| Economies by type of trade |
|---|
| Closed household economy |
| barter economy |
| Monetary economy |
Barter is a form of Trade where goods or services are exchanged for a certain amount of other goods or services, i.e. there is no Money involved in the transaction. It can be bilateral or multilateral as Trade.
Barter trade was common in societies where no monetary system existed or in economies suffering from a very unstable Currency (as when Hyperinflation hits) or a lack of currency.
The disadvantage of using bilateral barter in the past was that it depended on the mutual coincidence of wants. Before any transaction could be undertaken, the needs of one person must mirror the needs of another person. That is, if you have a surplus of goats and need more wheat, you must find someone who has a surplus of wheat and needs more goats. To overcome this mutual coincidence problem, intermediaries developed that would store, trade, and warehouse commodities. However, the intermediaries often suffered from extreme risk.
The disadvantage of using multilateral barter is complexity, but software like ebarter, XO Barter Software and VirtualBarter, could change this situation.
Because barter is so expensive, it is very rare. To organize production and to distribute goods and services among their populations, many pre-capitalist or pre-market economies relied on Tradition, top-down Command, or community Democracy instead of market exchange organized using barter. Relations of Reciprocity and/or Redistribution substituted for market exchange. Trade and barter were primarily reserved for trade between communities or countries.
Barter becomes more and more difficult when more people become dispossesed of the means of production needed to produce products, including their subsistence. For example, if money were totally abolished in the United States, most people would have nothing of value to trade for food (since the farmer can only use so many cars, etc.)
To overcome the mutual coincidence barrier, some people have proposed the creation of barter exchange companies that offer an alternative currency, the barter dollar. However, this is not true barter, because it involves currency.
On the west coast of the United States one can find still another variation of barter, characterized by free sharing (without the use of barter dollars or credits), and further afield from strict barter, in that what a participant receives is not balanced against what that participant gives. This system has been used since 1975 by FREE FOR ALL The Skills Pool.
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.