Barter system

Also called: Barter · Topic: International Trade: Patterns, Ports and the WTO · NCERT: Class 12, Ch 8 "International Trade"

Meaning

Barter system is the direct swap of one good or service for another, with no money used. It was the first form of trade. It matters because its main weakness, the double coincidence of wants, explains why money was invented. Money then let people, and later whole regions, specialise. Specialisation is what makes trade today possible.

Explanation

How barter works

• Trade is the voluntary exchange of goods and services between two parties. "Voluntary" means nobody is forced to trade. Both sides gain.
• In barter, there is no money in between. One good is given directly for another.
• A farmer gives grain and gets pots.

• A hill tribe gives forest produce and gets goods from the plains.

• The trade happens only if each side wants what the other side has.

The core flaw: double coincidence of wants

• Double coincidence of wants: each person must have exactly what the other person wants, at the same time.
• NCERT's example:
• A potter needs a plumber.
• The potter must find a plumber who needs pots.

• If the plumber does not want pots, no trade takes place.

• Result: finding the right partner takes a long time, so trade is slow.

Other problems with barter

• No common measure of value. Nobody knows how many pots equal one repair job.
• Hard to divide. You cannot cut a cow in half to buy something small.
• Hard to store. Eggs or grain can rot before they are traded.
• Barter blocks specialisation. Specialisation means each person doing one job well.
• A car mechanic who needs food must find a farmer whose car is broken.
• If no such farmer exists, the mechanic gets no food. People "might starve before they were able to find the right person with whom to barter" [3].
• With money, the mechanic only needs a market to sell the service. The mechanic then uses the money to buy food from anyone who accepts it [3].

How money replaced barter

• Money is anything people use as a medium of exchange (used to buy and sell), a unit of account (a common base for prices) or a store of value (it can be saved and used later) [3].
• Order of evolution:

Stage	What is exchanged	Main problem solved
Barter	Goods for goods	— (needs double coincidence of wants)
Commodity money	Goods for rare objects (salt, cowries, cattle)	Gives a common measure of value
Metal coins	Goods for standard gold, silver or copper coins	Durable, divisible, portable
Fiat / paper money	Goods for notes and deposits backed by trust	Supply no longer limited by metal stocks

Where it occurs

• Jon Beel Mela, Assam (India): possibly the only fair in India where barter still survives.
• Place: Jagiroad, about 35 km from Guwahati, Assam. It is held at the Jonbeel of Jagiroad. A beel is a wetland or lake [2].
• Time: every January, after the harvest. It is held every year in winter [2].
• Organisers: the Tiwa community, a tribal group of Assam.
• What is swapped: hill tribes bring forest and hill produce. They swap it for goods from the plains, with no money used.

• Why it matters: it is a living example of the oldest form of trade. It shows how hills and plains depend on each other for goods.

• Early societies worldwide: barter was the first form of trade everywhere. Later it was replaced by commodity money, such as flint, obsidian (a black volcanic glass), cowrie shells, cattle, rice, peppercorns and salt.

Don't confuse with

• Commodity money: this is not barter. It uses rare objects with value of their own (intrinsic value), such as salt or cowries, as a shared medium of exchange. That removes the need for a double coincidence of wants.
• Fiat money: it has no value as a material. It works only because people and the government accept it, and because taxes must be paid in it [3]. Barter is the opposite, because every item swapped has real use value.
• International trade: this is about where trade happens (across national borders). Barter is about how the exchange is done (without money). Barter can take place inside one country, as at Jon Beel Mela.
• Double coincidence of wants vs measure of value: the first is barter's main flaw (each side must want what the other has). Having no common measure of value is a separate, extra problem.

Prelims Hooks

• Basic flaw of barter: the double coincidence of wants. NCERT's example is the potter and the plumber.
• Jon Beel Mela is held at Jagiroad, about 35 km from Guwahati, Assam, every January after the harvest. It is possibly India's only surviving barter fair.
• It is organised by the Tiwa community of Assam. Trap: it is not a fair of Nagaland or Meghalaya.
• Order of evolution: barter → commodity money → metal coins → paper/fiat money.
• Three functions of money, which barter lacked: medium of exchange, unit of account, store of value [3].
• Obsidian (volcanic glass) and flint were early commodity money. Trap: both are stones, not metals.

Mains Points

• From barter to money, the basis of specialisation:
• The double coincidence of wants made barter slow and limited.
• Money made exchange through markets possible. People, and later whole regions, could then specialise in what they produce best.

• This idea of specialisation underlies international trade today (GS-I/GS-III).

• Barter fairs as cultural geography:

• Jon Beel Mela links the hill tribes and the plains people of Assam through a swap of forest produce and plains goods.
• It shows how relief (the shape of the land) and resources shape exchange.
• It shows how indigenous institutions like the Tiwa fair survive inside a money economy. This is useful for answers on tribal economies and North-East India (GS-I).

Related concepts

• International trade
• Jon Beel Mela
• Commodity money

Read more

• Trade, barter and money