I read an article on the history of barter which included a list of ancient barter problems including:
Barter has many difficulties which are briefly described below:1. Lack of Double Coincidence of Wants: In order for act of barter to take place, it is necessary that the persons with matching requirements are brought together. If a person A wants what person B has, person B must also want what person A has.This is called the double coincidence of wants, which, as we can see, is very rare to obtain in real life. This difficulty makes barter system very cumbersome, even sometimes impossible, especially in an economy where specialization has taken place;2. Lack of any Common Unit of Measurement of Value: Once the persons wanting each other’s commodity come together, the next problem is to determine the rate at which the exchange will occur. If A has rice, and B has wheat, then how much of rice will exchange for how much of wheat? Even when we have determined such a rate of exchange between the two given commodities, the problem still remains as to how to determine the rates of exchange between all the various commodities which are available in the barter economy. In case there are 500 different goods and services, we will have to work out 1,24,750 possible ratios of exchange which is an enormously difficult task. Not only this, we will have to adjust these ratios with each other in order to avoid unique profiteering by some traders. All the problems add to the difficulties of the barter system;3. Lack of Means of Sub-division: There are manly kinds of goods (like a shirt, a house, a car etc.) which, when divided, lose their worth. In other words, they are indivisible. In the case of such goods the system of barter fails. If one shirt is exchanged for 2 measures of rice, then to say that half a shirt will exchange for 1 measure of rice has no meaning;4. Lack of any Common Unit in terms of which Contracts and Agreements requiring Future Payments would be written: In a system of barter economy, another set of difficulties arises when one of the commodities (to be exchanged) is not parted with immediately, and requires to be given away at some future sate. In such a case, there is no way in which we can write a contract, or have an agreement to effect this transaction; and5. Lack of any Common Unit in terms of which the Generalized Purchasing Power could be stored: An individual’s income is not always spent, and is sometimes set aside for future use. In a system of barter economy, there is no way of storing the purchasing power of the saved income.The money system does not have any of the above problems, and hence it is said that money is the most preferred asset, and money system is the most preferred system for an economy to go ahead.
Modern barter solves all of these problems in an easy way. In modern barter, neither party must have a coincidence of wants, you can just accept barter dollars and spend them on what you really want. Barter dollars provides a common unit of measurement. Barter dollars substitute indivisible goods with incremential units of value. A well managed barter exchange is also a great place to store earnings over time.
Obviously there are exceptions to these solutions. Some mismanaged exchanges don’t do a great job at solving any of the problems, and increase inflation of prices, but a well managed exchange, and there are many of them out there, solve all of these problems and more.
See the full article at http://www.merinews.com/article/the-barter-system-pros-and-cons/15813654.shtml
