Class XI, Principles of Economics, "Defects of Barter System"

Defects of Barter System

Following are some of the difficulties of the barter system.

1. Double Coincidence of Wants

Barter requires a double coincidence of wants. If a person for insistence has wheat and wants to exchange it with cotton, he has to find a person possessing cotton and requiring wheat. It was possible only when the people lived in small areas and their wants were too limited.

2. Lack of Common Measures

There was no fixed measure in which two things could be exchanged. It means every one did not derive complete satisfaction out of his deal. The ratios of exchange were fixed accordingly to the necessities and demands of the parties. One party had to suffer under these conditions were each transaction is an isolated transaction.

3. Lack of Divisibility

Another great disadvantage of barter system was the lack of divisibility. Suppose a man possess horse and requires wheat and cotton in exchange but both of these commodities may not be obtained from one man. One person may have wheat another has rice in surplus and both of them want to exchange their commodities with the horse. Now the horse cannot be divided and fence the transaction may not be completed.

4. Lack of Store of Value

Under the barter system wealth consisted of non-durable goods, which are quickly perished or detoriated with the passage of time. There value may not be stored for long period. Hence no body could think of storing something to provide against future.

5. Inconvenient Media of Exchange

Commodities like little wheat or other things alike cannot be easily transported and thus have little value. Therefore under barter system the mediums of exchange were really inconvenient.