Why did the use of money help trade to grow?
http://www.jiskha.com/display.cgi?id=1330655759
The use of money helped trade to grow for several reasons. Money serves as a medium of exchange, unit of account, and store of value, thus making it a convenient and efficient tool for trade. Here's a step-by-step breakdown of how the use of money facilitated the growth of trade:
1. Medium of Exchange: Money simplifies the process of exchanging goods and services. Prior to the use of money, barter system was the primary method of trade, where goods were exchanged directly for other goods. However, this system had limitations, as finding two parties with mutually desired products was often time-consuming and complicated. Money acted as a universal medium of exchange, allowing individuals to trade their goods or services for money and subsequently use that money to acquire other goods or services from anyone else. This significantly increased the ease and efficiency of trade.
2. Unit of Account: Money provides a standardized unit of measurement, making it easier to determine the value of goods and services. With money, it became possible to establish a common pricing system, with specific values assigned to different items. This standardized unit of account simplified trade by allowing individuals to compare the values of goods and make informed decisions about their purchases. It also facilitated the calculation of profits, losses, and economic transactions, enabling more accurate and transparent business dealings.
3. Store of Value: Money serves as a store of value, allowing individuals to save and accumulate wealth. Before the use of money, perishable goods (such as food) or bulky items (like livestock) were used as a means of storing value. However, these had limitations, as they could easily spoil or be difficult to transport. Money, on the other hand, can be easily stored, transported, and preserved. This stability and durability of money as a medium of exchange enabled people to accumulate wealth, invest, and save for future trade transactions. By providing a reliable store of value, money incentivized people to engage in trade and accumulate assets.
So, in summary, the use of money as a medium of exchange, unit of account, and store of value simplified trade, facilitated price comparison, and enabled the accumulation of wealth, thereby fostering the growth of trade.