Advantages of Barter System

Advantages of Barter System

Following are the important advantages of barter system.

1.    Inflation is only Monetary System

Inflation is something related with the monetary system. There is not general rise in price in barter system, it is important to remember that in barter system , there is no pricing mechanism exit, accordingly there is not phenomena of inflation.

2.    Equal Opportunity for Growth

Barter system supports the equal distribution of income. In barter system, everyone has fair chance of growth; production mainly depends on personal effort & skills. Therefore a person who will put more effort will earn more.

3.    Economic Stability is ensured

There is not trade cycle exists in barter system, and this system operates in a smooth way all the time, because this system is based on essential demand.

4.    Artificial Shortages are discouraged

in barter system producer is not in a position to create shortages, because there is no price mechanism is in place, therefore shortages cannot raise the prices, which is one of the primary cause of artificial shortages.

5.    Large Production not recommended

In barter system demand is the most important factor of producing the goods. Due to limitation of storage facility, producer strictly produces the goods as per real demand in the market.

Limitations of Barter System

Limitations of Barter System

Limitation of barter system has been explained below;

1.    Only Essential Goods are Produced

In barter system only essential and limited goods are produced, only those goods are produced which have a wide and known or established demand. There is no market for luxury goods in the barter system due to low demand.

2.    Effective for Limited Population

Barter system can work only for a limited or small population. This system work in a well integrated society, where every person knows the demand of the society and thus can effectively plan its production.

3.    No Market Dynamics

In barter system market dynamics of demand and supply cannot work properly, rather barter system based on intensity of demand & negotiation between interested parties. One of the main reasons of market lacking is lack of standard goods.

4.    Storage Issues

In barter system value is stored in goods, but many goods are perishable in nature and cannot be stored for a long period, moreover, storage also requires a huge space. Therefore storage of goods is one of the main limitations of barter system.

5.    No Standard Price & Value

There is no standard price concept in the barter system , furthermore barter system does not support any pricing concept, good are being exchange for different goods, and thus  determining the standard  price of goods nearly impossible in barter system.

6.    Credit Transaction not supported

Barter system does not support the credit transaction, because it is very difficult to establish future value of good, even establishment the current value of goods is difficult task in the barter system. Thus there is no concept of future transaction in barter system.

Characteristics of Barter System

Characteristics of Barter System

Barter system goods can be exchanged against good and there is no involvement of money in such system. Barter system is old & out dated system and currently there is no effective existence of this system.

1.    No Role of Money

In barter system, money does not play any role and such system works without money. In old days, when there was no concept of money, barter system was the only option for trade. This system became obsolete on introduction of money.

2.    Goods Exchanged for Goods

In barter system goods were exchanged against good, keeping in view modern money in mind, we can say that goods were used as money.

3.    Intensity of Want & Negotiation

Barter system is based on the intensity of want for a good and negotiation between two parties for exchange of goods. Barter system does not support the proper market concept of free economy.

4.    Limited & Essential Goods Concept

Barter system only supports the production of limited and essential goods, which can easily be exchanged with other goods. There is no effective market for non essential or luxury goods.

5.    Effective for Limited Population

Barter system is only effective for limited population, where people know the need of other and producing the required goods according demand. Barter system does not support large production, and people would produce the goods which can be exchanged.

6.    Stability in Economy

Stability in the economy is one of the important characteristics of barter system. There is no artificial shortage and inflation in the barter system. In barter system demand & supply does not depends on the prices and therefore it function in stable and smooth way.