Barter: the meaning and problems of barter
Barter trading long existed during the days of our ancient father Abraham then coins and paper came to replace it, but why was it abolished, follow me as I tell you what really happened
The meaning of barter:
Exchanging goods directly without using the currency is called bartering.; Or, economic exchange without a monetary medium is called bartering.
The economy based on bartering (ie, the exchange of commodities for commodities) is called the C.C. economy, which means that commodities are exchanged for commodities. In such an economy, a person gives up his surplus goods and gets what he needs in return.
For example, when weavers provide farmers with cloth in exchange for farmers’ wheat, this is called bartering. Similarly, the farmer can obtain other items he needs by providing surplus wheat (or rice or corn), such as shoes, cattle, plows, shovel, etc. Therefore, the barter system meets the requirements of both parties to the transaction to a certain extent, but as the transaction volume increases, the inconvenience and difficulty of the barter transaction also increase, which means an increase in negotiation costs. Trade cost is the cost of participating in trade.
Its two components are search costs and the inefficiency of waiting. Remember, search cost is the high cost of finding the right person to exchange for the goods, and the inefficiency of waiting refers to the time it takes to find the person you need. This ultimately led to the evolution of currency as a medium of exchange.
The following are some shortcomings or shortcomings of barter transactions.
Disadvantages (problems) of barter:
1. Lack of double desire:
Double desire means that what one person wants to buy and sell must be the same as what another person wants to buy and sell.
Both the buyer and the seller satisfy the common aspiration at the same time, which is called a double coincidence of aspirations.
In barter transactions, there is a double mismatch in the needs of buyers and sellers.
The clothes producer may need shoes in exchange for his clothes. But you may find it difficult to find a shoemaker who is willing to change your shoes to jute. Therefore, the seller must find a person who wants to buy goods from the seller, and at the same time must own what the seller owns. The seller wants.
This is called a double coincidence of desire, and this is the main disadvantage.
2. Lack of a common value measurement standard:
In barter transactions, there is no common value measurement standard product).
Even if the buyer and seller of each other product meet, the question of what proportion should be exchanged between the two products will arise.
Each item must have as many different values as the other items redeemed.
When thousands of items are produced and traded, there will be an unlimited number of redemption rates.
The lack of a common denominator for expressing exchange rates has caused many difficulties.
Currency avoids these difficulties and serves as a convenient unit of value and account.
3. Lack of deferred payment standards:
There are problems with loans and loans.
Due to the lack of satisfactory units, it is difficult to sign contracts involving future payments.
Therefore, future payments must be expressed in the form of specific goods or services.
However, there may be differences in the quality of the goods, the specific types of goods, and changes in the value of the goods.
4. Difficulties in storing wealth (or purchasing power in a broad sense):
It is difficult for people to store wealth or purchasing power in a broad sense in the form of cows, wheat, potatoes, and other commodities for future use.
Holding inventory of such goods involves expensive storage and damage.
5. The indivisibility of commodities:
how to exchange commodities of unequal value? If a family wants to sell its cows in exchange for cloth that is half the value of its cows, it has to kill it.
Therefore, the lack of severability of goods makes bartering impossible. To overcome the above shortcomings of the barter system, society invented currency.