Barter

For people who check facts

Barter is a simple 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. Barter trade was common in societies where no monetary system existed or in economies with a very unstable currency or a lack of funds.

The disadvantage of using barter is that it depends on the mutual coincidence of needs. Before any transaction will be undertaken, the needs of one person must mirror the needs of another person. If you have a surplus of goats and need more wheat, you must find someone that 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, this often implied that the intermediaries suffered from extreme risk.

Because barter is so expensive, it is very rare. To organize production and to distribute goods and services among their populations, pre-capitalist or pre-market economies relied on tradition, top-down command, or community democracy instead of market exchange using barter. Relations of reciprocity and/or redistribution substituted for market exchange.

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 was 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.)

In finance, the word barter 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.