Business is an organization with the utmost priority to generate some profit through the constant activity of providing goods and services to individuals and the public. The nature of business cuts across many professions that render different services, with their different professional business ethics. However, there are many systems used to run and operate a business, such as the bartering system.
Bartering System of Business
The bartering system of business is one that involves the direct exchange of goods and services without the use of money. It is as old as the existence of man as it is regarded as the first type of trade from the age of antiquity. It is simply the exchange of goods for goods, and not for money.
However, this system of business stems from the age of antiquity, and it has some advantages and disadvantages. Even though it was a common system of business, there are some items that may be some limitation on the exchangeable and non-exchangeable items.
Items exchanged in the barter system
1. Tangible items
These are the items that can be seen or touched. For example, craft items, food items, shells, beads, and peas.
2. Intangible items
These are the items that cannot be seen or touched. For example, singing, dancing, dressmaking, barbering, and baking.
Advantages of bartering system of business
- Bartering allows one to possess items that he/she could not produce or possess initially.
- Surplus (excess) goods could be exchanged through the bartering system.
- It is very flexible and highly responsive as one can trade a related product for another without much ado. For example, trading a laptop for a portable tablet.
- It is an amazingly simple system to use because it requires little or no rules, scope, procedures, and criteria.
Disadvantages of bartering system of business
- Lack of double coincidence of wants
- Lack of a common measure of value
- Difficulty in storing values
- Indivisibility of certain goods/items
- Difficulty in making deferred payment
1. Lack of double coincidence of wants
To barter, one finds a partner who is willing to barter with the item in need of. Most times, it is always difficult to get a partner who is willing to barter with the appropriate pressing item at a given time and situation. Oftentimes, this seems to be practically impossible.
2. Lack of a common measure of value
In the bartering system, there is no way of measuring the exact value of goods traded or services rendered. There is little or no business ethics with this system of business. This condition makes trading difficult because one party is always at a disadvantage in terms of trade between goods or services.
3. Difficulty in storing value
Under the bartering system, it is difficult to store value. Perishable items like grains, fruits, etc. are expensive and difficult to store for long periods.
4. Indivisibility of certain goods
It is not possible to divide certain goods that will make exchange satisfactory to all. For example, a man wanting a horse for a sheep may demand more than four sheep for his horse BUT the other is not prepared to give four sheep and there can be no exchange.
5. Difficulty in making deferred payments:
In a barter economy, it is difficult to make payments in the future. Since payments are made in goods and services, debt contracts are not possible due to disagreements from both parties on the following grounds: It would often invite controversy as to the quality of the goods or services to be repaid.