As a system of trading, barter involving the direct exchange of commodities and services against commodities and services in society is as old as human civilization The origin of barter is traceable in the inherent human tendency to barter which serves the self-interest of every individual in society. Man is not equally adapted to produce all those things which he requires for his consumption because his aptitude and ability are not versatile. Therefore, it is necessary to exchange. So, Barter is a system in which people sell goods and services to obtain other goods and services through direct exchange.
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Difficulties of Barter System:
When an exchange is done without the intervention of money, we call it barter. Barter, however, is possible only under the extremely simple condition of exchange.
As a social organization became more complex through a more minute division of labor and multiplicity of human wants, it was realized that exchange by barter was not a satisfactory method.
The following are the main difficulties of the barter system:
1. Double coincidence of wants: Barter requires a double coincidence of wants If 'A' possesses a cow, for instance, and wants to exchange it for a horse, he has to find a person, who only can spare a horse but also wants a cow. Suppose he meets 'B' who wants a cow but can only offer sheep, 'A' may then have to find a man who wants sheep and so on until he can get the commodity he wants by series of barter transportations. The method involves much inconvenience.
2. Lack of a common measure of value: The difficulties of barter do not end even if two persons, who want each other's goods need to meet each other, a second difficulty arises. In which the proportion of the two goods are to be exchanged. The non-common measures of value. The ratio will be arbitrarily fixed according to the necessities of the two parties or the intensities of the reciprocal demand. One party is bound to suffer under conditions, where each exchange is an isolated transaction.
3. Indivisibility of certain articles: Even if an agreement is reached regarding the proportion in which things should be exchanged, a third difficulty may arise when the commodities concerned are indivisible. For instance, take the case of a man who wants to purchase wheat equal to half to the value of his cow with the other half, he wants to purchase clothing that is in the possession of a third person. How is the cow to be divided? Many similar situations can be imagined.
The difficulties of barter can be illustrated by taking the exchange of a French singer who gave a performance on an island where money was not in use, she was paid in the form of pigs, goats, fowls apples, bananas, etc. She had to give the fruits and other things to her pigs and goats to keep them alive.
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