The Barter System
Definition of Barter System:
The barter system is regarded as the first and old form of commerce where goods are exchanged for goods and services. In this system, for instance, a family with rice but needed beans had to go and look for those that had beans and also needed rice before an exchange could take place.
The barter system abruptly came to an end with the introduction of money. There are traces of the barter system in operation in the modern business world in both developing and advanced countries. Barter usually replaces money in times of monetary crisis such as, when the currency may be unstable, hyperinflation, or deflationary spiral period. Therefore, it indicates that the barter system cannot be completely eradicated in the world of commerce.
Limitations or Problems of Barter System
a) The Problem of Double Coincidence of Want: One has to look for someone who has what you want and at the same time in need of what you have before an exchange can take place. To do this amounts to a very serious problem.
b) The Problem of Value Measurement: It is not easy to access the value of various commodities for basic exchange. For instance, it is difficult to determine how many tubers of yam will be exchanged for 10 cups of Garri. In other words, no fixed rate of exchange.
c) Time Wastage: It takes a long time for one to locate someone who is in need of what you have and vice versa. There is waste of time and effort.
d. Problem of Divisibility: Bulky goods are difficult to divide accurately or conveniently to the right proportion, for the purpose of exchange.
e. There is no Room for Deferred Payment: Obtaining a commodity to make payment at a later date is not possible. This is because what each person has is needed to settle or satisfy another’s immediate want. Secondly, the goods involved are mostly perishables.
f. It is Difficult to Borrow: Lending and borrowing are practically impossible due to a lack of the right or proper mode of measurement and standardization.
g. Instalment Payment is Discouraged: Lack of specific measure of value and lack of divisibility discourages instalment payment for commodities.
h. Problem of Store of Value: Commodities, due to their perishable nature, cannot be stored for a long time, unlike money which can be stored for a long period and also used to measure wealth.
i. Division of Labour is Not Encouraged: Division of labour and specialization is not practical in the barter system because almost everybody provides all that is needed, unlike the modern trading method whereby individuals produce, goods and services in which they have a comparative advantage over others.
j. Large-Scale Production is Discouraged: Families provide all that they need during the production process and this did not create room for mass production.
1. What is barter?
2. Differentiate between the barter system of trade and Counter-trade.
3. State five problems to this system of trade.
4. State five ways by which money has solved these problems.