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What is Barter System & Its History

Definition of Barter System: 

 Barter system is defined as exchange of goods for other goods without the use of any medium of exchange. Barter system was prevalent at an early stage of man’s economic life when the wants were very limited in number.

Barter System Meaning:

           If you’ve ever exchanged one of your toys with a friend in return for one of their toys, you have bartered. Bartering is trading services or goods with another person when there is no money involved. This type of exchange was relied upon by early people. There are even beliefs within modern society who still rely on this type of exchange. Bartering has been around for a very long time, however, it’s not necessarily something that an economy or society has relied solely on.

what is barter system
what is barter system

What is Barter System?

           A barter system is an old method of exchange. 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. barter system 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 trade markets.

Barter System History:

           The history of barter system 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, barter system become popular in the 1930 s 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.

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What is barter system Difficulties :

The barter system has many problems , the main difficulties in barter system are as follow;

  • Double Coincidence of Wants
  • Lack of Information
  • Lack of a Standard Unit of Account
  • Production of Large and Very Costly Goods not Feasible
  • Impossibility of Subdivision of Goods

The above difficulties in barter system led to failure of barter system.

Barter System Advantages and Disadvantages :

           Just as with most things, there are disadvantages and advantages of barter system. A complication of bartering is determining how trustworthy the person you are trading with is. The other person does not have any proof or certification that they are legitimate, and there is no consumer protection or warranties involved. This means that services and goods you are exchanging may be exchanged for poor or defective items.

         You would not want to exchange a toy that is almost brand new and in perfect working condition for a toy that is worn and does not work at all would you? It may be a good idea to limit exchanges to family and friends in the beginning because good bartering requires skill and experience. At times, it is easy to think the item you desire is worth more than it actually is and underestimate the value of your own item.

            On the positive side, there are great advantages to bartering. As stated earlier, you do not need money to barter. Another advantage is that there is flexibility in bartering. For instance, related products can be traded such as portable tablets in exchange for laptops. Or, items that are completely different can be traded such as lawn mowers for televisions. Homes can now be exchanged when people are traveling, which can save both parties money.

           For instance, if your parents have friends in another state and they need somewhere to stay while on a family vacation, their friends may trade their home for a week or so in exchange for your parents allowing them to use your home.

            Another advantage of barter system is that you do not have to part with material items. Instead, you can offer a service in exchange for an item. For instance, if your friend has a skateboard that you want and their bicycle needs work, if you are good at fixing things, you can offer to fix their bike in exchange for the skateboard. With bartering two parties can get something they want or need from each other without having to spend any money.

The Economic Impact Of Bartering

Barter affects the economic system. Bartering is basically a personal activity  one 2 one, you and me getting what we want. On the other hand when millions of people are exchanging, it becomes more than just an individual action; it becomes a additional economic system, which both balances and adjusts the macrocosmic system. We can see this effect in various ways:

  1. It allows us to be less dependent on the job market. To get goods and services, we usually need money, which is usually taught through a job. If we want more services and goods, we usually have to get a high-paying job.

 But when we barter, each skill is a “job” in itself; we become a businessman who produces goods and services which we would have bought with the money from a job. Therefore:

    • We can accept a lower-paying job which we enjoy, and make up the difference by exchanging. This lesser-paying job can even be a part-time job.
    • We can stay at a lower-paying job which we enjoy, instead of climbing a stressful corporate ladder.
    • Nevertheless of our income level, we can increase it by have a second job with bartering. Instead of watching television in our free time, we can exchange our services — or our goods, which could be the handicrafts from a pleasant hobby.
  1. Bartering is not as liable to inflation. Consider these thoughts:
    • Inflation might raise the price of everything else, but if we agree that your rototilling equals my carpentry, that’s that. Three hundred years ago, we might have been able to trade an hour of teaching for a large bag of garden Fruits. The cash price might have been five cents for either one. In our current era, the teaching might cost 300 times that much ($30) and the fruits price could have inflated by that same amount. But the barter deal would be exactly the same.

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About the author

Salman Qureshi

Salman Qureshi is an Accountant by profession & he loves to write on Commerce & Management Sciences Subject to assist Students. Hope you guys will like his effort.

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