Barter (Economics)

A system that served the function of money before the development of money. In the absence of money, trade was conducted through the exchange of goods. For example, a farmer will barter his corn for some goods that he needs. If the farmer needs a pair of shoes, then he will barter his corn or exchange the corn for a pair of shoes. This system was very cumbersome. If you have a horse to trade, you must search for someone who has the need for the horse and at the same time has a good that you want. The swap rate also became a problem in this system. If a farmer with a cow needs four chickens and another farmer has only two chickens, the farmer with the cow cannot give up half of his cow. Because barter was cumbersome, it was eventually replaced by the development of money as a medium of exchange. For more information, see Case and Fair (2003) and McConnell and Brue (2008).