We will explain main Problems of Barter System.In ancient days, human wants were very simple and limited. Every person produced himself all the things he needed. There was no necessity of exchange for anything. People were very much dependent on nature for the satisfaction of their wants. But with the passage of time, human wants increased and it became very difficult for everyone to produce everything of his need. Generally, everyone began to produce one or more particular things for which he had some advantage and knowhow. In this way, simple specialization and division of labour created the need of exchange the goods or services.
10 Universal Problems of Barter System Which You Must Understand.
In the earliest age of human civilization, people used to transact their business through “Barter System”. This system of trade prevailed in the economy before the invention of money. Barter is that form of exchange in which commodities and services are exchanged with one another without any medium. For example if I get from Mahmood his pen in return for my pencil, the transaction so taking place between myself and Mahmood will be termed as ‘BARTER’. Barter – the direct exchange of goods for goods was the first step towards monetary development.
With the spread of civilization and growing, wants of the people, .oiiic difficulties were observed in the barter system of exchange. These difficulties were:
- Lack of Double Coincidence of Wants:
Trade under barter system requires double coincidence of wants. (icnerally, there is lack of coincidence of wants. For example, If a cow has io be exchanged for three goats, no trade would take place unless a person is found who not only has three goats but also wants to exchange them for II cow.
- Lack of Common Standard of Value:
All the goods or services, which are to be transacted, have different values. Each transaction requires the determination of ratio of exchange between the goods or services to be exchanged. In barter system, there is no common standard by which the value of goods to be exchanged can be measured. This would hinder trade even if the concerned parties are interested to barter.
- Lack of Sub-division:
In barter system, another important problem is lack of subdivision. Under this system, the goods including animals have to be traded for goods. Sometimes, it becomes nearly impossible to subdivide the particular goods (e.g. horses and cattle) into smaller units for smalltransaction. For example a person has a horse and he needs a piece of cloth. Now what part of his horse is equivalent to piece of cloth? This problem hinders the flow of transactions in barter system.
- Lack of Storing Wealth:
In barter economy, wealth has to be stored and saved in the form of goods, which as very inconvenient, costly and impossible in case of perishable goods like vegetables, fruits and animal skins etc. So, this system does not enable a person to preserve assets for making his future.
- Difficulty in Deferred Payments:
There was great difficulty in lending goods under the barter economy due to non- availability of reasonable system of certainty and security. The value of goods may decrease with the passage of time by which one may suffer loss.
- Difficulty in Transferring Wealth:
Under barter system, commodities of different kinds serve as medium of exchange because every commodity can get another commodity in exchange for itself. So, the transfer of goods from one place to another was very costly and difficult if not impossible. Moreover, immovable property like land and building cannot be transferred.
- Difficulty in Revenue Collection:
Under the barter system, it is very difficult for the finance minister to collect taxes from the people in the form of goods or commodities. If revenue department collects commodities then the goods particularly perishable cannot be stored for a longer period and they will lose their value as time passes on.
- Difficulty in Economic Measurement:
Under barter system, there was no proper system to determine the personal income on micro level and GDP on macro level. So it was impossible to measure any of the micro and macro economic variable.
- Difficulty in Budgeting:
Budgeting means an art or act of forecasting the future incomes and expenses. In barter system, the government and the people are unable to make estimates (Budget) of their revenues and expenses. So, the government cannot play an effective role in improving the economic conditions of a country under barter.
- Lack of Specialization:
Specialization means an effective allocation or utilization of available resources for the production of goods or services. Under barter system, it is very difficult for the people to attain specialization because usually they remain busy in meeting their needs and do not make effective .il location or utilization of resources.
