Why did the Barter System Fail?

By BYJU'S Exam Prep

Updated on: November 9th, 2023

The Barter System Failed due to a clash of two competing desires, the absence of a common unit of account, a lack of information, and the impossibility of producing large quantities of expensive goods. A shared standard of value and complementary desires is another issue. Because the barter system cannot be used in large economies, it has failed.

Failure of the Barter System

The primary issues with the barter system include the ones listed below:

Double Coincidence of Wants

  • Because there was no widely accepted system of trade, those who wanted to sell and buy things had to deal with the difficult issue of double coincidence of wants.
  • To exchange goods, one must wish for the goods that the other is offering.
  • Because of this, if someone wants something, they must find someone willing to trade something for it and accept it in exchange.

Not having a Standard Unit of Account:

  • A barter economy lacked a standard unit of account in which prices could be measured and quoted in addition to a common medium of trade.
  • The number of exchange ratios, or the prices of items expressed in terms of one another, would be exceedingly high if there were no standard units of account.

Lack of Information

Another issue with the barter system was that it required traders to exchange information to swap products.

Read: What is Barter System and its Problems?

Unfeasible to Produce Huge and Expensive Commodities

  • The impossibility of producing large, expensive goods is another problem with the barter economy.
  • Assume that even someone with the required resources and technical knowledge would find it difficult to manufacture an automobile using a barter system.


Why did the Barter System Fail?

The barter system failed because of not having a standard unit of account, double coincidence of wants, not feasible to produce huge and expensive commodities, and lack of information.

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