The Basics of Bartering

The dictionary defines barter as "the exchange of goods or services for other goods or services." That sounds like a pretty good system: trading something for something. But one rarely hears a good word about barter. Why is that?

The typical description of a barter transaction is couched in terms similar to this: "You have an apple and want an orange. I have an orange and want an apple. We trade. That's barter." Then everyone smiles at the quaintness of the concept. Well, I should think so!

What are your chances of finding someone with an apple who wants to trade it for your orange at just the time when you want an apple, and your orange is ripe and juicy, and his apple is fresh and desirable? What if you want a settee, or a set of tires? What if he wants your orange, but has a rutabaga to trade?

Let's look at another "what if." What if we get real, and put aside these grotesque examples of barter which seem designed for the specific purpose of making it look ridiculous. Barter, as the dictionary tells us, is trading something for something else. The only other way to trade, it would seem, is to trade something for nothing. Is that what most people would regard as superior to barter? Given the nature of modern money, that is precisely what we do today when we make trades: we give nothing for something, if we are buying, or something for nothing, if we are the seller. Just possibly that has something to do with the deterioration of our economy!

In real life, the absurd "apple for orange" type of barter has never existed; things were never that simple. Barter was indirect: people bartered with goods which they used specifically for bartering. In other words, I would sell you my goods or services for something I didn't need, such as a keg of nails, because I knew that nails were always in demand, and I could swap them for what I needed at some time in the future. Nails, though a good bartering medium, are bulky. They aren't worth very much, so it takes an awful lot of them to trade for anything expensive. As you probably suspect, we are heading toward precious metals. Their popularity as a bartering agent since ancient times indicates their superiority to other materials which have been used here and there, now and then.

Another dictionary definition of barter declares it to be the "trading of goods and services for other goods and services without the use of money." That definition, however, confuses more than it enlightens. If people trade goods and services for, let's say, gold, then they are still bartering, even if they call the bartering medium "money." They are trading goods, or services, for goods (or the services of the gold miner). They have picked gold because it is a supremely good material to use for bartering; and if its use is universal, or nearly so, people may refer to it as "money." There is, after all, nothing which has the essence, or nature, of money. There isn't a money tree, or a money mine. Money is simply the name which we give to the stuff we use, among other purposes, for bartering.

For this bartering to work, the substance bartered, the universal bartering agent, or "money," must be useful. It is a grave mistake to assume that there was some sort of tacit agreement, throughout the ages, to use gold as money just as a sort of convention, or habit. Gold was used because of its utility. There are other valuable substances which have been known to men for centuries. Amber, for instance, is rare and expensive, but it isn't used as money, because it is relatively useless. Myrrh made whole villages rich in times past, and is still valuable and scarce; but there isn't much use for it today. Gold, on the other hand, is an industrial necessity, besides having an important role in jewelry. The same can be said of silver. Millions of ounces are used to make solder, and film. In other words, you can safely hold these precious metals without fear that you will get "stuck" with them. That obviously isn't true with what passes for money today.

Perhaps society has been made contemptuous of barter because our present system is so inadequate by comparison. We trade something for nothing. Our modern "money," far from being a repository of wealth, is a mental concept. The Federal Reserve System, in one of its many publications, states that what gives modern money its usefulness is the confidence which people place in it. It is, in other words, a con game. A gold brick is valuable, as long as you have confidence in it. Scrape off the gold paint, and your confidence evaporates. Because it is intangible, you can't scrape the gilt off modern money. The market place, however, can bring about the same effect. Precious metals have approximately the same exchange rate that they had when used as money. The mental money, however, is losing its exchange value from month to month, and we are expected to believe that this is somehow a cosmic catastrophe, like an impending collision with a meteorite, and not something which could, and should, be anticipated, or, indeed, is intended. Metal money makes mental money look bad, so let's do away with the real stuff by ridiculing barter, which is the use of tangible, rather than mental, money!

If it is confidence which gives money its usefulness, why not place your confidence in what you can touch and see? If you insist upon using imaginary money, why not use Monopoly money (I mean Parker Brothers, not Rockefellers!). At least you can buy that for a few cents on the dollar. But if economic stability is the goal, let's get back to barter. Better by far to trade something for something else than to trade something for an invalid promise of nothing!