Barter System of Trade
Before the introduction of money, there was a method of trade, known as trade by barter.
Trade by barter is a system of trade whereby goods are exchanged for goods without the use of money as a medium of exchange.
Problems of Barter Trade:
This was used during the primitive era and it had a lot of problems;
(i) Double Coincidence of Wants: It is not enough for a trader to have goods to offer, he must also look for somebody who has what he wants and be ready to collect what he has to offer. That is, the wants of the two partners must coincide. This is the greatest setback of barter
(ii) Lack of Specialization: People were engaged in all aspects of production, there was no single focus. Nowadays, one specializes in occupation and uses the money he earns to satisfy other wants.
(iii) Individuality of the Commodities: Each time exchange took place, one trader gained at the expense of the other because it was difficult for the commodities exchanged to be divided into smaller units. For instance, cloth cannot be torn into pieces in exchange for a tuber of yam.
(iv) Lack of Storability: Due to the fact that commodities were used as a medium of exchange, they could not be stored for a long period of time, thus making it impossible to accumulate wealth.
(v) Lack of Future Trade: There was no chance for credit transaction where one will receive a commodity now and later make his own goods available.
(vi) Lack of Economic Growth and Development: Barter trade was not only boring but also cumbersome. Long periods of hours used to take place before an exchange was possible.
(vii) No Room for Deferred Payment: Trade by barter requires immediate payment. One cannot collect certain goods and pay on another date.