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History and Examples of the Barter Trade System

Erica Janeau, Christopher Sailus
  • Author
    Erica Janeau

    Erica Janeau has taught High School History for over six years. They have a Bachelor's degree in Humanities from University of Houston.

  • Instructor
    Christopher Sailus

    Chris has an M.A. in history and taught university and high school history.

Learn about the barter system and its definition. Review examples, history, advantages, and disadvantages, as well as how the barter system works. Updated: 03/20/2022

The Barter System: Definition & Examples

The barter system is the oldest mode of commerce and dates back to ancient times. Long before monetary currency was invented, individuals traded services and products in return for other items. The barter system can be defined as the act of exchanging goods between two or more parties without using money. The exchanged goods must be of value to the parties involved. For example, butter can be exchanged for bread, or a carpenter who constructs a fence for a farmer can be repaid in farm produce, such as beans and maize, equivalent to work done.

Barter System Examples

Examples of barter systems relatable to students include:

  • Exchanging a science textbook for a history book
  • Exchanging one's oranges for mangoes
  • Exchanging one's sneaker shoes for a denim jacket

What is a Bartering System?

Most kids have traded. Be it sports, or the Magic game, many kids have made some deals to trade several expensive cards merely to obtain one of their own favorites. What these kids surely do not recognize is that they are engaging in one of humankind's oldest economic systems: bartering.

Barter systems are simply trading. They are different from most transactions that occur in our modern world, because they never involve an exchange of money. In a barter system, instead of giving the cashier a set amount of paper and coin money for your groceries, you would give the cashier goods—your watch, your car keys—of equal value in return.

Bartering has its limitations, but it also has advantages. Honesty amongst traders is integral to a bartering system; participants must be assured of each other's accurate valuation and description of their goods, or the system will break down. However, bartering can also have positive aspects that a market or commodity economy does not, specifically when it comes to the valuation of an item. An item that is worthless to one barterer may be incredibly valuable to another, and therefore still able to give its owner a positive return on their investment.

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How Does The Barter System Work?

The barter system works on a simple concept whereby the parties involved discuss the relative worth of their products and offer them to one another in an even exchange. Therefore, the exchange must be of mutual benefit to all the parties. The barter system acts as a classical arrangement through which individuals can get what they desire by giving out other commodities they do not require or have in surplus.

History of The Barter System

The barter system dates back to 6000 BC, making it the oldest mode of transaction. The Mesopotamia tribes first introduced it, and later, the Phoenicians embraced it as a form of trading. They bartered goods to diverse people located in various cities across the Nile and beyond. For instance, commodities were swapped for weapons, food, and spices. Furthermore, Europeans traveled to barter crafts and fur for silks and perfumes as years progressed. Although money is now regarded as the primary mode of transaction, barter trade still exists in some forms. For instance, a professional can perform tax accounting for a company in exchange for cleaning services for a certain period. Another example would be a mechanic offering car repair services in exchange for a day with the vehicle without charges.

The Barter System: The Oldest Economic System

Bartering is the oldest economic system whereby people swap goods with each other. This method of exchange was highly relied upon by early civilizations such as Mesopotamia and Phoenicia. Phoenicia was a coastal strip surrounded by mountains. Hence, they had access to wood from the cedar and fir forests. Cedar trees had a thick girth, making them essential for timber. It also had a pleasant aromatic odor. Conversely, Mesopotamia had plenty of foodstuffs, as they used to farm along the shores of the Nile River. Therefore, people from either region had commodities they could trade with: Mesopotamia with foodstuffs and Phoenicia with red cedar lumber.

The Barter System Partially Replaced by Currency System

Money has been used as a currency for exchange from about 1200 BCE. At the time, objects such as cowrie shells were used as currencies. Money replaced the bartering system that had been used for many years. Gradually, money became the medium of exchange, addressing many of the limitations of the barter system, such as inequality in the value of goods and lack of flexibility. The new currency systems were comprised of either paper notes or coins. Meanwhile, during the sixth-century BCE, Xenophanes, quoted by historians, attributed the invention of iron coinage to the Lydians. It was made from electrum with a combination of silver and gold and was stamped with images representing denominations. As a result, it significantly assisted the country in surging its internal and external trading systems.

The Barter System Today

The barter system is still applicable today despite money being the primary mode of exchange. However, the barter system of today has become global and uses sophisticated mechanisms such as the internet. This means that people from diverse geographical areas can transact, unlike before when it was only possible if people were in the same place. Contemporary bartering includes trade credits, where people or companies settle agreements or purchase goods without using physical currency.

Robert Owen introduced the concept of Owenism in the 19th century. Owen's strategies for remedying pauperism were welcomed with significant favor until he acknowledged his hostility to religion as an impediment to advancement. Furthermore, many of his followers alleged that this action made him question the upper classes. To accomplish his plans of establishing a self-contained community, Owen bought land in Indiana from a spiritual area and called it New Harmony. Life in the novel area was ordered and contented under Owen. In this new land, the barter system was the primary way people traded. People would barter among themselves to ensure everyone had access to what they did not have. Nevertheless, disparities in perceptions about the form of rule and the role of faith surfaced. As a result, Owen withdrew from the community, losing a significant percentage of his fortune.

Bartering in History

Bartering dates back to ancient times. Sumer and Mesopotamia used bartering systems, and civilizations like the Phoenicians and the Babylonians supposedly had specialized areas for bartering markets. The Phoenicians traveled around the Mediterranean and the Middle East, bartering with whomever they came in contact. For example, the Egyptians were fond of red cedar lumber, entirely unavailable in Egypt, and they often bartered with Phoenician tradesmen to acquire it.

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Video Transcript

What is a Bartering System?

Most kids have traded. Be it sports, or the Magic game, many kids have made some deals to trade several expensive cards merely to obtain one of their own favorites. What these kids surely do not recognize is that they are engaging in one of humankind's oldest economic systems: bartering.

Barter systems are simply trading. They are different from most transactions that occur in our modern world, because they never involve an exchange of money. In a barter system, instead of giving the cashier a set amount of paper and coin money for your groceries, you would give the cashier goods—your watch, your car keys—of equal value in return.

Bartering has its limitations, but it also has advantages. Honesty amongst traders is integral to a bartering system; participants must be assured of each other's accurate valuation and description of their goods, or the system will break down. However, bartering can also have positive aspects that a market or commodity economy does not, specifically when it comes to the valuation of an item. An item that is worthless to one barterer may be incredibly valuable to another, and therefore still able to give its owner a positive return on their investment.

Bartering in History

Bartering dates back to ancient times. Sumer and Mesopotamia used bartering systems, and civilizations like the Phoenicians and the Babylonians supposedly had specialized areas for bartering markets. The Phoenicians traveled around the Mediterranean and the Middle East, bartering with whomever they came in contact. For example, the Egyptians were fond of red cedar lumber, entirely unavailable in Egypt, and they often bartered with Phoenician tradesmen to acquire it.

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Frequently Asked Questions

Is bartering illegal?

Bartering is not illegal as it involves two or more parties mutually agreeing to swap commodities. However, it can be illegal if it involves the swap of illegal substances.

What is meant by barter system?

The barter system incorporates the exchange of commodities between two or more parties without using money. The subject commodities must be of value to either party.

What is an example of barter?

Barter is a substitute method of trading where products are swapped directly for one another. An example of barter includes a shoemaker trading a pair of shoes for wheat from a farmer.

Why did money replace the barter system?

Money replaced the barter system because it had several limitations. For instance, it lacked flexibility and it was difficult to ascertain the value of a commodity. Additionally, the mismatch in the value of goods inhibited smooth transactions.

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