Barter system

Barter system :

In ancient times the wants of people were very limited. They had a simple life depending mainly upon hunting, fishing, gathering, etc. As time passed, their wants increased and self-sufficiency decreased. They began to exchange some of the things they possessed for those which their neighbors possessed. Such direct exchange without the use of money is called the barter system. In other words, the system of exchanging goods for goods is called the barter system. Later on, it became inconvenient and almost impossible to rely on the system for the transaction .

Difficulties of the Barter system:

1.NEED FOR DOUBLE CO-INCIDENTS OF WANTS:
When goods have to be directly exchanged for goods, it is necessary that both parties (buyer and seller) need each other's possession. This is not the usual situation in a barter system.

2.DIFFICULTY OF SUB-DIVISION:
This system needs the unit of sale and purchase to be adjusted. One cannot split his/her cow to get a kg of sugar. So, in this system, there is the difficulty of sub-division.

3. ABSENCE OF COMMON MEASURE OF VALUE:
There is no common measure of value in the barter system. It is not possible to ascertain specific quantities for exchange. There is no instrument under the barter system that measures the value of all commodities.

4.NO STORE OF VALUE:
Value cannot be stored under a barter system. Many goods perish after some time and they lose their value. There is no commodity that can remain free from decay with the passage of time.

5.DIFFICULTY OF TRANSFER OF VALUE:
A person may want to sell his/her fixed property to get another property in some other place. But it is not possible under the barter system because it is very difficult to transfer physical property from a place to another.

 6. DIFFICULTIES OF FUTURE PAYMENT:
Transaction on credit is usual. This is not possible under the barter system if payments have to be made in the future because the price of goods and services change differently.

7.LIMITED MARKET:
It is not possible to transport goods far and wide. They can only be transported to limited areas. Trade including both national and international becomes difficult. Therefore, the market remains limited to local areas.