Barter Trading System

                                  Barter Trading System

A barter system is a system of exchange where participants in a transaction directly exchange good or services for other goods or services without using a medium of exchange, such as money.This system has been used for centuries and long before money was invented. People exchanged services and goods for other services and goods in return. Today, bartering has made a comeback using techniques that are more sophisticated to aid in trading; for instance, the Internet. In ancient times, this system involved people in the same area, however today bartering is global. The value of bartering items can be negotiated with the other party. Bartering doesn't involve money which is one of the advantages. You can buy items by exchanging an item you have but no longer want or need. Generally, trading in this manner is done through Online auctions and swap markets.

History of Barter System

The history of bartering dates all the way back to 6000 BC. Introduced by Mesopotamia tribes,bartering was adopted by Phoenicians. Phoenicians bartered goods to those located in various other cities across oceans. Babylonian's also developed an improved bartering system. Goods were exchanged for food, tea, weapons, and spices. At times, human skulls were used as well. Salt was another popular item exchanged. Salt was so valuable that Roman soldiers' salaries were paid with it. In the Middle Ages, Europeans traveled around the globe to barter crafts and furs in exchange for silks and perfumes. Colonial Americans exchanged musket balls, deer skins, and wheat. When money was invented, bartering did not end, it become more organized.

Due to lack of money, bartering became popular in the 1930s during the Great Depression. It was used to obtain food and various other services. It was done through groups or between people who acted similar to banks. If any items were sold, the owner would receive credit and the buyer's account would be debited.

Limitations of Barter System

1.There needs to be a 'double coincidence of wants'

For barter to occur between two parties, both parties need to have what the other wants.

2.There is no common measure of value

In a monetary economy, money plays the role of a measure of value of all goods, so their values can be assessed against each other; this role may be absent in a barter economy.

3.Indivisibility of certain goods

If a person wants to buy a certain amount of another's goods, but only has for payment one indivisible unit of another good which is worth more than what the person wants to obtain, a barter transaction cannot occur.

4.Lack of standards for deferred payments

This is related to the absence of a common measure of value, although if the debt is denominated in units of the good that will eventually be used in payment, it is not a problem.

5.Difficulty in storing wealth

If a society relies exclusively on perishable goods, storing wealth for the future may be impractical. However, some barter economies rely on durable goods like sheep or cattle for this purpose.