Why did the barter system fail?

By Ritesh|Updated : September 1st, 2022

The barter system failed because of a double coincidence of wants, not having a standard unit of account, lack of information, and not being feasible to produce huge and expensive commodities. There is also the problem of complementary desires and a shared standard of value. Large economies cannot use the barter system, and the barter system thus failed.

 

Main Problems of the Barter System

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

Double Coincidence of Wants:

  • People who wished to sell and purchase things had to deal with the challenging problem of double coincidence of wants because there was no commonly accepted form of trade.
  • People who want to exchange things must wish for the goods the other person is offering.
  • As a result, if someone wants something, they must find someone prepared to trade something for it and willing to receive it in return.

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.

Unfeasible to Produce Huge and Expensive Commodities:

  • Another issue with the barter economy is the infeasibility of producing large, expensive goods.
  • Assume that someone with the necessary technical know-how and resources would find it challenging to produce an automobile under a barter system.

Summary:

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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