Trade by barter may be defined as a form of trading in which goods are exchanged directly for other goods without the use of money as a medium of exchange. For example, if someone has garri and is in need of beans, he must locate someone who has beans and is in need of garri. This system of trading has many disadvantages and that is exactly what I will be discussing in this article. If you really want to know the problems presented by the trade by barter system I enjoin to read this article carefully.
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The earliest form or system of exchange was trad by barter. In barter goods are exchanged for other goods. A rice farmer, for instance, who only produces rice, has only rice to exchange for, say table and chairs. To make the trade, he will have to go round the neighborhood looking for a carpenter who makes table and chairs and who needs rice and will take it in exchange of his table and chairs. Similarly, a hunter who has surplus meat and hides may exchange his goods for the corn of yarm produced by a tiller of the soil.
These two examples shows how the earliest form of exchange, or barter, worked. Trade by barter has many disadvantages and inconveniences associated with it that gave rise to the use of money.
For a clearer explanation of the trade by barter system, i recommend you watch the video embedded below:
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Disadvantages or Problems of trade by barter
The following are the drawbacks of trade by barter.
1. There was the problem of inconvenient wants. This is the difficulty of bringing together two people, each of whom wants what the other has to exchange. For instance, if a have a bag of rice and want some fresh fish, the man who has the fish must be willing to have rice if an exchange is to take place. This is often not easy for arrange.
2. Another problem of trade by barter is the determination of the rate of exchange between two commodities. How many sticks of fresh fish, for example, should be given up in exchange for a bag of rice? This is obviously difficult to determine and the process of determination by bargaining may be time-consuming.
3. There is also the problem of difficulty of storing wealth of value under the trade by barter system. Imagine a rich man who stores all his wealth in he form of cows or bags of rice. In the event of an epidemic or a disaster like fire, the stored wealth may all die or be gutted away. The rich man could become wretched and poor in a matter of hours or days. This sort of mishap could be avoided by keeping one’s wealth in the form of money. Wealth in the form of money is completely liquid, although Its importance could be affected by changes in the purchasing power of money.
4. Another problem of barter is the Indivisibility or bulkiness of most goods. Take for example, a man who has a horse but wants a pair of shoes. Obviously, the horse is higher in value than the pair of shoes. He can neither offer a part of his horse or cutoff part of it without losing or killing it.
5. Trade by Barter also makes deferred payments difficult. In the event of an Unforseen circumstance, such an an epidemic or natural disaster, the stored wealth could be destroyed or perish on its own. The barter system does not, therefore lend itself easily to the credit system, which allows loans to be contracted and payments made in the future.
6. Finally, specialization is limited under the trade by Barter system. It is a primitive system which encourages producer to be self-sufficient. Specialization leads to exchange. A worker may be paid for producing only a small portion of a product, and he uses his earnings to purchase or buy what he needs from other workers or producers.
It was to overcome this difficulties of trade by barter that many came to be used to facilitate exchange. Money is a go-between, or something that the seller does not want for its own sake but for what it can do for him. Different kinds of materials and commodities have been used at one time or another as money. The aim always was to overcome the inconveniences of barter.
Before, precious metals were introduced, cowrie shells, cows, double barrelled guns, hides, glass beads, and so on, served as money. Then copper, silver, gold, tin and iron became popular and were used in the forms of bars, wires, cylinder and balls of specific weights, length and sizes.
Among the metals, gold has gained worldwide acceptance because it is durable and its quality does not deteriorate with time. It is widely admired for its prestige and ornamental value. It is relatively scares, easily divided, coined and melted for other uses. However, though gold has retained its value, it’s role as money today has largely been superseded by coin of different alloys, bank notes and bank deposits.