The words ‘barter system’ bring to mind a primitive form of economic transaction. The very words ‘barter system’ may elicit images of bearded men in robes with walking sticks trading camels for fish or grains.
In fact, the barter system was the first system of commerce and was quickly replaced by various forms of money as people realized the inefficiency of an entire system of exclusively barter exchanges (more on that here).
However, though money greatly improved the efficiency of commerce in the economy as a whole, it never fully displaced bartering.
This is because, at its core, bartering is an incredibly efficient form of economic transaction. Think about it. If someone has something of value that you want, and you have something of similar value that they want, why not just trade? How much simpler can it get?
Of course, the issue is finding this double coincidence of wants and ensuring the items are of roughly equal value, but where possible, bartering is the most direct form of transaction. Both parties get what they need without having to use a middleman or a third party.
It is for this reason that bartering continues to be used to this very day. This is true in stable, modern societies as well as remote areas and areas undergoing various crises such as war or monetary collapse.
In this article, we’ll take a look at how the most ancient form of commerce continues to exist in today’s society, including ways modern technology has helped this basic form of economic transaction become more practical.
Business-to-business (or B2B) bartering is when one business exchanges its services with another. This is done to help with cash flow, allowing businesses to obtain services while preserving their budget for other needs that can’t be obtained through barter or increasing their profit.
Additionally, B2B bartering can help businesses obtain services they otherwise wouldn’t be able to afford and spread word of mouth in their communities. It can also be useful to help new or young entrepreneurs build skills through experience.
For example, say you just started an IT firm. You need somebody to do your books, but since you’re a new business, cash is tight.
If you hired someone to do the books, you can forget about reporting a profit to your investors at your annual retreat (at a local burger shop – remember, you’re new and can’t yet afford anything better). What do you do?
If you play poker with an accountant, you see if they’d be interested in a swap. You’ll take care of his IT problems if they’ll do your books. Even if you don’t know anyone personally, you can find somebody online or through various barter exchanges.
This allows you to have professional bookkeeping without cutting into your budget for other necessities or profit.
Additionally, you gain experience working with accounting software that you were previously unfamiliar with and, if you do a good job, the accountant might tell other accountants or more people he knows, helping spread word of mouth about your business.
Additionally, say that while doing IT for the accountant you meet a social media consultant that works for them. You have never considered using social media advertising before and certainly don’t have the budget to hire one, but the benefits are immediately obvious.
The two of you get to talking, and it just so happens that she could use somebody to help with her computer problems. You work out a deal where you will help her with her computer issues if she helps you advertise on social media.
Through bartering, you have obtained a service you never could have otherwise and built a nice little network of professionals.
Individuals also barter goods and services all the time. This can occur both formally and informally. Say you have a relative over for a meal, and they notice a blender in your kitchen that you haven’t used in years.
They mention it, and you tell them they can have it if they’ll watch your dog when you go out of town in a month. They agree, and you have just bartered an old blender in return for dog-sitting services.
Bartering between individuals can also be a more formal, long-term arrangement. Take a child-care cooperative in which several parents get together to avoid having to pay for childcare services.
They all have to work, so they agree that whoever has the day off will take all the kids. In essence, you are trading your service of watching their children in exchange for free childcare services when you need them.
Even something like carpooling is a barter when you break it down – you’re trading a ride on Monday in exchange for a ride on Friday.
When you really get down to it, a lot of friendly, neighborly transactions come down to barter.
Say your neighbor is going out of town and asks you to watch his dog. Do you say yes? Why? Though you may be motivated by neighborly kindness, the unspoken agreement is that he may repay this kindness at a later date.
Although there is no direct exchange, neighborly friendliness may be motivated by an attempt to build goodwill that can be redeemed like it could in a barter exchange.
Internet and Bartering
Before we specifically discuss barter exchanges, let’s take a general look at the impact of the internet on bartering. Despite the contrast between the modern nature of the internet and the primitive nature of the barter system, the two complement each other quite well.
The invention of the internet has helped bartering become more commonplace by eliminating its biggest inefficiency – finding someone with a double coincidence of wants.
Before the internet, you needed to find someone who had what you wanted or was willing to trade for something you provided. This often meant you had to be lucky enough to know somebody, or at least know somebody who knew somebody.
If you didn’t, you might have to ask around, which could take a long time and end up being fruitless, depending on your luck.
Today, with Craigslist and Facebook, we can browse hundreds of people, many of them complete strangers we would never otherwise come in contact with, in seconds. More to the point, we can browse specifically people looking to get rid of what we are looking for.
This dramatically expands the number of potential barter partners the average person has at their disposal and dramatically reduces the time cost of finding a trading partner.
You can browse hundreds of potential partners and meet up with the one who best suits your needs with only a small risk of ending up tied up in a basement by a serial killer.
In addition to the added convenience of person-to-person bartering, some companies have taken advantage of the internet to start online barter exchanges.
These exchanges serve as third parties to organize and coordinate barter exchanges among their members. They are usually local or regional and have websites that list products for sale through bartering.
Here’s how it works. If you have excess goods or services, you can ‘sell’ these on the website. Your account will be credited the value of what you’ve given up, which can be redeemed at a later date for something available on the site.
This allows individuals to barter with multiple other individuals or businesses at once without having to keep track of who owes what. The barter exchange accounting acts as a kind of currency within the exchange, similar to watching your neighbor’s dog acts as a sort of social currency.
The barter exchange charges an initial membership fee, a monthly maintenance fee, and a transaction fee. In exchange, it provides access, a monthly accounting for each member, and a year-end tax reporting of barter transactions.
Other Examples of the Barter System Today
Additionally, the barter system is used in some remote areas of the world such as Papua New Guinea, or areas undergoing crises.
For example, in rural Venezuela, as the country’s economy and infrastructure have struggled in recent years, many in rural areas have returned to bartering to meet their daily needs.
Finally, there are some festivals or traditions that are based on bartering. A prime example is the Jonbeel Mela. This is a three-day festival held in the Indian province of Assam during which a huge bazaar is held.
A few days before the festival, the indigenous tribal communities of the Assam hills come down to exchange their products with those of the native, indigenous Assamese people.
This barter exchange and the ensuing festival are meant to build relationships and goodwill among the various indigenous tribes.
Though we may think of the barter system as a primitive means of commerce, it remains alive and well today. In fact, bartering saw an increase during the pandemic, and modern technologies have made it more efficient than ever.
It’s not just individuals, family members, and neighbors who are bartering today – entire websites have been devoted to helping business-to-business bartering.
We hope this article gave you some insight into how an ancient form of economic activity remains relevant today, even thriving in some instances. We hope that you’ll subscribe to see similar articles, and we hope to see you again.