The barter system

Exchange before money

People have always needed things they could not make themselves. Before money, they traded goods or services for other goods or services, which is called the barter system. Suppose you have a spare eraser but no pencil, while a classmate has a spare pencil but forgot their eraser: a swap meets both needs. Barter was the earliest form of exchange, and evidence of it comes from all over the world. Today we buy and sell with coins and notes, and with mobile phones and computers.

What people used

Many commodities, goods that people trade, buy and sell, served in exchange: salt, cloth, tea, tobacco, seeds, cowrie shells, and cattle such as cows, goats, horses and sheep. Some places had unusual money. On Yap Island in Micronesia, in the Pacific Ocean, people used huge rock discs known as Rai stones; the Aztecs used a copper tajadero, shaped like a chopping knife, in Central Mexico and parts of Central America; and on the Solomon Islands, coils of red bird feathers called tevau served as money.

The farmer and the ox

Imagine a farmer in a place where people barter. He needs new shoes, a sweater and medicines for his grandmother, but all he can spare is an ox. First he must find someone who wants an ox, and handing over a whole ox for one pair of shoes would hardly be fair. So he may swap the ox for several bags of wheat, haul the wheat from place to place, and bargain each time over how much wheat buys the shoes, the sweater or the medicines. Whatever wheat is left must be stored safely and carried along again the next time he needs something.

Five problems of barter

The story exposes barter’s weaknesses. The double coincidence of wants: each side must want exactly what the other offers, and a single person willing to give shoes, a sweater and medicines for an ox is almost impossible to find. No common standard measure of value: without an agreed worth it is hard to settle how many bags of wheat equal an ox, and if one side feels cheated, there is no deal. Divisibility: no one can give part of an ox for a sweater. Portability: leading an ox everywhere is a burden. Durability: wheat cannot be kept for long, because it rots or is eaten by rats.

Barter today

Money has replaced barter almost everywhere, but not completely. The Junbeel Mela at Junbeel in Morigaon district, Assam, whose name comes from the Assamese words for moon (jun) and wetland (beel), is a three-day yearly fair that opens with Agni Puja, a prayer for the wellbeing of all. From the 15th century, chiefs of the Tiwa, Karbi, Khasi and Jaintia communities of Assam and Meghalaya met there to discuss political matters and keep friendly ties; people gathered around them, and the meeting grew into a fair. Bartering starts early in the morning, with roots, vegetables, fruit, herbs, spices and handmade goods from the hills swapped for rice cakes and other food from the plains.

Book exchange clubs, where readers trade books they have finished for new ones, are another kind of barter. So is the old custom of a vendor going from house to house giving new utensils for used clothes: households clear out things they no longer need, and the vendor resells, reuses or recycles the cloth.

Why it matters

Understanding barter shows why money is so useful: it removes the need for a perfect match, sets prices, and lets us divide, carry and save value. How money does this is in functions and forms of money, and India’s early coins in coins of ancient India. Answers to every question are in the NCERT solutions for Chapter 11; see also the full Chapter 11 notes.