Barter System

Imagine a world without cash, credit cards, or digital payments. Long before money existed, people relied on the barter system—a simple way to trade goods or services directly. E.g., 

• A farmer might swap 1 kg of rice for 200 grams of tomatoes.
• A gardener could trade 1 kg of tomatoes for 50 grams of almonds.

• Double-Coincidence of Wants: It can happen only with a ’Double-Coincidence of Wants’ i.e. both people want exactly what the other has. For example, If you grow apples and want oranges, you must find someone with oranges who also wants apples. If they want bananas instead, no deal!
• Search Cost or the Cost of Transaction is High: Finding the right trading partner could take hours, days, or even weeks. For example, a potter wanting bread might roam the village searching for a baker who needs pots. 
• Don’t favour Division of Labour / Specialization: Due to the above problems, all persons will try to become Jack of all trades but master of  none. 
• Don’t favour Industrialization: Industrialists will have to find a large supply line with every person having a double coincidence of wants.  
• Don’t favour Concentration of Wealth: Since all the wealth is perishable. E.g., one can’t store tomatoes for an extended period.
• The Problem of Divisibility of Value: In Barter System, you cannot always divide the value to buy whatever you want. 
• Not always Fungible: In Fungible items, division & mutual substitution is possible, e.g. Gold Bars, Currency Notes & Coins. But barter goods are not always fungible. E.g., if a diamond is cut into smaller pieces, the summation of all the smaller parts will not be equal to one bigger diamond. Hence, diamond isn’t fungible.

• Barter System promotes Joint Family 
• Food Inflation is  lower in Barter Economy compared to Money Economy.