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 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 that 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 specialized. 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 essentials such as food (since the farmer can only use so many cars, etc.).
Contemporary Bartering
Despite its inherent limitations, the barter system has grown and become useable to corporations and individuals in today’s world through 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 an 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
Bartering future runs along side the development of internet-based technology and rapid globalization. The internet portal has catapulted the once primitive barter system into a global form of trade, which has been increasingly viewed as the “massive barter economy.”
Internet based barter sites have allowed not only individuals, but also businesses and organizations, to connect on a global scale, breaking down any previous boundaries that may have prevented trade. This new form of internet or “cyber” bartering is more developed than the traditional bartering system, as it does provide for a commonly accepted unit of account or “trade credit.” Trade credits hold the future to global bartering, as they help to eliminate the necessity for smaller international businesses to produce the otherwise most commonly accepted method of payment for goods and services, U.S. dollars. It has been argued by the growing global barter community, that future advances in technology will enable the current system of "money" to be replaced with an advanced bartering scheme.
Such elimination of money or currency through bartering may have its advantages. Nevertheless, given the complexities of human society, and the reliance of government on money to provide services to support society as a whole (as well as itself), it appears that barter alone can never suffice.
Human society developed exchange beyond direct barter as it grew in complexity and sophistication. Problems associated with these developments are not the result of the external changes, but due to the self-centered motivations of people. Thus, money itself, or even the love of money, is not the root of all evil, but rather the fact that the internal nature of human beings has contained evil. The solution to this problem, and the establishment of true human societies allowing advances in all areas of life, depends on solving the root cause of human suffering. In the transition era, however, the re-emergence of barter as a means of exchange that breaks down barriers between societies has some merit. The challenge for governments is to develop monetary systems or currencies, such as the Euro, which also transcend national boundaries while continuing support for the social structures that are dependent on the monetary system.
Answered by ScouterAge : 56 1 month ago
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