Barter System

Barter System is that system in which goods are exchanged for goods. In ancient times when money was not invented trade as a whole was on barter system. This was possible only in a simple economy but after the development of economy, direct exchange of goods without the use of money, was not without defects. Some of the defects are following :->>

Exchange can take place between two persons only if each possesses the goods which the other wants e.g., if a weaver needs shoes and he has cloth to offer in exchange he should not only find a cobbler who makes shoes, but find such cobbler who needs cloth and is prepared to give shoes in exchange for it. In this case, it was difficult to find such a person.

Under barter system there was no measure of value. Even if two persons met together who wanted each other goods, they could not find a satisfactory equilibrium price. Under such conditions one party had to suffer.

It was difficult to divide a commodity without loss in its value e.g., a man who wants to purchase cloth equal to half the value of his cow and other commodities for the rest half value of cow; he could not divide his cow.