Barter System

Before the invention of money, People used to exchange the goods or services for other goods or services in return, which is known as barter system. The word barter came from a French word ‘barater’ which means ‘To trade’

Examples of bartering:

1. Fruits for food grains
2. Saloon services for food grains
3. Salon services for laundry services

We don’t need any medium of exchange in barter system.   

Disadvantages of barter system:

Difficulty of double coincidence of wants:

Double coincidence of wants implies that goods in the possession of two different individuals must be useful and needed by each other.

Lack of common unit of value:

We can't develop any system of account when there is no common unit of value and when commodity is valued in terms of other commodities in the market and there is no money valued.

Lack of a system for future payments or contractual payments:

Contractual payments or future payments would certainly be very difficult under barter system of exchange.

Lack of system for storage of value:
   
Because of lack of money in the C-c economy or barter economy wealth is stored in terms of goods. However store of wealth in terms of goods is subject to some problems such as cost of storage, loss of value etc.

Although bartering is not a standard way in which we do business or trade today, it still exists in one form or another.