First, welcome to
Second... Here's your
What are the advantages of Barter System?
1 It is a simple system devoid of the complex problems of the modern monetary system.
2. There is no question of over or under-production (or of unemployment or over-hill employment) under the barter system since goods are produced just to meet the needs of the society.
3. The problems of international trade, such as, foreign exchange crisis, adverse balance of payments, do not exist under barter system.
4. There is no problem of concentration of economic power into the hands of a few rich persons under the barter system because there is no possibility of storing the commodities.
5. Personal and natural resources are ideally utilized to meet the needs of the society without involving any wastage.
6. The barter system also reaps the benefits of division of labor because it represents a great step forward from a state of self- sufficiency hi which every man has to be a jack of all trades and master of none.
What are the difficulties of Barter System?
1. Double Coincidence of Wants
Under barter system, a double coincidence of wants is required for exchange. In other words, the wants of the two persons who desire to exchange goods must coincide.
2. Absence of Common Measure of Value:
Even if it is possible to have the double coincidence of wants, the absence of a common measure of value creates great problem because a lot of time is wasted to strike a bargain. Since there is no common measure in terms of which the value of a commodity can be expressed, the problem arises how much wheat should be exchanged for how many pairs of shoes.
3. Lack of Divisibility:
Another difficulty of barter system relates to the fact that all goods cannot be divided and subdivided. In the absence of a common medium of exchange, a problem arises, when a big indivisible commodity is to be exchanged for a smaller commodity.
4. The Problem of Storing Wealth:
Under a barter system, there is absence of a proper and convenient means of storing wealth or value, (a) As opposed to storing of generalized purchasing power (in the form of money) in a monetary economy, the individuals have to store specific purchasing power (in the form of horses, shoes, wheat etc.) under the barter system which may decrease in value in the due course of time due to physical deterioration or a change in tastes, (b) It is very expensive to store specific goods for a long time, (c) Again the wealth stored in the form of specific goods may create jealousy and enmity among the neighbors or relatives.
5. Difficulty of Deferred Payments:
The barter system does not provide a satisfactory unit in terms of which the contracts about the deferred (future) payments are to be written. In an exchange economy, many contracts relate to future activities and future payments. Under barter system, future payments are written in terms of specific goods. It creates many problems. Chandler has mentioned three such problems:
(a) It may create controversy regarding the quality of goods or services to be repaid in future,
(b) The two parties may be unable to agree on the specific good to be used for repayment.
(c) Both parties run the risk that the goods to be repaid may increase or decrease in value over the period of contract.
6. Problem of Transportation:
Another difficulty of barter system is that goods and services cannot be transported conveniently from one place to another. For example, it is not easy and without risk for an individual to take heaps of wheat or herd of cattle to a distant market to exchange them for other goods. With the use of money, the inconveniences or risks of transportation are removed.
SO SORRY for the long answer!
