Evolution of Business
People in the ancient society fulfilled their needs and wants using direct production method. This system was called self-fulfillment of needs. That is, one produces goods and services to satisfy his/her own needs and wants, not to satisfy others. When the people in ancient society kept on producing products for self fulfillment, they got specialized in that production. Specialization led to excess production. Excess production means producing more than what is required for the self fulfillment of needs. For example, to satisfy your daily food requirement only 1kg of rice is sufficient. But if you produce 3kg, the additional 2kg can be called as excess production (Indirect production) which can sell externally.
The ability of producing more than the requirement made people to start exchanging the excess production. This created bartering system.
Barter system
Barter system is a method of exchange by which goods or services are directly exchanged for other goods or services without using a medium of exchange, such as money.
For example, a farmer exchanges rice for meat with a butcher.
Disadvantages of Barter System/Limitations of Barter System
• Lack of double coincidence of wants:
Barter exchange is possible when there is double coincidence of wants. When goods have to be directly exchanged for goods, it is essential that both the parties should be ready to exchange each other property.
For instance, if X possessed rice, and wanted to exchange it for wheat, hence he had to find a person who not only possessed wheat, but also is ready to exchange it for rice. It was difficult to find such persons who required what you wanted to sell and he has what you want to buy. Thus, it was time consuming and inconvenient.
• Lack of common measures of value:
Under this system, the values of goods were measured in relative terms. It lacked any common measure of value of unit of account. There was no common measuring rod in terms of which values of all commodities could be expressed conveniently.
For example, when wheat was exchanged for potato, the person should decide in what proportion the wheat and the potato should be exchanged. The ratio was arbitrary depending upon the relative need and urgency of two parties. In this, the person badly in need of exchange suffered and did not get the full value of the commodity he possessed.
• Lack of subdivision of commodities:
Sometimes it was very difficult to subdivide the commodity and then exchange. All goods could not be divided into fraction.
For example, if a person wants to sell a hen for some quantity of wheat, it was difficult to sell a part of a hen for wheat. Smooth exchange of goods was impossible for wants of means of sub-dividing goods according to people's requirements.
• Lack of store value:
In barter system, it was difficult to store and accumulate wealth. Only non-perishable goods like cows, sheep etc. could be stored. It was very difficult to store both the types of goods for a long period. So, the value of product was also lost.
• Lack of standard of deferred payments:
Credit transactions were not easily carried out in the barter system. So it was difficult to undertake any contract which involves future payment.
• Problem of transporting
In bartering system, the price paid to buy a product was another product which the buyer has. This made a problem for buyers to carry a huge amount of goods to sellers’ place, as the medium of exchange was the buyer’s product. For example, to buy a pound of jewelry the farmer would have to carry many packs of vegetables to the jewel house.
• Lack of specialization:
Under this system, specialization is limited, due to limited exchange system and market.
Above mentioned limitations of bartering system led the people to think about a common medium of exchange. Therefore, money was invented. Hence, people started to use money as the common medium of exchange.
Money
“Money is anything which acts as a common medium of exchange and is accepted by everyone’
Traditionally coral, metal pieces, tree leaves were being used as money. Nowadays notes, coins, other money substitutes like bank money and electronic money (debit cards, credit cards, e-wallets) are used as money.
Evolution of money
1. Commodity money - sea shells, tobacco, pearl
2. Metallic money - gold, silver, copper
3. Perfect money – gold coins
4. Currency and bank money – coins notes and cheques
5. E- money - debit cards, credit cards, e-wallets
Features of good money
1. Scarcity
2. Acceptability
3. Portability
4. Durability
5. Divisibility
Industrial revolution
Industrial revolution refers to the rapid developments that took place in technology and industry during 18th and 19th centuries. The term refers to these changes as well as the period.
Industrial revolution led to many deep rooted changes in the way people lived and worked. Mass-production techniques made possible by the technological development required setting up of large factories with large work force. Also it created new jobs with much greater degree of division of labor that reduced the skill requirements of jobs that were monotonous.
Development in information technology
The development and improvement in information technology allowed the society to involve in the business activities by electronic means. The development in information technology has made the world as “global village”.
Examples for information technology development – E commerce, internet business
