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The Economic Impact Of Bartering

By James Stout, Former writer for BarterNews

Barter affects the economic system. Bartering is fundamentally a personal activity -- one-to-one, you and me getting what we want. But when millions of people are bartering, it becomes more than just an individual action; it becomes a supplemental economic system, which both complements and alters the macrocosmic system. We can see this effect in various ways:

  1. It allows us to be less reliant on the job market. To acquire goods and services, we usually need money, which is usually acquired through a job. (If we want more goods and services, we usually have to get a high-paying job.) But when we barter, each trade is a "job" in itself; we become a businessperson who generates goods and services which we would have bought with the money from a job. Therefore:
    • We can accept a lower-paying job which we enjoy, and make up the difference by bartering. This lower-paying job can even be a part-time job.
    • We can stay at a lower-paying job which we enjoy, instead of climbing a stressful corporate ladder.
    • Regardless of our income level, we can supplement it by moonlighting with bartering. Instead of watching television in our free time, we can barter our services -- or our goods, which could be the handicrafts from a pleasant hobby.
  2. Bartering is not as susceptible to inflation. Consider these thoughts:
    • Inflation might raise the price of everything else, but if we agree that your rototilling equals my carpentry, that's that. Two hundred years ago, we might have been able to trade an hour of tutoring for a large bag of garden vegetables. The cash price might have been 5 cents for either one. In our current era, the tutoring might cost 400 times that much ($20) and the vegetables' price could have inflated by that same amount. But the barter deal would be exactly the same.
    • Bartering is not totally inflation-proof.
      • Inflation can occur within a barter club when some members start to add special charges (in units) when selling to the other members. (Many clubs prohibit this practice.)
      • The service charges and other fees in barter clubs might be considered inflationary; we must raise our prices in order to cover those extra costs.
      • Inflation can happen within a barter club's economic system because it is associated with the money-based economy. When prices rise in the money-based economy, they also rise in a unit-based barter club; for example, when a $500 TV set inflates to $600, the barter-club members must then pay 600 units to buy it.
      • Inflation might occur in a community's economy when a new barter club introduces its money supply in the form of units. If the club creates hundreds of thousands of dollars worth of units, the effect would be the same as if it had introduced the same amount of dollars.
  3. Bartering has a different dynamic in "supply and demand." If the shovel manufacturers of the world unite and suddenly produce enough shovels to give 100 of them to everyone, there would be no effect on the value of our shovel in terms of its ability to dig potatoes. (Try doing a similar saturation with $100 bills, and see how their value is affected.) Of course, if we try to trade that shovel, we will find that it has no value as a medium of exchange, since everyone has 100 of them.
  4. Bartering allows businesses to sell goods and services to cash-poor customers. We can see barter's influence wherever a barterer is placing an extra order for farm supplies, filling an empty table at a restaurant, or joining a telephone-answering service which had been going broke. Bob Murley of Full Circle Marketing explained that some excess production capacity can as good as money: ''Everybody who produces something has a greater capacity to produce more of the same thing than to get something new or to create something new. So if a man is manufacturing tennis rackets, he can produce another thousand tennis rackets easier than he could go out and create a cruise for himself or advertising space for himself or travel credits for himself. So excess production is a tradable, barterable commodity."
  5. Bartering affects credit.
    • When we can pay for some goods and services by bartering, we might not need to borrow as much money.
    • Barter clubs lend their units. This is an additional line of credit for us.
  6. Bartering provides an additional "safety net." Non-profit barter clubs provide a means by which cash-poor people can acquire the necessities of life -- food, housing, clothing, etc. When I worked at a non-profit barter club, I saw people who were in severe financial distress -- not knowing where they would find their next meal. We were usually able to help those people. While bartering assists the people, it also makes them less dependent upon taxpayer-supported government programs, e.g., welfare and food stamps.
  7. It creates micro-economic systems. Indeed, the sheer magnitude of the macro-economy could be one of its problems. Theodore Rosjack said, in the introduction to E. F. Schumacher's book, Small is Beautiful, "... whether the bigness is that of public or private bureaucracies ... from bigness comes impersonality, insensitivity, and a lust to concentrate abstract power." It is easier to accumulate (and abuse) assets and power in a money-based system than in a direct-barter system; however, bartering, too, can be used to amass wealth, particularly in a field like real-estate exchanges. And "small" is not always "beautiful"; sometimes it is weak and inefficient, as demonstrated by some barter clubs and by the difficulty in setting up one-to-one trades as a way of life.
  8. It provides a basis for the re-definition of money and economics. Some people believe that bartering is a philosophical challenge to our money-based economic system. These people create barter clubs which are decentralized, operated by members of the community, and guided by idealistic motives. Some of them try to transform economic values by making all labor equal: Your hour of work equals mine, even though you are a doctor and I am a window-washer. Paul Fink of the Community Skills Exchange in Olympia, Washington, expressed a far-reaching philosophy on bartering in a letter to me. He said: "I find barter books much too apolitical. Our Community Skills Exchange is based on an end to: the monetary system, hierarchy of wages, an unequal social employer/employee relationship, centralization of production and service, specialization of individuals, and labor as merely an 'economic' exchange. Our organization attempts to teach people how to take charge of their own lives and once again feel powerful. As far as we're concerned, empowerment is the focal issue." The idealistic barterers are presenting interesting ideas about commerce and money. They give their organizations names like "Skills Bank" and even "Energy Bank," as though assets and money are taking on a different meaning to these people. The skills and energy of the community are indeed stored there -- in a form which can be more real and directly usable than cash.

Does bartering have a place in a healthy economy? The popularity of bartering has risen and fallen throughout history as national economies have become depressed or prosperous. In the 20th century, we saw an increase in bartering during the U.S. depression of the 1930s, and in post-World-War-II Europe. Bartering became popular again during the extended recession of the early 1980s in the US. When the economy is in good condition, people would rather spend their abundance of cash -- but when inflation is high, and many people are unemployed, and cash is less available, people want to barter. However, bartering might have found a permanent place in a healthy economy, for these reasons:

  1. Contemporary barter clubs. These clubs do not rely on one-to-one trades; instead, they use a computerized system of "units" which make bartering almost as easy to use as money. The clubs are printing their own checks, issuing their own credit cards, distributing their own scrip, making loans with interest, and providing other alternatives to the money-based economy.
  2. Lack of faith in the economy. We are in a world of corporate restructuring, down-sizing, rapidly changing industries, periodic recessions, a high rate of bankruptcy, and other changes -- and the ever-present possibility that the entire system could collapse someday. In this world, bartering gives some stability; we can barter regardless of the condition of the general economy.
  3. Bartering's respectability. Although some corporations (and individuals) hesitate to barter because the activity still carries some of its stigma as a sign of poverty and distress, it is coming into the mainstream as a smart way to do business, even when our finances are strong.
  4. Bartering will always be popular in its personal forms -- in the trade of our turnips for a neighbor's banana bread, and the trade of our kid's marbles for another kid's toy. In those situations, barter is not determined by economic conditions; it is a ritual and an expression of friendship -- and it is a natural, deep-rooted part of our heritage and humanity.