Trade by Barter: Definition, Problems, Pros & Cons

What is the meaning of Trade by Barter?

Trade by barter is the direct exchange of goods for goods, goods for services, or services for services. It was a system of exchange which was in use before the introduction of money.

Problems of Trade by Barter

• Problem of double coincidence of wants: It was time consuming and energy sapping to find someone who had what you required and at the same time, want what you had.
• Lack of common measure of values: It was difficult to know the quantity of a commodity one should exchange for another.
• Indivisibility of some commodities: Some commodities are large and cannot be easily divided into smaller units for exchange purposes.
• Bulkiness of some goods: Some goods are bulky and/or heavy and are therefore difficult to move about when in search of a trading partner e.g. furniture, cows etc.
• Difficulty in saving or storage: It was not easy to store perishable goods and bulky goods took up a lot of space.
• Lack of a standard for deferred payments: Credit transactions and lending were impossible as it was difficult to take goods on credit. To avoid all these problems, there was the need for a medium of exchange for goods and services. This led to the introduction of money.