Barteris a system in which goods and services are exchanged for other goods and services without the use of money. In a barter system goods buy goods. Barter system involves the direct exchange of one good for another good. A Few Important Definitions Of
Barter is a system in which goods and services are exchanged for other goods and services without the use of money. In a barter system goods buy goods. Barter system involves the direct exchange of one good for another good. A Few Important Definitions Of Barter System
A Few Important Definitions Of Barter System Are As Follows:
"Barter is the direct exchange of goods and services without the use of money as either the means of payment or a unit of account."
S. H. S. Sloan:
"Barter is the direct exchange of commodity or service for another without the use of money."
Defects Of Barter:
Battering is the most inconvenient method of exchange. Much more time of the people is wasted in trying to exchange goods and services. As a method of exchange the barter system suffered for many shortcomings, inconveniences and difficulties.
The main inconveniences are as under:
Lack Of Double Coincidence Of Wants (non-matching) Of Wants:
The main difficulty of barter system is the lack of double coincidence of wants i.e. non-matching of wants. In a barter system a person who wants to exchange his goods must find not only some person who is willing to exchange his commodity but also find some one who is willing to give in exchange the same commodity which is wanted by first person. For example, a person possessed wheat, which he wanted to barter (exchange) for cloth. He could not succeed in acquiring cloth until he met some one who not only had cloth but was also willing to barter with wheat.
Lack Of Common Measure:
The second shortcoming of barter system is the lack of any common unit in terms of which to measure the values of goods and services. In the absence of any common measure of value, the value of each commodity in the market can not be expressed as one quantity. For example, if there are 500 different kinds and qualities of goods and services meant for exchange in the market, the value of each kind and quality of each good and service would have to be expressed in terms of 499 others. Such a number of prices would be confusing and difficult to remember.
Lack Of Sub-Division:
The third serious difficulty of barter system is the lack of sub-division of commodities. There are certain commodities which can not be divided without loss of value. For example of the owner of cow wants to have 5 kilos of sugar. The barter between the person having cow and sugar will not take place because the value of cow is much more than 5 kilos of sugar. As it is not possible to divide his cow, no exchange will be possible between the two persons.
Lack Of Store Of Value:
The barter system suffered the lack of any satisfactory and reliable method of storing the value. There is way of storing of wealth for a long period. Some commodities lose their value with the passage of time. Some commodities are perishable in nature, such as milk, fish and vegetable. Other commodities such as wheat, cotton, etc., deteriorate in quality and value with the passage of time. Cattle, grains and other such perishable commodities could not stored for a long period.
Difficulty Of Future Payments:
The barter system suffered the difficulty of the future payments. When goods are lent to another person, the payment had to be stated in terms of certain goods. This gave rise to many problems.
In the ac-seance of any reasonable method to state debts in future payment, credit transactions are not possible and volume of trade remains low.
Difficulty Of Transfer Of Wealth:
Under barter system there is difficulty of transfer of wealth from one place to another place. Immovable property cannot be transferred to another place. The transfer of movable property is very difficult and costly. Suppose a person wants to shift one hundred heads of cattle from Faisalabad to Karachi. You can well imagine the difficulties he would face.
Difficulties In Tax Collection:
The difficulty of barter system is the imposing and collection of tax in the form of goods. If the government is able to collect the tax in the form of goods, there would be problem of the storage of goods. If so possible, the government will face difficulties to utilize the revenue for development and non-development purposes.
No Capital Formation:
Under barter system people are concerned with their current needs. They do not save and there is no capital formation. The difficulty of store of wealth hinders from saving and capital formation. Thus, there is no capital formation under the barter system.
The barter system suffered the lack of store of value so, there was no saving. Hence investment could not be made.
No Division Of Labor:
Under barter system investment could not be made. Goods are produced in small scale. So, there was no division of labor.
No Banking System:
Banks deal in money; there is no money in barter system, so, there is no concept of banking in barter system.
No Industrial Development:
The establishment of banks and stock exchanges is necessary for industrial development. Banks and stock exchanges cannot be established under barter system, so there is no possibility of industrial development.
The difficulties faced by people in a barter system were indeed too many, as this was an inefficient method of trade and it severely restricted the scope of man's social and economic progress. With the passage of time, the barter system gradually dissolved and new mediums of exchange were introduced.