What Is Meant By Barter System?

Barter system.At an early stage of man's economic life, the wants were very limited in number. Man could easily satisfy all his wants with what the produced himself. This direct exchange of commodity for commodity without the use of money is termed as barter in economics.

Barter is workable in backward as well as advanced countries. It exists more in economically underdeveloped areas of the world. Why to go far off, in many of the Pakistani villages, the payment to village artisan is still made in kind. Women and children in the villages get sugar, cloth spices, toys, sweetmeats, etc. etc. directly in exchange for ghee, cotton seeds, wheat, etc. from the village shopkeepers. In advanced countries of the world, we don't come across the exchange of this type in their daily business.

It is because the range of the wants and the range of commodities are so wide that it is actually impossible to satisfy them through a direct exchange of goods. In modern economy, inside the country goods are not exchanged for goods but for money. If we want to sell anything in the market, we quote its price in the money and receive money for it. Similarly, if we need anything from the market, we find its price expressed in money.
Nowadays, due to exchange difficulties some advanced countries are entering into barter deal with other countries. Pakistan entered into barter deal with communist countries particularly with China and Russia.

Well human is a social animal. There was a time when there was no concept of currency and people used to live in caves and jungles. Hunting and harvesting were two main sources of food and no other needs were looked after.

With passage of time humans started interacting with each other and community life slowly came into being.With start of community life sharing and exchange methods were also developed. The exchange of goods for goods took place for the first time and then went on. The exchange was basically based on mutual needs and understanding.

Barter system is a form of trade where good are exchanged for goods. We are in era of modern trade now and we have many modes doing business these days. Even till recent days barter trade was a common practice for Russia and China initially. Now that economies have developed so much and value of commodities can be compared on basis of currency barter trade has almost finished to exist. The recent development of plastic money and now electronic money has further left behind the barter trade and now it literally cease to exist. Barter trade served its purpose very well when there was basic need of it and basically its also the origination of modern trade.

In the previous ages when there was no currency exists at all people used to exchange the goods for other goods. And that system is called barter system. To understand barter system in a deep sense you need to think about a person who has no currency and he needs to get some goods or services. So he would trade some things which he personally owns with the other person which the other party owns. In simple words it is the trade without the exchange of money.

For example, suppose you're living in a very old age. You've some wheat and you want to get some tools like, hammer, saw, spear etc. but at that time there is no currency at all. In simple words, paper money is not available. Now you would find a person who needs wheat and he has different tools which are in your demand.

Then you would exchange your wheat and give your wheat to that person and you would buy those tools from the other party. Now you've seen that in the whole process no money is involved. So the trade or exchange of goods and services in which paper money is not involved is called barter system.

Talking about the early stage of man's economic life, the wants were very limited in number. Man could easily satisfy all his needs with what the procedure himself. But as time passed, his needs begin to increase and he lost his self sufficiency. He began to exchange some of his products which he had in excess with those who had surplus products with themselves.

For instance, if a fisherman wanted to have skins, he could get them by giving fish to the hunter. Similarly, if a weaver wanted a pair of shoes, he could receive that by giving some cloths to the cobbler. This direct exchange of commodity for commodity without the use of money is termed as barter in economics.

Barter is workable in backwards as well as advanced countries. It exists more in economically backward and commercially under developed areas of the world. Why too far, in many countries of Pakistani villages, the payments to village artisan is still made in kind. Women and children in the villages for get sugar, cloth spices, toys, sweetmeats, etc., directly in exchange for cotton seeds, wheat, etc from the village shopkeepers.


In advanced countries of the world, we do not come across the exchange of this type in their daily business. It is because of the range of wants and the range of commodities is so wide that is actually impossible to satisfy them through a direct exchange of goods.