Barter system refers to the system where goods are exchanged for goods without the use of money.
Difficulties of barter system:
(a) Problem of double coincidence of wants: Lack of double coincidence of wants means when two persons may not desire to purchase each other’s goods. For example Mr. A has wheat and wants salt. So Mr. A has to search for Mr. B who wants wheat and has salt, otherwise, the exchange would not be possible.
(b) Lack of common measure of value: In olden times there was no common unit in terms of which the value of goods could be measured.
(c) Indivisibility of certain goods: There was a problem of exchange when a person had large commodities which could not be divided into smaller units Eg. 1 goat = 20 kg rice. If a person wanted 5 kg of rice, the goat could not be cut and exchanged.
(d) Difficulty in the storage of goods: It was necessary to store goods for future use but as most of the things were perishable, it was difficult to store.
(e) Problem of making deferred payments: It means a payment to be made in the future. For E.g. taking a loan and making a payment in the future was not possible in the barter system. So, to overcome these difficulties of the barter system, people invented some other kind of money.
