The difficulties of the Barter system

The barter system is one of the oldest forms of trade. This formed the main system of exchange amongst individuals and countries over a long time, till a common medium of exchange "Money" formed the basis of trade. Since in the most individuals and families were self sufficient there was little need for exchange. 

However as the needs grew the requirement to exchange grew too. With is grew the difficulties of the barter system. In this blog we will discuss some of the main difficulties faced in the barter system. 

Main difficulties faced

1. Double Coincidence of Wants:

When there is a lack of a medium of exchange, a difficult problem of double coincidence of wants was faced by the people .For exchange of goods in the barter system it is necessary that the person selling a particular good is also needed by a particular buyer. On the other hand the person wanting to buy a good needs to correspond with a person selling the same. If there is a mismatch then the entire trade or exchange would fail. This is a serious limitation of the barter system which is faced.

2. Lack of a Standard Unit of Account:

In the barter system there is a lack of not only a common medium of exchange but also a standard unit of account in terms of which prices could be measured and quoted. Under the absence of a common unit of account, the numbers of exchange ratios between goods are very large. With a lack of a standard unit of account with which to measure values of different goods and services exchange and trade becomes very difficult.

3.  Impossibility of Subdivision of Goods:

The other problem faced in the barter system for exchange of goods was impossibility of subdivision of goods. In this you might have a person who owns a cow and wants to exchange cloth. However if the value of the cloth is half the value of the cow, the cow could not be exchanged. This means that under such cases the exchange is not possible. This emerges as a serious problem.

4. Lack of Standard of Deferred Payments:

Another drawback of barter is that it lacks a standard of deferred payments. This means  that contracts involving future payments or loan transactions cannot take place in the barter system. Thus Credit transactions cannot be promoted smoothly here.

5. Lack of Efficient Store of Value:

In the barter system a great inconvenience is the lack of facility to store value. Here there is a lack of existence of a generalized purchasing power. This is especially difficult in case of perishable goods. Storing wealth under the system is very difficult and costly. Storing under the system involves great risk. 

To conclude we can say that it is true that the barter system faced many difficulties in the past. This is why to make trade and exchange easier, a common medium of exchange "Money" was developed. But in spite of its difficulties it has certain benefits as well. In case you want to take advantage of the barter system in the current scenario you must visit our website.