Define Barter System? What are the difficulties of barter system? How money removed these difficulties?

Define Barter System? What are the difficulties of barter system? How money removed these difficulties? 

Introduction:

   Barter means the exchange of goods or commodities. In ancient times when money was not invented trade as a whole was on barter system. It consist if a bargain of commodity with out the help of another of exchange , such as money. Therefore, we can say that buying goods against goods is called barter system.

Definition:

R.H.Parker : "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".

In simple words 

  "Barter is a system in which goods and services are exchanged for other goods and services without the use of money".

Difficulties of Barter system:

The main inconveniences of barter system are as under:

1.Lack of double coincidence of wants:

The main difficulty of barter system is the lack of double coincidence of wants. In a barter system a person who wants to exchange his goods must find some person who is willing to exchange his commodity with his commodity. For example, a person possessed wheat, which he wanted to 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 exchange with wheat.

2. Lack of common Measure:

The second short coming 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.

3.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 be divided without loss of value. For example the owner of cow wants to have 5 kg 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 kilo of sugar. As it is not possible to divide his cow, so no exchange will be possible between the two persons.

4. Lack of Store of Value:

The barter system suffered the lack of storing the value. There is no way of storing of wealth for a long period. Some commodities lose their value with the passage of time. Some commodities, such as milk, fish, vegetable, wheat, and cotton lose value with the passage of time. Such commodities could not store for a long period.

6. 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.

7. 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,

8. 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 purpose.

9. 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 ans capital formation .Thus, there is no capital formation under the barter system.

10. No Investment:

The barter system suffered the lack of store of value so, there was no saving.Hence investment could not be made.

Next: How money removed the difficulties of barter sysytem