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Essay on Barter Trade System

Essay Contents:

  1. Essay on the Meaning of Barter Trade System
  2. Essay on the History of Barter Trade System
  3. Essay on Barter Trade in India
  4. Essay on the Merits of Barter Trade
  5. Essay on the Demerits of Barter Trade
  6. Essay on the Conclusion to Barter Trade System

Essay # 1. Meaning of Barter Trade System:

Barter is an old exchange system. In this system goods or services are directly exchanged for other goods or services. In was occurred without using a medium of exchange, such as money. Direct barter in western market economies has been aided by exchanges since the 1830s and thereafter various currencies invented. David Graeber argue that the inefficiency of barter in archaic society has been used by economists since Adam Smith to explain the emergence of money, the economy, and hence the discipline of economics itself.

Bartering is a very old concept. It was the sole form of purchasing goods and services between individuals earlier than the creation of currency. In spite of the fact that economics have significantly developed, bartering is just as legitimate today. Human life and activities are very simple in the initial stages. When people start their journey, at that time there was not any money.

People traded items with items (i.e. corn may be exchanged for cloth, house for horses, bananas for oranges and so on) and sometime precious goods were used as measurement of exchange. Barter system work well in such a traditional society where economic production is less, economic development is low and exchange is little.

Barter method is an age-old technique that was implementing by people to replace their services and commodities. It was a useful method before the discovery of currency. People receive certain goods or services in exchange of other goods or services. As the society development and people identified its limitation and so uses of such systems was falls continuously.

It may be considering root of economic concept of todays. It is consider an old transaction theory where currency was absent. Increasing difficulties and inconveniences of the barter system led to the invention of money. Such system was created problems for trade between nations.

Even today’s some parts of African nations and few backward areas of India barter system found. As the society developed than problems of such system is more realising. It is true that barter arrangement’s is useful for cash savings and also for reducing financial paperwork. Under such system there is no requires of money between trading parties.

Barter trade simply shows buy and sell of goods and services between two or more parties without the exercise of money. Bartering benefits individuals, companies and countries that see a mutual benefit in exchanging goods and services rather than cash, and it enables those who are lacking hard currency to obtain goods and services. It is an economic system in which two parties trade certain goods or services that each needs to survive.

Bartering benefits companies and countries that see a mutual benefit in exchanging goods and services rather than cash, and it also enables those who are lacking hard currency to obtain goods and services. It is a way of exchanging things for things. Nowadays we exchange things for money but in olden days, when money was not invented, people exchanged things that they do not need to others and got what they need.

Bartering is a system of interchange commodities and services between persons or groups of people. Such mechanism work properly when goods produce by one person has enough demands in the market. For example, a farmer with a surplus of wheat might trade some with another farmer with a surplus of corn.

Essay # 2. History of Barter Trade System:

It is a very old system that starts back to 6000 BC. It was initially introduced by Mesopotamia tribes and then was adopted by Phoenicians. They bartered goods to those located in various other cities across oceans. It was also adopted by Babylonian’s.

Goods were exchanged for food, tea, weapons, and spices. At that time some special goods were used like money. Salt was popular item exchanged. Salt was so valuable that Roman soldiers’ salaries were paid with it. In the middle Ages, Europeans in the middle age also barter crafts and furs in exchange for silks and perfumes when they traveled trade in various regions.

Such system was also popular during the Great Depression time of 1930s, due to lack of money. It was able to get food and various other services through it. If any items were sold, the owner would receive credit and the buyer’s account would be debited.

Traders of various European countries used this system during the middle age when trade commodities with other countries. It was a technique for collecting food and other services from other countries. The trading was done between people or through groups, who acted as agents and facilitated third party bartering. Such system has been in use throughout the world for centuries.

The invention of money did not result in the end of bartering services. Individuals or companies can exchange goods at wholesale values, saving them money over the traditional buy-sell method. Even countries enter into bartering agreements with each other. The agreement would bypass economic conditions that make the same arrangement difficult to execute with an exchange of money. 

Essay # 3. Barter Trade in India:

The barter trade system allows two parties to interchange commodities or services and it is on mutual benefits. It was a process since the dawn of civilisation. Historically the barter trade system is a useful method when financial crisis present or currencies are unstable, or there is no currency. Such trade was used in India in old period but currently this system officially not operating.

This system can found unofficially in various parts, particularly in rural areas when there is shortage of currency. It can easily found in Indian rural areas when people, suppose farmers exchange vegetable with other durable goods or others when one person or both have shortage of fund. Internationally this system can found when there is shortage of foreign exchange reserve between nations.

Essay # 4. Merits of Barter Trade:

It is a simple system devoid of the complex problems of the modern monetary system. There is no question of over or under­production under the barter trade system. There is no problem of concentration of economic power into the hands of a few rich persons.

The barter trade system reaps the benefits of division of labour. There is no problem of over production or under production in barter trade system. Various international problems, like as foreign exchange crisis, adverse balance of payments, do not exist under such system.

Barter exchanges are often ideally suited for companies who want to unload excess inventory or old equipment (machinery, office furniture, etc.) while at the same time realising some financial benefit. Increasing numbers of small business owners are using bartering as a way to cut down on costs associated with business travel.

There is no possibility of concentration of economic power in the hand of few persons, because in barter trade system it is hard to store goods for long periods. Barter exchanges are a potentially valuable tool for small businesses to contact and acquire new customers/clients. Bartering networks can also serve as an alternative to more traditional means of financing for small businesses.

Although barter trade system is a very striking, does not give total pleasure where the parties are incapable to match their requirements and requests on a straight mutual basis. Barter should never be viewed as a substitute for normal cash transactions, but is an effective and profitable method of supplementing turnover, by providing with access to a large base of barter traders. In this system personal and natural resources can be properly utilise without involving wastage. Division of labour that is more important for increasing production can possible in this system.

Essay # 5. Demerits of Barter Trade:

The barter trade system sustained early economies for millennia, and it probably predates recorded history. It has a lot of disadvantages that the invention of currency solved. Sometimes bartering is just plain impractical because it takes a lot of time and work.

Barter trade system involves various difficulties and inconveniences which are discussed below:

1. Under barter trade system, a double coincidence of wants is required for exchange. In other words, the wants of the two persons who desire to exchange goods must coincide. It means if suppose person ‘A’ what to get cloth in exchange of rice, than person ‘B’ should needs rice in exchange of cloth. It means both people have mutual interest. Suppose if any person produce only rice and if no one have demand of rice in the marker than that person cannot get other goods from the market.

2. The absence of a common measure of value creates great problem because a lot of time is wasted to strike a bargain. It is a basis problem; in this system people cannot say how much rice equal to one cloth. It varies from place to place and time to time.

3. Divisibility of good is also problems in some time. It is correct that all goods cannot be divided and subdivided. In the absence of a common medium of exchange, a problem arises, when a big indivisible commodity is to be exchanged for a smaller commodity. For example, rice, wheat can divide, like as 1 kg, 500 gram, 200 gram, so on, but other things like as, animals, wheel etc., you cannot divide, or if divide than there is no value of it.

4. There is absence of a proper and convenient means of storing wealth or value. Storage of goods under this system is a problem because in long period goods may spoil or demands may fall. Storage cost also involves in it, or if any one store goods than from natural disaster, like fire, water it may affects.

5. It does not provide a satisfactory unit in terms of which the contracts about the deferred (future) payments are to be written. There is no assurance that in future quality of the goods will be same, or both have equally demand of that product.

6. Transportation is a problem in this system. Goods may spoil or broken during it. Goods and services cannot be transported conveniently from one place to another.

Essay # 6. Conclusion to Barter Trade System:

So we can say that, barter trade shows buy and sell of goods and services between two or more parties without the exercise of money. Bartering benefits individuals, companies and countries that see a mutual benefit in exchanging goods and services rather than cash, and it enables those who are lacking hard currency to obtain goods and services.

It is a very old system that starts back to 6000 BC. It was initially introduced by Mesopotamia tribes and then was adopted by Phoenicians. They bartered goods to those located in various other cities across oceans. It was also adopted by Babylonian’s. Barter system was an act of trading in which goods were exchanged for goods instead of money.

The advantages of this system are:

(a) It was very simple system. There was no complex problem due to the present monetary system;

(b) Resources were properly used as there was no other way to purchase things;

(c) There was no monopoly in the economy.

The disadvantages of barter trade system:

(a) There was no common measuring value in the barter system;

(b) Difficulty in transactions if the buyer cannot divide hos goods into smaller parts, if he wants to buy something worth less than his big goods.

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