The barter system envisages a mutual exchange of one’s goods to others without the intervention of money as a medium of exchange. Goods were exchanged for goods prior to the invention of money. Barter system worked on certain conditions mentioned below.
- Each party to barter must have surplus stocks for the trade to take place.
- Both the buyers and sellers should require the goods each other desperately i.e., double coincidence of wants
- Buyer and seller should meet personally to make the exchange
Constraints in Barter System
Lack of double coincidence of Wants
Unless two persons who have surplus have the demand for the goods possessed by each other, barter could not materialize. For instance ‘A’ is having a surplus of groundnut and ‘B’ is possessing rice in surplus. In this case, A should be in need of rice possessed by B as the latter should desperately need groundnut possessed by A. If this “coincidence of wants” does not exist, Barter cannot take place.
Non-existence of common measure of value
Barter system could not determine the value of commodities to be exchanged as they lacked commonly acceptable measures to evaluate each and every commodity. It was difficult to compare the values of all articles in the absence of an acceptable medium of exchange.
Lack of direct contact between producer and consumers
It was not possible for buyers and sellers to meet face to face in many contexts for exchanging the commodities for commodities. This hindered the process of barter in all practical sense.
Lack of surplus stock
Absence of surplus stock was one of the impediments in the barter system. If the buyers and sellers do not have surplus then no barter was possible.