In the ancient time, man’s wants were limited so he was self-sufficient in his needs. He was able to arrange his food by hunting and gathering fruit from the trees. But as time passed as his wants increases day by day his self-sufficiency disappears. So, a person exchanges some of his goods with the other persons in the society for the goods they have. This exchange of goods with goods or services is called the barter system.
Barter is an old method of exchange goods and services before the invention of money. Barter system was used centuries ago almost 6000 BC, and probably earlier. Barter system was introduced by Mesopotamia tribes, later adopted by Phoenicians. At that time trade between Phoenicians and other cities involved the exchange of goods and commodities with other goods and commodities.
The Babylonians also have a better and developed barter system. They exchanged goods for spices, weapons, tea, and food. Salt was also a valuable good at that time so that Roman soldiers were paid with salt. Whether that was bartering, if people used salt as a currency, is debatable. If a commodity becomes popular for trading goods and services, it has become a form of money.
According to Mint.com: “In the Middle Ages, Europeans traveled around the globe to barter crafts and furs in exchange for silks and perfumes.” “Colonial Americans exchanged musket balls, deer skins, and wheat. When money was invented, bartering did not end, it became more organized.”
During the 1930s Great Depression barter system become popular because most of the people had little or no money. They would, therefore, exchange food, for services. For example, one can get food for some hours of working.
So, barter is that form of exchange in which commodities and services are exchanged with one another without any medium. For example, if I get from Mahmood his pen in return for my pencil, the transaction so taking place between myself and Mahmood will be termed as “BARTER”. Barter the direct exchange of goods for goods was the first step towards monetary development.
BARTER system of exchange is possible only with the following conditions:
1. Wants should be very limited.
2. People must be living in a limited area.
R.H. Parker says that barter is the direct exchange of goods and services without the use of money as either means of payment or a unit of account.
Thomas says that barter is a form of trading in which goods are exchanged directly, for other goods without the use of money as an intermediary.
H.S. Sloan says barter is the direct exchange of one commodity or services for another without the use of money.
In simple words, barter is the direct exchange of goods and services of one person for the goods and services of other people without the use of money.