Barter system characteristics page 2

10. Difficulties in Transfer of Wealth:

Under barter, transfer of wealth was very difficult if not impossible. Mostly people were in the habit of holding wealth in form of animals and perishable goods and it was not an easy task to transfer them over longer distances.
11. No Specialization:
Specialization is an essential for gaining competitive advantage over others. However in barter system there are no incentives for specialization. People usually try to attain self sufficiency and this does not make efficient allocation of resources. Inefficient use of resources leads to high wastages and increased cost of production that further undermines competitiveness. Apart from this barter system does not allow division of labour. Thus, not allowing workers to make best use of their competencies and energy.
12. No Budgeting:
Under barter, there are no incentives for budgeting expenses and incomes. People are unable to forecast the worth of their merchandise with any reasonable certainty. They, therefore, cannot make any estimates of their future incomes and revenues. Similarly, the government in a barter system cannot play any effective role to influence the economy. In the absence of money the government cannot impose or collect taxes or make any borrowings.
13. No Capital Formation:
Under barter, there are no incentives for savings and production of capital goods. People are usually concerned with current consumption needs and do not pay any attention towards capital formation. Further under barter much of the trade is related to eatables and perishable goods. These commodities cannot be stored for a long time so rates of savings and capital accumulation are almost negligible in the barter economy. Summing Up:
These were the inconveniences of barter that made this system simply impossible to flourish in the modern economy. With the invention of money, these difficulties were removed and money played an extremely efficient role in the modern economy.
How use of money overcome inconveniences of Barter:
With the invention of money, the inconveniences of barter were removed completely. Money served as a medium of exchange, store of value and unit of account. ": serves the basis for the working of modern economic system. 1. Medium of Exchange:
Money serve as a common medium of exchange. It eradicates the inconvenience of "double coincidence of wants." Now anyone can buy anything and sell anything for money. There is no need to find a person who is in need of the things that you have in abundance and who has got the things that you need. In money economy, people sell their goods and services for money and use that money to fulfil their wants.