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Money: Barter

This article series is about forms of monies throughout history.

History of monies is a topic which can be found easily on the internet. Most people agree everything started with barter.1)2)

Barter

Barter is the exchange of resources or services for mutual advantage, and the practice likely dates back tens of thousands of years, perhaps even to the dawn of modern humans. Some would even argue that it's not purely a human activity; plants and animals have been bartering—in symbiotic relationships—for millions of years. In any case, barter among humans certainly pre-dates the use of money. Today individuals, organizations, and governments still use, and often prefer, barter as a form of exchange of goods and services. So I would like to see a bit more into what is barter and especially why has it not disappeared from modern society.

Although some authors disagree, as reported by Wikipedia, anthropologist David Graeber argued in his book Debt: The First 5000 Years, the problem with this version of history, he suggests, is the lack of any supporting evidence. His research indicates that 'gift economies' were common, at least the beginnings of the first agrarian societies, when humans used elaborate credit systems. Graeber proposes that money as a unit of account was invented the moment when the unquantifiable obligation “I owe you one” transformed into the quantifiable notion of “I owe you one unit of something”. In this view, money emerged first as credit and only later acquired the functions of a medium of exchange and a store of value.

Recent barter

Let's have a look into barter and what it means to society in recent years

Barter is a system of exchange by which goods or services are directly exchanged for other goods or services without using a medium of exchange, such as money. It is distinguishable from gift economies in that the reciprocal exchange is immediate and not delayed in time. It is usually bilateral, but may be multilateral (i.e., mediated through barter organizations) and usually exists parallel to monetary systems in most developed countries, though to a very limited extent. Barter usually replaces money as the method of exchange in times of monetary crisis, such as when the currency may be either unstable (e.g., hyperinflation or deflationary spiral) or simply unavailable for conducting commerce.

David Graeber argues that the inefficiencies of barter in archaic society has been used by economists since Adam Smith to explain the emergence of money, the economy, and hence the discipline of economics itself. “Economists of the contemporary orthodoxy… propose an evolutionary development of economies which places barter, as a 'natural' human characteristic, at the most primitive stage, to be superseded by monetary exchange as soon as people become aware of the latter's greater efficiency.” However, extensive investigation by anthropologists like Graeber has since then established that “No example of a barter economy, pure and simple, has ever been described, let alone the emergence from it of money; all available ethnography suggests that there never has been such a thing. But there are economies today which are nevertheless dominated by barter.”

Since the 1830s, direct barter in western market economies has been aided by exchanges which frequently utilize alternative currencies based on the labor theory of value, and designed to prevent profit taking by intermediates. Examples include the Owenite socialists, the Cincinnati Time store, and more recently Ithaca HOURS (Time banking) and the LETS system…….

......The limitations of barter

Barters' limits are usually explained in terms of its inefficiencies in easing exchange in comparison to the functions of money.

  • Need for presence of double coincidence of wants: For barter to occur between two people, both would need to have what the other wants.
  • Absence of common measure of value: In a monetary economy, money plays the role of a measure of value of all goods, so their values can be measured against each other; this role may be absent in a barter economy.
  • Indivisibility of certain goods: If a person wants to buy a certain amount of another's goods, but only has for payment one indivisible unit of another good which is worth more than what the person wants to obtain, a barter transaction cannot occur.
  • Lack of standards for deferred payments: This is related to the absence of a common measure of value, although if the debt is denominated in units of the good that will eventually be used in payment, it is not a problem.
  • Difficulty in storing wealth: If a society relies exclusively on perishable goods, storing wealth for the future may be impractical. However, some barter economies rely on durable goods like pigs or cattle for this purpose.

The advantages of barter

  • Direct barter does not require payment in money (when money is in short supply) hence will be utilized when there is little information about the credit worthiness of trade partners or there is a lack of trust.
  • The poor cannot afford to store their small supply of wealth in money, especially in situations where money devalues quickly (hyperinflation).

Is interesting to review the information about how barter has been used through history.

Barter in times of monetary crisis

As Benjamin Orlove noted, barter may occur in commercial economies, usually during periods of monetary crisis. During such a crisis, currency may be in short supply, or highly devalued through hyperinflation. In such cases, money ceases to be the universal medium of exchange or standard of value. Money may be in such short supply that it becomes an item of barter itself rather than the means of exchange. Barter may also occur when people cannot afford to keep money (as when hyperinflation quickly devalues it).

Recent History: examples of barter exchanges

The Owenite socialists in Britain and the United States in the 1830s were the first to attempt to organize barter exchanges. Owenism developed a “theory of equitable exchange” as a critique of the exploitative wage relationship between capitalist and laborer, by which all profit accrued to the capitalist. To counteract the uneven playing field between employers and employed, they proposed “schemes of labor notes based on labor time, thus institutionalizing Owen's demand that human labor, not money, be made the standard of value.”

In England, about 30 to 40 cooperative societies sent their surplus goods to an “exchange bazaar” for direct barter in London, which later adopted a similar labor note. The British Association for Promoting Cooperative Knowledge established an “equitable labor exchange” in 1830. In 1875, Karl Marx wrote of “Labor Certificates” (Arbeitszertifikaten) in his Critique of the Gotha Program of a “certificate from society that [the labourer] has furnished such and such an amount of labor”, which can be used to draw “from the social stock of means of consumption as much as costs the same amount of labor.”

Twentieth century experiments

The first exchange system was the Swiss WIR Bank. It was founded in 1934 as a result of currency shortages after the stock market crash of 1929. “WIR” is both an abbreviation of Wirtschaftsring and the word for “we” in German, reminding participants that the economic circle is also a community.

In Spain (particularly the Catalonia region) there is a growing number of exchange markets. These barter markets or swap meets work without money. Participants bring things they do not need and exchange them for the unwanted goods of another participant. Swapping among three parties often helps satisfy tastes when trying to get around the rule that money is not allowed.

Michael Linton originated the term “local exchange trading system” (LETS) in 1983 and for a time ran the Comox Valley LETSystems in Courtenay, British Columbia. LETS networks use interest-free local credit so direct swaps do not need to be made. For instance, a member may earn credit by doing childcare for one person and spend it later on carpentry with another person in the same network. In LETS, unlike other local currencies, no scrip is issued, but rather transactions are recorded in a central location open to all members. As credit is issued by the network members, for the benefit of the members themselves, LETS are considered mutual credit systems.3)

Barter that emerged in Argentina in the 1990s, has remarkably attained an appealing ideological quality throughout the rest of Latin America. Indeed, barter “activism” in Latin America no longer advocates payment in kind as a provisional resort to cope with hyperinflation, lack of credit or unemployment.

It has grown into an extravagant proposal of social organization based on a disjointed assortment of anti-capitalist slogans. Barter is described as a paradigm for a new economy. This anti-capitalist bias is best illustrated by such fuzzy expressions as “social money”, “market economy without capitalism”, or “market anarchism”.4)

Extent of barter today

According to the International Reciprocal Trade Association, the industry trade body, more than 450,000 businesses transacted $10 billion globally in 2008 – and officials expect trade volume to grow by 15% in 2009.

It is estimated that over 450,000 businesses in the United States were involved in barter exchange activities in 2010. There are approximately 400 commercial and corporate barter companies serving all parts of the world. There are many opportunities for entrepreneurs to start a barter exchange. Several major cities in the U.S. and Canada do not currently have a local barter exchange. There are two industry groups in the United States, the National Association of Trade Exchanges (NATE) and the International Reciprocal Trade Association (IRTA). Both offer training and promote high ethical standards among their members. Moreover, each has created its own currency through which its member barter companies can trade. NATE's currency is the known as the BANC and IRTA's currency is called Universal Currency (UC). In Canada, the largest barter exchange is Tradebank, founded in 1987. In the United States, the largest barter exchange and corporate trade group is International Monetary Systems, founded in 1985, now with representation in various countries. In Australia and New Zealand the largest barter exchange is Bartercard, founded in 1991, with offices in the UK and Thailand.

Corporate barter focuses on larger transactions, which is different from a traditional, retail oriented barter exchange. Corporate barter exchanges typically use media and advertising as leverage for their larger transactions. It entails the use of a currency unit called a “trade-credit”. The trade-credit must not only be known and guaranteed, but also be valued in an amount the media and advertising could have been purchased for had the “client” bought it themselves.

Organized bartering is becoming an attractive activity for capitalist business and entrepreneurs around the world.5) as we could take from this text The International Reciprocal Trade Association (IRTA), the world's leading association and advocate for the barter and trade industry, is pleased to announce its 34th Annual International Convention will be held at the five-star world renowned Las Vegas Venetian Resort Hotel from September 19th through 21st, 2013.

Practical examples

Barter is part of a strategy to ease new and small business a share in the market with a small capital, this tool allows them to trade their goods without needing large sums of money.6) Bartering is certainly a thrifty way to snag the products and services your young business needs. But what if the product you bring to the table is wild Alaska salmon, halibut and lingcod? How do you find a web designer who's willing to take payment in fish?

This was the issue faced by Mack Chaffin, co-owner with his wife, Diane, of The Elfish Company, a fish distributor. Although he does a decent business selling fish through his website, at farmers markets and to a handful of restaurants and grocery stores, Chaffin wants to expand.

But marketing requires capital that the Dewey, Ariz.-based businessman doesn't have. So at the end of 2011, when he discovered The Barter Group, a trade exchange of 450 small businesses in Greater Phoenix, he leapt at the chance to join. We cast a line to Chaffin to find out more.

Why join a bartering organization?

Until now, the farmers market in Phoenix has been my primary source of revenue. I've been looking for ways to expand, to get the word out that we're here. But we don't have the kind of capital needed for advertising. Most of our capital has been used to purchase the freezers where we store our fish and other items to get the business established.

With the current economy, we can't exactly go to a bank for a loan. They're looking for somebody who's been in business a whole lot longer and has collateral. So when I learned about The Barter Group, it was perfect. You don't have to make a huge capital outlay every time you need services. You just swap something.7)

Other reasons for modern communities and business to choose barter are:

Environmental implications

Barter complements the environmental movement that has gained traction in the late 20th and early 21st centuries. The expenditure of resources involved in the manufacture and distribution of new products is concomitantly reduced by trading existing products. A global market for barter mitigates waste and acts as a counterpoint to the disposable economy. Consumer and small business websites such as bartergains.com, Tradepal, BarterQuest.com and BarterForce.com promote bartering as a green alternative to buying and selling.8)

Tax implications

In the United States, Karl Hess used bartering to make it harder for the IRS to seize his wages and as a form of tax resistance. Hess explained how he turned to barter in an op-ed for The New York Times in 1975. However the IRS now requires barter exchanges to be reported as per the Tax Equity and Fiscal Responsibility Act of 1982. Barter exchanges are considered taxable revenue by the IRS and must be reported on a 1099-B form. According to the IRS, “The fair market value of goods and services exchanged must be included in the income of both parties.”9)


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