weight of these coins. The merchants of Amsterdam got together and solved this problem in a unique manner. They created a bank owned by the city.
A merchant would take his coins and the bank would weigh and find out the amount of pure metal in the coins and give him a receipt for this, open an account and deposit the coins in the bank. Whenever required, he could ask for the pure metal. He could also transfer some of this to another person, if required. This was quite convenient for traders. The bank operated honestly and it was trusted by all the traders. They would ask for receipts of the bank or a transfer to their account, instead of the coins. The traders knew that the bank would give them pure metal on demand. Deposits at the bank became a new form of money. The business of the bank grew and it worked successfully for two centuries. The operation of bank deposits as money had evolved.
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