Do we use money from the beginning or we had something else to carry out our day to day transactions? No, we have come through a long process to get the money we use today. It was the barter system which was used in the beginning to carry out transactions. Then what it is?
The barter system is a system in which we exchange goods and services without any intermediary like money. There should be a double coincidence of wants to do bartering.
I think you got an idea about the barter system from the figure shown above. Let’s understand it through an example:
Assume there is nothing like money to measure the value and carry out transactions. Now, Let’s further assume that I am a farmer and you are a teacher. I have two little kids, who are not so good at English. Now, I have decided to send them to you for tuition classes. But you will demand something in exchange from me, of course, it is not a charity. So we agreed that I will give you wheat at the end of the year and you will teach my kids during the year. This is called bartering. We have a double coincidence of wants here, as you need wheat and I need to teach my kids, so we have agreed for it. This is all about bartering, people used to do bartering when money was not there.