What are the difficulties that were faced under Barter System?
The five main difficulties found in barter system are as
follows:
1. Double Coincidence of Wants - Owning to lack of generally acceptable medium of exchange, a difficult
problem of double coincidence of wants was faced by the persons who wanted to
sell and buy goods. For exchange of goods persons desiring to exchange goods
must specifically want those goods what others offers in exchange. Thus, an
individual who wants to have a good he must locate another person who offers to
give up the good wanted by him and who is willing to accept in exchange the
good offered by him.
2. Lack of a Standard Unit of Account - A barter economy lacked not only a common medium of
exchange but also a standard unit of account in which prices could be measured
and quoted. In the absence of a common unit of account, the number of exchange
ratios (that is, prices of goods expressed in terms of each other) between
goods would be very large.
3. Impossibility of Subdivision of Goods - Another problem faced under the barter system for
exchange of goods was impossibility of subdivision of goods without loss of
their value. For instance, if a person has a cow and wants to have 5 kg of
wheat, obviously, it is too costly to give one cow for 5 kg of wheat he
requires.
4. Lack of Information - Another problem found in the
barter system was that in it traders required a good deal of information for
exchange of goods. For example, if Amit wants to have a saw in exchange of a
wooden table which he has made.
Not only should Amit be able to assess the value of saw
but the maker of a saw should also be able to determine the value of the wooden
table which Amit wishes to exchange. All this required a lot of information
about goods for which people must spend a good deal of time and resources to
obtain such information.
5. Production of Large and Very Costly Goods not Feasible
- Another problem of barter economy relates to the production of large, costly
goods. Suppose an individual who has technical skill and equipment to
manufacture a car will not have much incentive to manufacture it in the barter
economy.
This is because he can exchange a car with a person who
has enough goods having a value equal to a car so that their exchange with a
car can take place. The car maker must obtain food, clothing and several other
commodities of day-to-day consumption in exchange for a car. It will be very
difficult, almost impossible to find a prospective buyer who has enough of
these goods and services to give in return for a car.
The five main difficulties found in barter system are as follows:
1. Double Coincidence of Wants - Owning to lack of generally acceptable medium of exchange, a difficult problem of double coincidence of wants was faced by the persons who wanted to sell and buy goods. For exchange of goods persons desiring to exchange goods must specifically want those goods what others offers in exchange. Thus, an individual who wants to have a good he must locate another person who offers to give up the good wanted by him and who is willing to accept in exchange the good offered by him.
2. Lack of a Standard Unit of Account - A barter economy lacked not only a common medium of exchange but also a standard unit of account in which prices could be measured and quoted. In the absence of a common unit of account, the number of exchange ratios (that is, prices of goods expressed in terms of each other) between goods would be very large.
3. Impossibility of Subdivision of Goods - Another problem faced under the barter system for exchange of goods was impossibility of subdivision of goods without loss of their value. For instance, if a person has a cow and wants to have 5 kg of wheat, obviously, it is too costly to give one cow for 5 kg of wheat he requires.
4. Lack of Information - Another problem found in the barter system was that in it traders required a good deal of information for exchange of goods. For example, if Amit wants to have a saw in exchange of a wooden table which he has made.
Not only should Amit be able to assess the value of saw but the maker of a saw should also be able to determine the value of the wooden table which Amit wishes to exchange. All this required a lot of information about goods for which people must spend a good deal of time and resources to obtain such information.
5. Production of Large and Very Costly Goods not Feasible - Another problem of barter economy relates to the production of large, costly goods. Suppose an individual who has technical skill and equipment to manufacture a car will not have much incentive to manufacture it in the barter economy.
This is because he can exchange a car with a person who has enough goods having a value equal to a car so that their exchange with a car can take place. The car maker must obtain food, clothing and several other commodities of day-to-day consumption in exchange for a car. It will be very difficult, almost impossible to find a prospective buyer who has enough of these goods and services to give in return for a car.
