ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Barter Exchange System

Updated on January 9, 2015

Prior to the introduction of money as it is known today, trade was carried out by barter, i.e. exchange of goods for goods. Due to the wasteful nature of barter, the amount of trade that could be carried out by this method of exchange was limited. The utility gained from trade would be outweighed by the utility lost in the process of making the trade.

The difficulties involved in barter exchange:

The first main drawback of barter is the absence of a common unit in terms of which can be measured the values of goods and services. The value of a good or service means the amount of other goods and services with which it can be exchanged for in the market. The lack of a common unit meant that no proper accounting system was possible. The value of each good and service would have to be expressed not just as one quantity but in as many quantities as there are kinds and qualities of other goods and services in the market. If there were 1000 goods and services in the market, then the value of each would have to be expressed in terms of 999 others.

Secondly, under barter there was the lack of'double coincidence of wants'. It would be a rare occasion when the owner of some goods or services could find someone else who both wanted the former's good or service more than anything else and possessed that good or service that our trader wanted more than anything else. Consider a situation where a person desires to exchange his cow for a bullock cart. His problem is that he has to find a provider of a bullock cart - either new or pre-existing - that matches the required specifications, who wants exactly the kind of cow that the person is offering. This type of chance, discovery of a bullock cart provider would be a rare occurrence. The person would most likely have to make some intermediate transactions - cow for horse, horse for boat, boat for sheep and finally sheep for the desired bullock cart; or he would have to accept something less desirable than the bullock cart.

Thirdly, the barter system lacks any satisfactory unit to engage in contracts involving future payments. Contracts requiring future payments are commonplace in any exchange economy - we enter into agreements regarding wages, salaries, interests, rents etc. and other prices extending over a period of time. In a barter economy future payments would have to be stated in terms of specific goods or services. This leads to the following problems:

  • There could be disagreement regarding the quality of the goods or services to be repaid.
  • There could be disagreement regarding which specific commodity would be used for repayment.
  • The risk exists that the commodity to be repaid could increase or decrease markedly in value over the duration of the contract, thus benefiting the creditor or the debtor respectively.

Fourthly, the barter system does not provide for any method of storing generalised purchasing power. People can store purchasing power for future use by holding stocks of certain commodities to be exchanged for other commodities later. This holding of stocks of certain commodities is subject to certain problems such as costly storage, deterioration or appreciation in the value of the stored commodity, or difficulty in quickly disposing of the commodity without loss if the owner wants to buy something else.

Due to the above four disadvantages of the barter system, the exchange process tends to be highly inefficient. It was to overcome these difficulties that money, as we understand it today, was invented by society. This was necessitated by the increasing scale of industrialisation and commercialisation, which warranted the monetisation of transactions.

© 2009 Dilip Chandra


    0 of 8192 characters used
    Post Comment

    • profile image

      gul laly 

      6 years ago

      Thanks for providing such a helpful and easiest inf.

    • profile image


      6 years ago

      Thanks its very helpful

    • profile image


      6 years ago

      thanks for help

    • profile image


      7 years ago

      i hope this helps in the exam thanks

    • toknowinfo profile image


      7 years ago

      Very interesting. Thanks for sharing this knowledge.

    • profile image

      Mystrious girl 

      8 years ago

      thanks for the matter really helpful in making notes and scoring good marks in the examination


    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at:

    Show Details
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the or domains, for performance and efficiency reasons. (Privacy Policy)
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)