Barter Economy may be regarded as the mother of all economic concepts prevalent today. It is the most primitive and very basic economic theory, which does not consider currency as a medium of exchange. Rather, commodities and services are considered to be the means of all exchanges, as money was unknown to man in ancient times.
In fact, Barter Economy had given birth to a kind of trade called “Barter”, which are both bilateral and multilateral in nature. Triangular Trade is a familiar instance of multilateral Barter trade.
As a matter of fact, the two concepts of ‘currency’ and ‘barter’ do not match with each other. Barter Economy can exist in society where the concept of money is totally unknown. Or it may as well prevail in countries suffering from severe financial instabilities, owing to hyperinflations.
Barter Economy had a long history of evolution. It was introduced in the pre-historic times for the systemization of the production and distribution of commodities and services among the existing population. In recent times, this age-old economic concept is widely prevalent among pre-market and pre-capitalist economies. A deep sense of reciprocation, together with substitution of the redistribution for market exchange characterizes Barter Economy currently.
Commercial activities in a Barter Economy are restricted mainly between two nations or business communities. The benefit of this economy is felt mostly in times when the existing financial system of a country remains unsuccessful in assessing the economic worth of various commodities. As a matter of fact, Barter Economy best serves a nation during hours of financial emergencies.
Barter Economy is popular at the time of significant commercial dealings between countries or companies on exchange of goods, where financial limitations affect the smooth operation of such activities.
There are several disadvantages of the barter economy. Firstly, there has to be double coincidence of wants for exchange to take place. Again the problem of indivisibility of commodities comes in the matter of exchange. Basically such disadvantages and many more called for the emergence of money. Money is used as a common medium of exchange and store of value.
The US dollar is extending its gains in response to the strong US GDP figures. There are four elements of the report to note. First, the economy expanded by 4.0% in Q2, well above consensus expectations. Second, Q1 was revised to show a 2.1% contraction rather than 2.9%. Third, personal consumption improved to 2.5% from a revised 1.2% pace in Q1 (originally 1.0%). Fourth, and arguably even more significant that the growth itself is the core PCE deflator. It rose to 2.0% from 1.2%.
Professor at Columbia University. Recipient of the Nobel Memorial Prize in Economic Sciences in 2001 & the John Bates Clark Medal in 1979. Author of "Freefall: America, Free Markets", "The Sinking of the World Economy", "Globalisation and its Discontents" & "Making Globalisation Work".
Eric J. Gleacher Distinguished Service Professor of Finance at the Booth School of Business at the University of Chicago. IMF’s Chief Economist from September 2003 to January 2007. Inaugural recipient of the Fischer Black Prize.
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