Man was a nomad during primitive times. He wandered from place to place and satisfied his needs.Later man started settling at a place. They started farming and other occupations. The needs of man were increased.The division of labour came into force which led to the exchange of goods.Exchange of goods was called the Barter system.
Advantages of Barter System:
The advantages of Barter System were Simplicity, More suitable in International trade, No problem of over-production and Under-production, No concentration of economic power.
Disadvantages of Barter System:
- Barter system is very simple, without any complications and suitable in International trade.
- In this system the shortage of foreign exchange and imbalance in trade does not occur.
- In barter system there is no wastage which occur in monetary economy.because goods are not over produced or under produced.Only the required quantity is produced.
- The economic power is not concentrated at one particular place in bater system because people do not gather wealth.
The disadvantages of barter system were Goods were limited, Need for Double Coincidence of wants, Difficulty of Division and Sub - division of Goods, Difficulty in calculating the value of goods, Difficulty in the case of services and Difficulty in Strong Value.
- In barter system the goods were limited. Barter system was lead only to lower level development.
- Barter system was good when needs were limited. Needs of man were increased but the supply of goods were not enough to satisfy man’s needs.
- Needs differentiate from man to man. If either parties get what they need then it is double coincidence. If not it is a trouble as they don’t get what they need.
- In the barter system it is difficult to divide and sub-divide goods.Posibility of exchange his good for only one good not for two or more.
- The value of the goods cannot be distributed equally as there were no measure during that period.
- The exchange of goods worth a service of a person was impossible as it was inconvenient to measure it. Barter sytem cannot exchange goods for services.
- Perishable goods could not saved as wealth for their future expenses. The economy could not contribute anything towards capital formation of the country too.
Due to these disadvantages the barter system slowly went down and perished. Finally money was invented and man became dependent to satisfy all his needs.