In this article, you will learn what Trade by Barter and problems associated with Barter System.
When money was not in existence, exchange of goods and services between nations and between individuals, corporate and non corporate rate unit took place by a system of direct exchange of goods and services for needed goods and services.
Trade by Barter System existed in the early days of history when primitive man had to satisfy many wants by exchanging the products of his own efforts for the efforts of others. The society then was small and it’s wants relatively not as complex as the are today hence Barter System satisfied the needs of that society.
Advantages of Trade by Barter And Barter System
The major advantage of trade by barter is flexibility. You can trade one related product for another — such as a laptop for a portable tablet — or two completely different items.
Problems of Trade by barter and Barter System
1. Absence of Medium of Exchange. The fisherman for example, who has fish to exchange for Yam will face the problem of looking for a farmer who has Yams and actually wants fish. If the farmer eventually wants salt instead of fish, then the fisherman’s problem has not been solved.
2. The problem of double coincidence of wants. In this case, if the farmer wants fish with his Yams, another problem will arise and that is; how many Yams will equal one fish or a number of fishes.
3. Lack of absence of standard of value. Barter System also lacked any satisfactory unit in terms of which to express contracts requiring future payments such as wages, salaries, interest and rates. These payments would have to be stated in terms of of goods and services to be supplied at a future date.
4. Lack of standard for deferred payments.
This is what trade by barter and problems associated with it all about and hope you learnt a lot on this article of Barter System.