Advantages and disadvantages of Barter System
Barter system was one of
the ancient forms of trade and exchange. Under the barter system the goods or
services were exchanged directly with other goods and services. There was no
medium of exchange like we have today in the form of money. There were some
advantages and disadvantages of this system of exchange. Let us explore them
through this blog.
Advantages of the Barter System
1. It is the simplest form of trade
The barter system is the
simplest form of trade. It involves no complications. So in case you in case
there is a rice seller who wants whet, he would just find the wheat seller and
exchange the same. This therefore involves no complications and trade can be
carried in a simple way.
2. No question of over or under production
The reason for this is
that goods are services are just to meant to meet the needs of the society.
3. Problems of foreign international trade do not arise
Under this system the
many of problems of international trade like that of foreign exchange, balance
of payments, etc.
4. With this system there was no problem of concentration of economic power
The barter system also
ensured that there was no concentration of economic power. The reason for this
is that there is no possibility to storing the commodities.
In spite of all its
advantages, there are some disadvantages as well.
Disadvantages of the Barter System
1. It requires Double Coincidence of wants
In the barter system
since there is no common medium of exchange, there must be double coincidence
of wants. Thus trade or exchange as a result of this may often may not be
possible in many cases.
2. There is lack of divisibility
Another difficulty of
barter system relates to the fact that all goods cannot be divided and
subdivided. In such cases the people who own them may not be able to exchange
them effectively to satisfy his or her need.
3. There is a problem of storing wealth
With the barter system,
there is much difficulty in storing wealth. This is more so in case of
perishable commodities. This becomes a problem and systems of exchange
which allows for holding a generalized purchasing power in the form of money becomes
a distinct advantage in them.
4. System of deferred payment is not possible
The barter system does
not provide a satisfactory unit in terms of which the contracts about the
deferred or future payments. In an exchange economy, many contracts relate to
future activities and future payments. SO this becomes a serious disadvantage
for barter system on this ground as well.
In conclusion we can say
that the barter system has both advantages and disadvantages. However in spite
of its advantages it has been replaced by money being the main mode of
exchanges in most world economies. But even in the current scenario if you want
to enjoy the benefits of the barter system then you must visit Barter for
gain!
Thanq so mch
ReplyDeleteGreat Britain and the Kingdom of Kongo (West Central Africa) were engaged in barter trade from the mid- nineteenth century (1850s) up to the beginning of the second decade of the 20th century. The Kingdom of Kongo exchanged a Kongolese (African) produce that was in high demand in West against British industrial/consumer goods. The precolonial international trade between the two independent countries consisted of barter trade and cash trade. They existed side by side.
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