Limitations[edit]
Barter's limits are usually explained in terms of its inefficiencies in easing exchange in comparison to the functions of money:
- Need for presence of double coincidence of wants
For barter to occur between two people, both would need to have what the other wants.
- Absence of common measure of value
In a monetary economy, money plays the role of a measure of value of all goods, so their values can be measured against each other; this role may be absent in a barter economy.
- Indivisibility of certain goods
If a person wants to buy a certain amount of another's goods, but only has for payment one indivisible unit of another good which is worth more than what the person wants to obtain, a barter transaction cannot occur.
- Lack of standards for deferred payments
This is related to the absence of a common measure of value, although if the debt is denominated in units of the good that will eventually be used in payment, it is not a problem.
- Difficulty in storing wealth
If a society relies exclusively on perishable goods, storing wealth for the future may be impractical. However, some barter economies rely on durable goods like pigs or cattle for this purpose.
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