Question

Write a short note on:

Difficulties in Barter Exchange (Barter System).

Explain the difficulties which people experienced under the barter system.

Answer 1

Difficulties in Barter Exchange (Barter System):

1. Lack of double coincidence of wants: Double coincidence of wants indicates the need for each other's goods and the willingness to accept it. Lack of double coincidence of wants was one of the important limitations of Barter system. e.g. Person "A' has cloth and he wants rice in exchange and the person `B' has wheat and he wants milk in exchange. In this case, an exchange between A and B would not take place, as both are not in need of each other's goods.
2. Lack of a common measure of value: In the absence of a common measure of value or a unit of account, it was difficult to calculate the values of the goods exchanged. Exchange became difficult in the case of goods which could not be compared, e.g.,. It was difficult to compare 2 litres of milk with 2 kgs of onions. At the same time, it was difficult to compare certain units of a commodity with any service.
3. Difficulty of storage of goods: Under barter exchange, it was necessary to store goods for future consumption. Storage of highly perishable goods like fish, vegetables, milk, etc., was difficult; besides, there were space constraints.
4. Problem of indivisibility: Under the barter system, it was difficult to make fractional payments, especially when things to be exchanged were indivisible, e.g. person `X' had a bag of rice which he wanted to exchange for a plough with person Y, but suppose Y wanted only half a bag of rice; then it would be difficult to offer half of the plough.
5. Problem of making deferred payments: Deferred payments are those which are made in the future. When people used to borrow cattle, it was difficult to return the cattle in the same physical condition after a certain number of years.

Thus, various difficulties faced under the barter system

 gave rise to money. The invention of money is one of the most fundamental inventions.