The Barter System was a long age system of exchange prior to civilization. However, here with are the problems associated with barter.
To appreciate widely the inconveniences of barter system we can imagine a simple case of a person who wishes to exchange a sheep for a cup of sugar.
Issues associated with Barter System
First the right quantity of sugar which would be equivalent to one sheep would have to determined and accepted by both parties.
Where and when the person succeeded in finding a willing sugar owner who requires a sheep.
To find such a party, he may have to travel long distances within the community, he may come near exhausting the members before meeting someone who desires a sheep.
On finding one, he would be faced with the problems of carrying back a large quantity of sugar or his sheep if he was unsatisfied with the exchange.
In the alternative, he would have to k ill his sheep, use appropriate portion of it in exchange for sugar and find something else he wanted to exchange for the rest of the meat.
Problems of the Barter System
- Exchange depended on double consciendence of wants. this is, two people who can each other offer something that the other wants must be brought together.
- There was no common measure to determine the value of commodities.
- There was no satisfactory means to store the value of goods and services.
- Exchange became difficult and in some cases impossible with commodities which are indivisible. For example, you can not cut the sheep head for two cups of sugar.
- It was difficult to determine the rate of which goods and services exchanged.
- There was no means for deferred payment, that is, there was no satisfactory unit in terms of which people could undertake contracts involving future payments.
- It was also difficult to carry about bulky commodities for sale.
The disadvantages of the barter system in addition to above identified, includes the fact that it does not allow for justice, fair pay and equity to be implemented in the exchange process.
There was a lot of time wasted in finding the other buyer willing to exchange your goods.
The genesis of money lies in the extreme inefficiency of barter system of exchange in an economy that develops beyond the most primitive method of production.