When goods are bought on hire-purchase, they are given to the buyer upon payment of a deposit, and he then pays the remaining amount in a number of installments.
Under the barter system this type of transaction could involve problems. Imagine a farmer buying a video-recorder and agreeing to pay for it in terms of a fixed amount of wheat each week for a certain number of weeks. After a few weeks the seller of the video recorder might have more than enough wheat.
Yet he will have to receive more wheat in the coming weeks. If money had been used, the seller could then use it to buy whatever he wanted, whether it is wheat or something else—now or in future. In other words, the use of money permits postponement of spending from the present to some future occasion.
In a modern economy, most transactions (buying and selling) are made on the basis of credit. For example, it is possible to purchase consumer durables such as T.V. sets or washing machines on hire-purchase; houses may be purchased by means of L.I.C. or H.D.F.C. loan; most business dealings permit payment in the future for goods delivered now; and employees wait for a month or a week to receive their wages and salaries. Thus, the use of money permits the members of society to defer their spending from the present to some future date.
We, therefore, see that a money system clearly has advantages over a barter system. But what is money? Note the first five words in our definition – “anything which is generally acceptable.” We use notes and coins to buy things but can do so only as long as shopkeepers and traders are prepared to accept those notes and coins in payment for the goods they are selling.
If all sellers decided that they would no longer accept these notes and coins, then these would cease to be money. If they decided instead to accept chair legs as money, then we would have to use chair legs which we would have to use when buying something! This example, of course, is rather ridiculous but what it points out is that anything can be money as long as it is generally acceptable as such.
