Barter

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Barter is a type of trade where goods or services are exchanged for a certain amount of other goods or services; no money is involved in the transaction.


Definition

Barter may be defined as the direct exchange of goods or services with which there is no use of commonly accepted currency. The term “barter” is frequently used as a synonym for 'negotiate/negotiation', but this usage is incorrect. Rather, barter can be used correctly as a synonym for “counter-trade”; however, “counter-trade” most often describes a form of international barter. Bartering also differs from the practice of gift exchange, due to the bartering system involving an agreement on what will be 'traded' or 'bartered' between two traders. In the practice of gift exchange, there are no agreed upon terms on what will be given to the recipient of a gift. What is given as a gift is up to the discretion of the gift giver and often times, this also involves some level of honor or prestige in what is being presented. Gift exchange may also contribute to greater levels of socialization amongst the gift exchangers. Whereas, in the barter system, bartering is driven by the basic need for a commodity or a service, and does not necessarily promote grater levels of socialization between traders.

History

The beginning of the barter trade originated at the time of human development and continues to exist in some societies today. Modern day money developed through the trades and exchanges of bartering with the primary exchange being that of "cattle." Cattle, which included everything from cows to sheep to camels, was the oldest form of modern day money. This developed into the trade of shells and continued to evolve all the way to the form of paper money, which is widely used today.

Bartering is traditionally common among people with no access to a cash economy, in societies where no monetary system exists, or in economies suffering from a very unstable currency (as when very high rates of inflation hit) or a lack of currency. In these forms of societies, bartering oftentimes has become a necessary means of survival.

In order to organize production and to distribute goods and services among their populations, many pre-capitalist or pre-market economies relied on tradition, top-down command, or community democracy instead of market exchange organized using barter. Relations of reciprocity and/or redistribution substituted for market exchange. Trade and barter were primarily reserved for trade between communities or countries.

Problems with Bartering

Although bartering may seem like a simple concept of trade, there are a number of drawbacks to the system. One disadvantage of bartering is that it depends upon a mutual coincidence of wants. Before any transaction can be undertaken, each party must be able to supply something that the other party demands. A related problem lies in the potentially high transaction costs of traders spending time and money in the effort to search for each other. To overcome this, and the mutual coincidence problem, some communities developed a system of intermediaries who can store, trade, and warehouse commodities. However, the intermediaries still often suffered from financial risk.

As bartering lacks a common unit of exchange and standardization, such as a standardized currency, a commodity that has a high value in one community may not carry the same value in another. Due to this, bartering lacks the efficiency, which exists in a currency-valued economy. Currency provides not only a standardization of exchange, but also a store value and a unit of account.

The use of the barter system becomes more difficult as the means of production of widely needed goods become less apparent to people. For example, if hyperinflation took place and money were to be severely devalued in the United States, most people would have little of value to trade for food (since the farmer can only use so many cars, etc.).

Contemporary Bartering

The barter system has grown and become useable to corporations and individuals in today’s world though the use of barter exchange organizations. These organizations work to match the bartering need of their traders, and provide arenas in which trades may take place. Barter exchange organizations remain operational by gathering their income from start-up memberships and renewal fees.

Swapping is another increasingly prevalent form of the bartering system, which is more informal in nature than that of formal barter exchange organizations. These informal bartering systems allow people, usually through internet communities, to trade items of comparable value on a trust basis. Informal swapping generally does not require membership fees and traders are not matched by the site to other potential traders. Rather, they must find their own trading match through listings on the websites. Communities that participate in swapping include sites for swapping fashion, books, videos, games, music, and online trading for kids and teenagers. Interestingly, though, some of these sites have developed a form of "currency" that can be exchanged for goods on the site, such as "swapits" [1].

While swapping is an excellent way to find and obtain items that are inexpensive, it is reliant upon honesty. On occasion, a person may find that they have sent their part of the swap, but the recipient does not complete the transaction.

In finance, the word "barter" is used when two corporations trade with each other using non-money financial assets (such as U.S. Treasury bills). Alternatively, the standard definitions of money could be seen as being too narrow and needing to be expanded to increase near-money assets.

The Future of Bartering

References
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Further Reading

  • Malitz, Phyliss. "The Business of Barter." Journal of Accountancy 185, no. 3 (March 1998): 72-74.
  • De Lisser, Eleena, and Rodney Ho. "Barter Exchanges Say Future Looks Promising." Wall Street Journal, 12 November 1997, B2.
  • Hubbard, R. Glenn. Money, the Financial System, and the Economy. Reading, MA: Addison-Wesley, 1995.

External links


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