What are the Difficulties of Barter System?

A few major difficulties of the barter system may be traced below:

1. Want of Coincidence:

The first difficulty in the barter system of exchange is that there has to be a double coincidence of wants. Two persons can have barter exchange only if their disposable possessions mutually suit each other’s needs.

In barter trading, thus, two parties must agree on their mutual exchange, which is possible only if there exists a double coincidence of wants.

That is, one party must want a commodity which the other party wants to dispose of and the former must have disposable possession of the commodity that is desired in exchange by the latter.

In a barter, therefore, a person who wants to exchange his goods for some other goods has not only to find another person who possesses what he needs but who, at the same time, has a desire for what he has to offer.

In practice, it is difficult always to have such double coincidence of wants and, therefore, there are delays in transactions, and a considerable amount of time and effort is wasted in effectuating the exchanges.

Clearly, trade and business cannot develop rapidly in a barter economy for want of coincidence. Barter as such is a high barrier to economic progress.

2. Lack of a Common Measure of Value:

Another serious difficulty of the barter is that it lacks any common measures of value or unit of account. In the absence of a well-defined unit of account, in barter, the values of goods are measured in a relative sense; hence there is no absolute measurement of value.

Since the value of each commodity can be expressed in terms of every other commodity, one has to remember a large number of cross relations of values in exchange for different goods which is physically impossible to do when there are an infinite number of commodities. Under such conditions, no meaningful accounting system can be evolved.

3. Want of a Means of Sub-division:

Barter exchange also suffers from a severe inconvenience on account of indivisibility of many kinds of goods. One can easily portion out a bag of food-grains, a basket of fruits, etc. which are divisible goods and can give more or less in exchange for what is wanted. But, the real difficulty arises in the process of exchange between indivisible and divisible goods.

For instance, a horse is not divisible and cannot be exchanged in parts against different divisible goods like rice, sugar, potatoes, etc. thus, barter trade between divisible and indivisible goods in small values cannot be carried on without a loss of value.

In a barter system, smooth exchange operations are impossible for want of a means of sub-dividing and distributing values according to people’s varying requirements.

4. Lack of Standard of Deferred Payments:

Another drawback of barter is that it lacks a standard of deferred payments, so that contracts involving future payments or loan transactions cannot take place with ease in such a system.

Credit transactions cannot be promoted smoothly under barter trading. Chance of controversy about the quality of goods or services to be repaid can arise.

There will be no easy agreement on the mode of repayment. Credit transactions would also involve high risks to both parties as the real value of a commodity to be repaid may drastically increase or decrease in future.

5. Lack of Efficient Store of Value:

Perhaps, a major inconvenience of barter is the lack of facility to store value or the lack of existence of a generalised purchasing power. Under barter, people can store value for future use by storing wealth, but the difficulty arises when wealth consists of perishable goods.

Moreover, the store of value in terms of real wealth involves cost and further, the problem of storing the goods arises. In addition, bulky goods cannot be easily exchanged for other goods as and when required. A quick exchange sometimes involves a heavy loss, too.

It follows that the barter economy is a highly inefficient economy of exchange. With the progress of civilisation and economic expansion, these difficulties and inconveniences of the barter system become more pronounced. To overcome these drawbacks, some kind of money was invented and evolved in every society.