Past and Present History Of Barter System

If you've ever swapped one of your toys with a friend in return for one of their toys, you have bartered. Bartering is trading services or goods with another person when there is no money involved. This type of exchange was relied upon by early civilizations. There are even cultures within modern society who still rely on this type of exchange. Bartering has been around for a very long time, however, it's not necessarily something that an economy or society has relied solely on.

What is a Barter System?

Barter System

A barter system is an old method of exchange. Th is system has been used for centuries and long before money was invented. People exchanged services and goods for other services and goods in return. Today, bartering has made a comeback using techniques that are more sophisticated to aid in trading; for instance, the Internet. In ancient times, this system involved people in the same area, however today bartering is global. The value of bartering items can be negotiated with the other party. Bartering doesn't involve money which is one of the advantages. You can buy items by exchanging an item you have but no longer want or need. Generally, trading in this manner is done through Online auctions and swap markets.

History of Bartering -

The history of bartering dates all the way back to 6000 BC. Introduced by Mesopotamia tribes, bartering was adopted by Phoenicians. Phoenicians bartered goods to those located in various other cities across oceans. Babylonian's also developed an improved bartering system. Goods were exchanged for food, tea, weapons, and spices. At times, human skulls were used as well. Salt was another popular item exchanged. Salt was so valuable that Roman soldiers' salaries were paid with it. In the Middle Ages, Europeans traveled around the globe to barter crafts and furs in exchange for silks and perfumes. Colonial Americans exchanged musket balls, deer skins, and wheat. When money was invented, bartering did not end, it become more organized.

Due to lack of money, bartering became popular in the 1930s during the Great Depression. It was used to obtain food and various other services. It was done through groups or between people who acted similar to banks. If any items were sold, the owner would receive credit and the buyer's account would be debited.

Advantages and Disadvantages of Bartering -

Just as with most things, there are disadvantages and advantages of bartering. A complication of bartering is determining how trustworthy the person you are trading with is. The other person does not have any proof or certification that they are legitimate, and there is no consumer protection or warranties involved. This means that services and goods you are exchanging may be exchanged for poor or defective items. You would not want to exchange a toy that is almost brand new and in perfect working condition for a toy that is worn and does not work at all would you? It may be a good idea to limit exchanges to family and friends in the beginning because good bartering requires skill and experience. At times, it is easy to think the item you desire is worth more than it actually is and underestimate the value of your own item.

On the positive side, there are great advantages to bartering. As mentioned earlier, you do not need money to barter. Another advantage is that there is flexibility in bartering. For instance, related products can be traded such as portable tablets in exchange for laptops. Or, items that are completely different can be traded such as lawn mowers for televisions. Homes can now be exchanged when people are traveling, which can save both parties money. For instance, if your parents have friends in another state and they need somewhere to stay while on a family vacation, their friends may trade their home for a week or so in exchange for your parents allowing them to use your home.

Another advantage of bartering is that you do not have to part with material items. Instead, you can offer a service in exchange for an item. For instance, if your friend has a skateboard that you want and their bicycle needs work, if you are good at fixing things, you can offer to fix their bike in exchange for the skateboard. With bartering two parties can get something they want or need from each other without having to spend any money.

Barter is a system of exchange (Trade) by which goods or services are directly Swap Products for other goods or services without using a medium of exchange, such as Money.

The system of exchange wherein one commodity is exchanged for another of equal, more, or lesser value to the traders.

In barter system, people exchange their products.

But the problems are-

1. It is difficult to find people who want the thing which you sell and sell the same thing that you want.
2. It is difficult to find out the actual price of your product. For example- you may have to sell 15 kg fruits to buy just 1 shirt.
3. It is difficult to divide your products. For example- you wish to sell 5 kg fruits to buy a goat while the other person wants 10 kg fruits for his goat. You cannot divide the goat for something in between.

These are the reasons why we have money today. All the problems mentioned above are overcome by the use of currency.

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Barter Terms Of Trade Limitations

Measuring the direction of movement of the gains from trade, this concept has important limitations.

1. Problems of Index Numbers: 

Usual problems associated with index number in terms of coverage, base year and method of calculation arise.

2. Change in Quality of Product:

Swap Products

The Swap Products terms of trade are based on the index numbers of export and import prices. But they do not take into account changes taking place in the quality and composition of goods entering into trade between two countries. At best, commodity terms of trade index shows changes in the relative prices of goods exported and imported in the base year. Thus the net barter terms of trade fail to account for large change in the quality of goods that are taking place in the world, as also new goods that are constantly entering in international trade.

3. Problem of Selection of Period:

Problem arises in selecting the period over which the terms of trade are studied and compared. If the period is too short, no meaningful change may be found between the base date and the present. On the other hand, if the period is too long, the structure of the country’s trade might have changed and the export and import commodity content may not be comparable between the two dates.

4. Causes of Changes in Prices:

Another serious difficulty in the commodity terms of trade is that it simply shows changes in export and import prices and not how such prices change. As a matter of fact, there is much qualitative difference when a change in the commodity terms of trade index is caused by a change in export prices relative to import prices as a result of changes in demand for exports abroad, and ways or productivity at home. For instance, the commodity terms of trade index may change by a rise in export prices relative to import prices due to strong demand for exports abroad and wage inflation at home. The commodity terms of trade index does not take into account the effects of such factors.

5. Neglect of Import Capacity:

The concept of the commodity terms of trade throws no light on the “capacity to import” of a country. Suppose there is a fall in the commodity terms of trade in India. It means that a given quantity of Indian exports will buy a smaller quantity of imports than before.

Along with this trend, the volume of Indian exports also rises, may be as a consequence of the fall in the prices of exports. Operating simultaneously, these two trends may keep India’s capacity to import unchanged or even improve it. Thus the commodity terms of trade fails to take into account a country’s capacity to import.

6. Ignores Productive Capacity:

The commodity terms of trade also ignores a change in the productive efficiency of a country. Suppose the productive efficiency of a country increases. It will lead to a fall in the cost of production and in the prices of its export goods.

The fall in the prices of export goods will be reflected in the worsening of its commodity terms of trade. But, in reality, the country will not be worse off than before. Even though a given value of exports will exchange for less imports, the country will be better off. This is because a given volume of exports can now be produced with lesser resources, and the real cost of imports, in terms of resources used in exports, remains unchanged.

7. Not Helpful in Balance of Payment Disequilibrium:

The concept of commodity terms of trade is valid if the balance of payments of a country includes only the export and imports of goods and services, and the balance of payments balances in the base and the given years. If the balance of payments also includes unilateral payments or unrequired exports and or/imports, such as gifts, remittances from and to the other country, etc., leading to disequilibrium in the balance of payments, the commodity terms of trade is not helpful in measuring the gains from trade.

8. Ignores Gains from Trade:

The concept of commodity terms of trade fails to explain the distribution of gains from trade between a developed and under-developed country. If the export price index of an underdeveloped country rises more than its import price index, it means an improvement in its terms of trade. But if there is an equivalent rise in profits of foreign investments, there may not be any gain from trade.

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To overcome this last difficulty, Taussig introduced the concept of the gross barter terms of trade.

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