What is Trade by Barter
A student who is a regular reader of this site asked ask this question, what is Trade by Barter? and this answer is provided with this post.
Trade by Barter may be defined as form of trading in which goods are exchanged directly for other goods without the use of money as a medium of Exchange. For instance, If some one needs rice and needs meat, he must locate another fellow who needs meat in need of rice.
Problems of Trade by Barter
1. Wastage of time and effort: Trade by Barter often leads to waste of time and effort because someone in need of a particular commodity needs to search for people who needs his own.
2.No fix rate of Exchange: There is always a problem of exchange rate determination between two products. Different rates of exchange have to be determined to cover every transaction. Read Also - Factors that Determine the Growth of Commerce
3. Double Coincidence of wants: This involves looking for someone who is in need of what you have and at the same time has what you need. Its always a problem at times.
4. Problem of invisibility; Many goods cannot be divided into small convenient units because they are heavy and indivisible so this does not encourage divisibility.
5. Bulkiness Goods; this is a problem because some of the goods to exchange may be bulky and difficult to to carry around.
6. It discourages borrowing; borrowing and lending under trade by Barter is practically impossible as there's no standard unit of measurements.
7. No Deferred Payments: In trade by Barter, there is no room for deferred payment. One cannot collect certain goods and hope to pay another day but trade by Barter requires immediate payment.
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8. No large scale production; people produce mainly for themselves and their families which requires no large scale production. Hence,trade by Barter encourages self sufficient.
9. Wealth Storage; Trade by Barter does not encourage storing wealth especially when there are perishable goods like fruits.
Trade by Barter is an old payment system and a form of money used before the real currencies are made. Thanks.