What is Meant by the Barter System?
By BYJU'S Exam Prep
Updated on: November 9th, 2023
An ancient method of exchange that was used before money was used was the barter system. It involved exchanging goods and services for substitute goods and services. In essence, it entails one party offering a specific good or service in exchange for another party providing a different good or service. However, in large economies where there is a demand for money or currency, the barter system can become challenging.
Table of content
Meaning of Barter System
The Barter system was an old method of exchanging goods where there was no interchange of money. Let’s use the example of a carpenter who constructs a hut for a farmer to better understand the concept of the barter system. Now that his crops are worth the carpenter’s labor, the farmer can pay the carpenter. Bartering is the term used to describe this transaction because money is not used.
Disadvantages of the Barter System:
Although the barter system was pretty effective in old times, it is not very feasible for the modern-day economy. Now that you have a brief idea about what is barter system, let’s look at its disadvantages.
- In the barter system, it is nearly impossible to pass on your wealth.
- Finding a trade partner can be very expensive and time-consuming.
- Money can be saved for a long time, but goods can’t because they might be perishable.
- Contrary to money, which is accepted everywhere, goods may not always be accepted.
- Products cannot be used as investments in financial instruments or be held in a bank to earn interest.
Summary:
What is Meant by the Barter System?
The barter system denotes an old method of exchanging or trading goods and services in return for other goods and services. This method does not use money as an intermediary and is conducted directly between two different parties. Bartering is still done at different levels but is not feasible as an alternative for money.
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