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Barter System and Drawbacks

The barter system involved the direct exchange of goods and services without a monetary system. This led to several drawbacks, including a lack of double coincidence of wants where both parties didn't always want what the other was offering. It also lacked divisibility where goods couldn't be divided if only a portion was needed. Additionally, without money it was difficult to store wealth or value over time as goods would deteriorate or fluctuate in worth. The barter system also lacked a common measure of value and standard for deferred payments.

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336 views

Barter System and Drawbacks

The barter system involved the direct exchange of goods and services without a monetary system. This led to several drawbacks, including a lack of double coincidence of wants where both parties didn't always want what the other was offering. It also lacked divisibility where goods couldn't be divided if only a portion was needed. Additionally, without money it was difficult to store wealth or value over time as goods would deteriorate or fluctuate in worth. The barter system also lacked a common measure of value and standard for deferred payments.

Uploaded by

raman baviskar
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Barter System and Money

Money is something, i.e. commonly accepted as medium of exchange. Before the evolution of money,
goods were exchanged for goods. This system of exchange was known as barter system. Barter economy
is termed as C-Ceconomy, i.e. commodities were exchanged for commodities. Economic exchanges
without the mediation of money are referred to as barter exchanges.

Drawbacks of Barter Exchange System

Barter system suffered from following drawbacks:

(i) Lack of Double Coincidence of Wants

It was the major drawback of the barter system. It was very rare when the owner of some goods or
services could find someone who wanted his goods or services and at the same time, he possessed that
goods or services that the first person wanted.

(ii) Lack of Divisibility

In commodity exchange, difficulty of dividing the commodity was common. e.g. If a cow is to be
exchanged for four goats, but the owner of cow requires two goats only, then the exchange cannot take
place, because 'cow' cannot be divided.

(iii) Lack of Store of Value

Due to absence of money in barter system, wealth was stored in terms of goods. Storing of goods
carried some problems like cost of storage, loss of value, difficult to transfer from one place to other,
etc. So, it was difficult for people to store their purchasing power.

(iv) Lack of Common Measure of Value In barter system, there was absence of a common unit of
measurement in which the value of goods and services can be measured. In the absence of common
unit, proper valuation was not possible. e.g. Cloth is measured in metre (i.e. length) while milk is
measured in litre (ie. capacity), hence both cannot be measured in a single unit, thereby complicating
the process of exchange.

(v) Lack of Standard of Deferred Payments

Deferred payment means future payments. In barter system, it was difficult to return value in future in
terms of goods of same quantity and quality. Therefore, future payments regarding interest and loans
became difficult.

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