Barter

Barter

Overview

Barter is a method of exchange by which goods or services are directly exchanged for other goods or services without using a medium of exchange
Medium of exchange
A medium of exchange is an intermediary used in trade to avoid the inconveniences of a pure barter system.By contrast, as William Stanley Jevons argued, in a barter system there must be a coincidence of wants before two people can trade – one must want exactly what the other has to offer, when and...

, such as money
Money
Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally in the past,...

. It is usually bilateral, but may be multilateral, 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
Currency
In economics, currency refers to a generally accepted medium of exchange. These are usually the coins and banknotes of a particular government, which comprise the physical aspects of a nation's money supply...

 may be either unstable (e.g., hyperinflation
Hyperinflation
In economics, hyperinflation is inflation that is very high or out of control. While the real values of the specific economic items generally stay the same in terms of relatively stable foreign currencies, in hyperinflationary conditions the general price level within a specific economy increases...

 or deflationary spiral) or simply unavailable for conducting commerce.

Contrary to popular conception, there is no evidence of a society or economy that relied primarily on barter.
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Encyclopedia

Barter is a method of exchange by which goods or services are directly exchanged for other goods or services without using a medium of exchange
Medium of exchange
A medium of exchange is an intermediary used in trade to avoid the inconveniences of a pure barter system.By contrast, as William Stanley Jevons argued, in a barter system there must be a coincidence of wants before two people can trade – one must want exactly what the other has to offer, when and...

, such as money
Money
Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally in the past,...

. It is usually bilateral, but may be multilateral, 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
Currency
In economics, currency refers to a generally accepted medium of exchange. These are usually the coins and banknotes of a particular government, which comprise the physical aspects of a nation's money supply...

 may be either unstable (e.g., hyperinflation
Hyperinflation
In economics, hyperinflation is inflation that is very high or out of control. While the real values of the specific economic items generally stay the same in terms of relatively stable foreign currencies, in hyperinflationary conditions the general price level within a specific economy increases...

 or deflationary spiral) or simply unavailable for conducting commerce.

History


Contrary to popular conception, there is no evidence of a society or economy that relied primarily on barter. Instead, non-monetary societies operated largely along the principles of gift economics. When barter did in fact occur, it was usually between either complete strangers or would-be enemies.

While one-to-one bartering is practised between individuals and businesses on an informal basis, organized barter exchanges have developed to conduct third party bartering. A barter exchange operates as a broker and bank in which each participating member has an account that is debited when purchases are made, and credited when sales are made. Compared to one-to-one bartering, concerns over unequal exchanges are reduced in a barter exchange.

Modern trade
Trade
Trade is the transfer of ownership of goods and services from one person or entity to another. Trade is sometimes loosely called commerce or financial transaction or barter. A network that allows trade is called a market. The original form of trade was barter, the direct exchange of goods and...

 and barter has developed into a sophisticated tool that can sometimes help businesses increase their efficiencies by monetizing their unused capacities and excess inventories. The worldwide organized barter exchange and trade industry has grown to an $8 billion a year industry and is used by thousands of businesses and individuals. The advent of the Internet and sophisticated relational database software programs has made it easier to conduct these activities and has further advanced the barter industry's growth. Organized barter has grown globally to the point where virtually every country now has a formalized barter and trade network of some kind. Complex business models based on the concept of barter are today possible since the advent of Web 2.0
Web 2.0
The term Web 2.0 is associated with web applications that facilitate participatory information sharing, interoperability, user-centered design, and collaboration on the World Wide Web...

 technologies.

Bartering benefits companies
Company
A company is a form of business organization. It is an association or collection of individual real persons and/or other companies, who each provide some form of capital. This group has a common purpose or focus and an aim of gaining profits. This collection, group or association of persons can be...

 and countries that see a mutual benefit in exchanging goods and services rather than cash
Cash
In common language cash refers to money in the physical form of currency, such as banknotes and coins.In bookkeeping and finance, cash refers to current assets comprising currency or currency equivalents that can be accessed immediately or near-immediately...

, and it also enables those who are lacking hard currency to obtain goods and services. To make up for a lack of hard currency, Thailand
Thailand
Thailand , officially the Kingdom of Thailand , formerly known as Siam , is a country located at the centre of the Indochina peninsula and Southeast Asia. It is bordered to the north by Burma and Laos, to the east by Laos and Cambodia, to the south by the Gulf of Thailand and Malaysia, and to the...

's township
Township
The word township is used to refer to different kinds of settlements in different countries. Township is generally associated with an urban area. However there are many exceptions to this rule. In Australia, the United States, and Canada, they may be settlements too small to be considered urban...

, Amphoe Kut Chum
Amphoe Kut Chum
Kut Chum is a district of Yasothon Province in northeastern Thailand.-History:The village of Kut Chum was established in 1912. A minor district Kut Chum was established on August 1, 1961...

, once issued its own local scrip
Scrip
Scrip is an American term for any substitute for currency which is not legal tender and is often a form of credit. Scrips were created as company payment of employees and also as a means of payment in times where regular money is unavailable, such as remote coal towns, military bases, ships on long...

 called Bia Kut Chum: Bia
Thai baht
The baht is the currency of Thailand. It is subdivided into 100 satang . The issuance of currency is the responsibility of the Bank of Thailand.-History:The baht, like the pound, originated from a traditional unit of mass...

 is Thai
Thai language
Thai , also known as Central Thai and Siamese, is the national and official language of Thailand and the native language of the Thai people, Thailand's dominant ethnic group. Thai is a member of the Tai group of the Tai–Kadai language family. Historical linguists have been unable to definitively...

 for cowry
Cowry
Cowry, also sometimes spelled cowrie, plural cowries, is the common name for a group of small to large sea snails, marine gastropod molluscs in the family Cypraeidae, the cowries...

 shell, was once Baht, and is still current in metaphorical expressions. Running afoul of national currency laws, the community changed to barter coupon
Coupon
In marketing, a coupon is a ticket or document that can be exchanged for a financial discount or rebate when purchasing a product. Customarily, coupons are issued by manufacturers of consumer packaged goods or by retailers, to be used in retail stores as a part of sales promotions...

s called Boon
Merit (Buddhism)
Merit is a concept in Buddhism. It is that which accumulates as a result of good deeds, acts or thoughts and that carries over to later in life or to a person's next life. Such merit contributes to a person's growth towards liberation. Merit can be gained in a number of ways...

Kut Chum that bear a fixed value in baht, which they swap for goods and services within the community.

Trade exchanges


A trade or barter exchange is a commercial organization that provides a trading platform and bookkeeping system for its members or clients. The member companies buy and sell products and services to each other using an internal currency known as barter or trade dollars. Modern barter and trade has evolved considerably to become an effective method of increasing sales, conserving cash, moving inventory, and making use of excess production capacity for businesses around the world. Businesses in a barter earn trade credits (instead of cash) that are deposited into their account. They then have the ability to purchase goods and services from other members utilizing their trade credits – they are not obligated to purchase from who they sold to, and vice-versa. The exchange plays an important role because they provide the record-keeping, brokering expertise and monthly statements to each member. Commercial exchanges make money by charging a commission on each transaction either all on the buy side, all on the sell side, or a combination of both. Transaction fees typically run between 8 and 15%.

It is estimated that over 350,000 businesses in the United States are involved in barter exchange activities. 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, 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).

The first exchange system was the Swiss WIR Bank
WIR Bank
The WIR Bank, formerly the Swiss Economic Circle , or WIR, is an independent complementary currency system in Switzerland that serves small and medium-sized businesses...

. 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.

Corporate barter


Corporate
Corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...

 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 (contract to eliminate ambiguity and risk).

Internet bartering


Swapping is the increasingly prevalent informal bartering system in which participants in Internet communities trade items of comparable value on a trust basis using the Internet
Internet
The Internet is a global system of interconnected computer networks that use the standard Internet protocol suite to serve billions of users worldwide...

. The most notable disadvantage to electronic barter is inherent in Internet commerce, that of trust. How can consumers have confidence that they will receive what they bargained, or paid, for? Although the Internet based consumer market has by its continued existence and growth demonstrated that it works, there is never a guarantee of satisfaction in consumer to consumer transactions. There is no absolute defense against fraud. However, it can be argued that when a person barters there is less incentive to deliberately mislead. Neither party is paid; each party receives something that would only then have to be converted to cash.

Barter markets


In Spain (particularly the Catalonia
Catalonia
Catalonia is an autonomous community in northeastern Spain, with the official status of a "nationality" of Spain. Catalonia comprises four provinces: Barcelona, Girona, Lleida, and Tarragona. Its capital and largest city is Barcelona. Catalonia covers an area of 32,114 km² and has an...

 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.

According to the International Reciprocal Trade Association
International Reciprocal Trade Association
The International Reciprocal Trade Association is the global trade association for the modern trade and barter industry. IRTA promotes proper accountability rules, equitable standards, ethics and governmental relations, for the organized barter industry an its participating trade exchanges...

, the industry trade body, more than 400,000 businesses transacted $10 billion globally in 2008 — and officials expect trade volume to grow by 15% in 2009.

Environmental implications


Barter complements the environmental movement
Environmental movement
The environmental movement, a term that includes the conservation and green politics, is a diverse scientific, social, and political movement for addressing environmental issues....

 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 BarterQuest.com
BarterQuest.com
BarterQuest is an Internet company based in New York City that facilitates the cashless barter of a broad variety of goods, services, and real estate by consumers and businesses worldwide. As a pure trading site, BarterQuest offers as an alternative to buying and selling to receive products without...

 promote bartering as a green alternative to buying and selling.

Tax implications


In the United States, the sales a barter exchange makes are considered taxable revenue by the IRS and the gross amount of a barter exchange member's sales are reported to the IRS by the barter exchange via a 1099-B form. The requirement for barter exchanges to report members' sales was enacted in the Tax Equity and Fiscal Responsibility Act of 1982
Tax Equity and Fiscal Responsibility Act of 1982
The Tax Equity and Fiscal Responsibility Act of 1982 , also known as TEFRA, was a United States federal law that rescinded some of the effects of the Kemp-Roth Act passed the year before. As a result of ongoing recession, a short-term fall in tax revenue generated concern over the budget deficit...

. According to the IRS, "The fair market value of goods and services exchanged must be included in the income
Income
Income is the consumption and savings opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms. However, for households and individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings...

 of both parties."

Other countries do not have the reporting requirement that the U.S. does concerning proceeds from barter transactions, but taxation is handled the same way as a cash transaction. If one barters for a profit
Profit (accounting)
In accounting, profit can be considered to be the difference between the purchase price and the costs of bringing to market whatever it is that is accounted as an enterprise in terms of the component costs of delivered goods and/or services and any operating or other expenses.-Definition:There are...

, one pays the appropriate tax; if one generates a loss in the transaction, they have a loss. Bartering for business is also taxed accordingly as business income or business expense. Many barter exchanges require that one register as a business.

Limitations of a barter economy



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.

See also



  • Gift economy
    Gift economy
    In the social sciences, a gift economy is a society where valuable goods and services are regularly given without any explicit agreement for immediate or future rewards . Ideally, simultaneous or recurring giving serves to circulate and redistribute valuables within the community...

  • Hyperinflation
    Hyperinflation
    In economics, hyperinflation is inflation that is very high or out of control. While the real values of the specific economic items generally stay the same in terms of relatively stable foreign currencies, in hyperinflationary conditions the general price level within a specific economy increases...

  • International trade
    International trade
    International trade is the exchange of capital, goods, and services across international borders or territories. In most countries, such trade represents a significant share of gross domestic product...

  • List of international trade topics
  • Local currency
    Local currency
    In economics, a local currency, in its common usage, is a currency not backed by a national government , and intended to trade only in a small area. As a tool of fiscal localism, local moneys can raise awareness of the state of the local economy, especially among those who may be unfamiliar or...

  • Local Exchange Trading System
  • Natural economy
    Natural economy
    Natural economy refers to a type of economy in which money is not used in the transfer of resources among people. It is a system of allocating resources through direct bartering, entitlement by law, or sharing out according to traditional custom...

  • Private currency
    Private currency
    A private currency is a currency issued by a private organization. It is often contrasted with fiat currency issued by governments or central banks. In many countries, the issue of private paper currencies is severely restricted by law....

  • Property caretaker
    Property caretaker
    A Property caretaker is a person, group or organization that cares for real estate for trade or financial compensation, and sometimes as a barter for rent-free living accommodations...

  • Quid pro quo
    Quid pro quo
    Quid pro quo most often means a more-or-less equal exchange or substitution of goods or services. English speakers often use the term to mean "a favour for a favour" and the phrases with almost identical meaning include: "give and take", "tit for tat", "this for that", and "you scratch my back,...

  • Reciprocity (cultural anthropology)
    Reciprocity (cultural anthropology)
    In cultural anthropology and sociology, reciprocity is a way of defining people's informal exchange of goods and labour; that is, people's informal economic systems. It is the basis of most non-market economies. Since virtually all humans live in some kind of society and have at least a few...

  • Simple living
    Simple living
    Simple living encompasses a number of different voluntary practices to simplify one's lifestyle. These may include reducing one's possessions or increasing self-sufficiency, for example. Simple living may be characterized by individuals being satisfied with what they need rather than want...

  • Trading cards
  • International Reciprocal Trade Association
    International Reciprocal Trade Association
    The International Reciprocal Trade Association is the global trade association for the modern trade and barter industry. IRTA promotes proper accountability rules, equitable standards, ethics and governmental relations, for the organized barter industry an its participating trade exchanges...

  • Time Banking
    Time Banking
    Time banking is a pattern of reciprocal service exchange that uses units of time as currency. It is an example of an alternative monetary system. A time bank, also known as a service exchange, is a community that practices time banking...