Challenges of Barter Systems

Double coincidence of wants

Well, fundamentally, this means that both parties involved in the exchange must be willing to make the trade at that point in time.

You probably wouldn’t want to give up a luxury item like a house for a commodity like a bag of rice. Right?

Even if two parties were willing to make the trade, it would take time and energy to search for the other person.

Here, finding the right person to trade with would take up a lot of time and effort, which is not practical in today’s modern economy.

Divisibility issues

This refers to problems with the divisibility of the goods being traded.

Essentially this means that some goods are only useful when they are one whole unit, and useless if they are broken down into smaller units.

If you decide to split a car in half and trade it for half a TV screen, it would be useless for you and the person you decide to make the trade with.

In this case, neither of you will be able to watch your favorite movie on Netflix or drive around town in your car.

Problems with valuing goods

It is difficult to value the goods being traded since there is no fixed standard unit of account respective to the different goods it is being traded for.

For example, three apples could be traded for four oranges, two oranges for one pencil, and five pencils for five bags of rice. But maybe during this time, you need to trade two oranges for three bags of rice.

This is the fundamental problem of valuing goods under a barter economy. Who is to say which is more valuable?

Money introduced a new way of valuing goods and increasing financial interactions between strangers on a larger scale.

Currency doesn’t look the same everywhere.

Fun fact: Rai Stones

Rai stones are donut-shaped rocks that were used as a form of currency on the Yap islands in Micronesia.

The rocks were extracted from a neighboring island called Palau and were sought after because of their scarcity and the involved risk of transportation from the island.

Each rai stone weighed about 4,000 kilograms and could be used for jewelry.

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