In a primitive society, economic activities were not developed. This economy was not monetized. People produce the required goods themselves as far as possible. If they could not produce necessary goods they are exchanged goods for goods. The system of exchanging goods for goods is called the barter system.
The barter system of trading originated when man required such things which he couldn't produce himself. He started producing soft goods and services which we are able to produce and the surplus goods were exchanged for deficit goods. Thus in a Barter, one person sells goods to another in exchange for other goods. In a barter system, a particular want is satisfied in a single transaction.
In the initial period of human civilization, the wants of the people were Limited. With the development of human civilization, wants an increase in number and variety. As a result, it becomes increasingly difficult to barter under the barter system. This lead to the origin of money.
Difficulties of a barter system
1. Double coincidence of wants
The barter of goods is possible only when the two people are ready to exchange goods for goods. For example, Puja has fruits and she wants rice against fruit. Similarly, Sagun has excess rice and wants to change it for fruits. Here, coincide and they are ready to exchange rice and fruits. Thus butter of goods is possible only when there is a double coincidence of wants. In reality, it is very difficult to get such a coincidence.
2. Lack of common measure of value
One of the serious difficulties of the barter system is the lack of a standard measure of value acceptable to all. The barter lacks system units of standard measurement. For example, Ram needs Goats, Shyam needs cow. Here the problem arises as to how much goats can be exchanged for a cow? Is no common measure of volume in exchange for goats in a cow.
3. Difficult to exchange indivisible goods
The commodity of higher worth has to be divided into small pieces to make an exchange for the commodity of lower worth. All commodities cannot be divided into small pieces. Some commodities lose their utility and become worthless if they are subdivided. For example, a person has a horse and he wants to extend his horse with some rice, soap, sugar, clothes, etc. In this situation, he cannot divide his horse into many pieces for those goods.
4. Difficult to deferred payment
In the barter system, it is difficult to exchange goods on credit. Goods most Exchange with goods. There is no provision to get goods in credit, and there is a difficulty for deferred payment. For example, Shyam has taken a cow from Ram and has to pay it back after a year. In this case, complexity arises as to what and how much to pay after one year to Ram.
5. Limits and scope of the market
The barter system limits the scope of the market. Due to the difficulty of transport and communication, it is difficult to exchange goods in distant places. At times, the transportation cost may exceed the value of goods transacted if the trading parties are far off.
6. Limits specialization
A barter exchange is done on a small scale. Larger-scale production is not possible. Its trade and market are limited. Hence, it is difficult to achieve a high level of specialization.
7. Difficult to store value
Some goods are perishable in nature. For example vegetables, fruits, fish, etc cannot be stored for a long time. If such goods are not exchanged in time the value of those goods will be lost.
8. Lack of transfer of value
It is almost impossible to transfer one's wealth or goods from one place to another. For example, it is difficult to transfer land, buildings. The transfer cost of goods is also very high.
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