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. As a trade, bartering can be bilateral or multilateral. 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.

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 hyperinflation hits) 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 bilateral bartering is that it can depend 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 have developed a system of intermediaries who can store, trade, and warehouse commodities. However, the intermediaries still often suffer 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 people become dispossessed of the means of production of widely needed goods. 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

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.

Swapping is the increasingly prevalent informal bartering system in which persons on internet communities trade items of comparable value on a trust basis. Communities that participate in swapping include swapstyle, eswapnow, Swapitshop, MakeupAlley, the Lush International Forum, the Black Phoenix Alchemy Lab Forum, and others.

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've been swaplifted; ie. they've sent their end of their swap, but the recipient does not complete the transaction. Often recourse is limited to shunning or small claims court.

References
ISBN links support NWE through referral fees

http://www.pbs.org/wgbh/nova/moolah/history.html

http://www.exeter.ac.uk/~RDavies/arian/barter.html

http://referenceforbusiness.com/encyclopedia/Assem-Braz/Bartering.html

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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