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Why bartering is an inefficient payment system

The very first payment system was bartering. The payment instrument during those ancient times was not pegged to the value of a coin but to the item. For an exchange to occur, there has to be a barter for goods or services. For example, the person would need to have an animal on their farm, such as cattle. The barter would be that of produce or hard labor for the exchange to occur. Bartering was inefficient and for the marketplace to prosper, there was coinage that was developed to peg a value on the payment instrument and also to the goods and services. 


Trading for money

To barter is a form of trade. When money got invented, the trading prospered, but before that, trade was done using commodities for bartering such as that of silk, tea, and gold. Gold has a high value ever since time immemorial and is sought-after. There is the Yangtze river in China that was vital to trade. Those who have produce and livestock would load them into boats for trading in the towns for them to earn income from the payment transaction that occurs. The Yangtze river was instrumental to economic growth and also established the concept of insurance. 

Insurance of goods 

We now make payment transactions to insure our property such as fire insurance for homes and that of accident insurance for our vehicles. The boatmen who traveled in this river in China would have their own goods in their boat. If one boat that was loaded with eggs would sink, the owner would suffer and there would be no egg supply to the town. Thus, the concept of insurance was born, as the goods were distributed evenly among the trading boats, so in case a boat sank, there are still the same goods that are kept safe by the shared responsibility. If an accident does happen to a boat, the economic activity that would be hampered by a lack of eggs would be just that of a shortage of eggs. 

About insuring property

We all desire and need to earn a living. There are some who are wealthy and no longer have to struggle to earn, but the vast majority have to deal with their daily grind. To keep our property and goods covered in case of an accident, we typically get insurance policies. A non-life insurance contract is a commitment to make a regular payment transaction for the premium amount for us to get coverage for a certain period of time. 

For the value

There are values assigned to the property upon assessment. It is not possible to do so when bartering, as that old way has an inefficient payment instrument because the goods or services can change. For standardization, money is the one that has the assigned value, while the goods and services have a price tag. There has to be a measure of a value assigned to things for economic reasons for there to be a trade that will occur.