Barter System

                                                     BARTER      
                                                                                        

After Studying this Post,You should be able to :

• Define Barter.

• Describe advantages and disadvantages of Barter. 

• Narrate defects or problems of Barter.

• Explain how money has removed defects of Barter. 

In the ancient time man was self sufficient in his needs.He was able to arrange his food by hunting and gathering fruit from the trees.The exchange became possible when man produced surplus goods.The man was able to production is due to comparative advantage which a region or country has over the other dueto natural resources like coal,iron ore,oil,gas,mineral,and climatic conditions.

Similarity one person has an advantage over the other due to training ; education and personal abilities.It became necessary to exchanges the surplus goods with each other.Barter is the direct exchange of goods and services for goods.  

DEFINITION:

1. R.H Parker says that barter is the direct exchange of goods and services without the use of money as either means of payments or a unit of account.
2. G. Thomas says barter is a form of trading in which goods are exchanged directly for other goods without the use of money as an intermediary.
3.  H.S. Sloan says barter is the direct exchange of one commodity or services for an other without the use of money.

It is clear that barter is direct exchange of goods and services of one person for goods and services of other people without the use of money. 

 ADVANTAGES OF BARTER:

1. INCREASE IN PRODUCTION:

                                    There is more production in barter stage as compared to self sufficiency stage.The exchange takes place only when people produce surplus goods.The caste system , is the result of specialization.Thus increased production helps to use goods of other people. 

    2.GAIN IN EXCHANGE OF GOODS:

                                    The barter provides gain to both  parties through exchange of goods.There is no loss to any party in the exchange because the commodity meet the needs of each other.

    3. INDEPENDENT WORK:

                                    The work of every person is independent in barter system.The farmer can produce wheat and weaver can makes cloth.The farmer can exchange his goods with goods of weaver.

    4. PROMPT PAYMENTS:

                                   Barter does not involve future payments.Both parties have ready stock of goods.The goods are exchanged for goods on the spot.There is no risk of bad debts.There is no loss to any party under barter system.

    5. NO INFLATION:

                                   Barter is moneyless economy.Inflation is the result of money.Many countries have used barter to eliminate inflation.The workers were paid in kind in France years and years back.Thus barter is the enemy of inflation.

    6. POPULAR IN RURAL AREAS:

                                   Barter system is popular in rural areas.The farmers share the crops with laborers working on the farms.They also pay in kind for services of carpenters and iron-smiths for repairing agricultural tools. 

    7.EVOLUTION OF SOCIETY:

                                  Barter system has helped in Evolution of society.The exchange system provides opportunities to meet the people of different nations.There is exchange of culture and ideas through trade.The society moves towards barter living standard.  

   8.INDUSTRIAL REVOLUTION:

                                   Barter trade has encouraged people to introduce industrial revolution for production of goods on large scale basis.Due to increase in population there was increase in demand for goods.The producers and manufacturers were compelled to produce goods on large scale basis.

   9.INTERNATIONAL TRADE:

                                   The early stage of barter was a local trade.Later on people were able to exchange goods at international level.The exchange of goods for goods at local level provides idea of trade at world level.

                            DEFECTS OR PROBLEMS OF BARTER

1. NON-MATCHING OF WANTS:

                               The barter system cannot work properly due to non-matching of wants.The exchanges of goods is possible if the wants of two parties meet the requirements of each other.For example"A Person has to find another who is ready to accept his goods.Money has solved this problem as it is used as medium of exchange."

    2. LACKS COMMON MEASURE:

                             The barter system lacks common measure of value.The values of various commodities are fixed at random.When many goods are exchanged one has to remember several exchanges ratios.The series of exchange ratios create confusion in the minds of the parties.Money is used as medium as standard of value.

   3.LACKS OF SUB-DIVISION:

                            The third defect of barter is the lack of sub-division of goods.For instance exchange value of one table is equal to two chairs.The owner of one chair cannot accept half table.Money is divisible for purchase of items of nominal value.

   4.NO BANKING SYSTEM:

                             The banking system can work properly in money system.The banks deal in money that is durable and portable.There is no money in barter system so there is no concept of banking.Banks are essential for economic development.

   5.NO STOCK EXCHANGE:

                            There is need of stock exchanges in the country of development of money and capital market.Industrial development depends upon stock exchanges for supply of long term funds.Barter fails to set up stock exchange so there is no possibility of industrial progress.

                                                          CONCLUSION 


Money has replaced barter system.No doubt barter is still used in the international trade but it cannot work properly to meet the challenges of modern production and distribution system.Therefore role of barter is nominal in trade.