What It Means
Barter is a system of trading goods and services directly for other goods and services without the use of money. Though barter occurs in the contemporary world, it was a far more essential part of life in early civilizations and in communities throughout history where no standard money system existed. For example, imagine a settler family in early colonial New England that is able to produce all of the food that it needs but that relies on outside sources for important nonfood items, such as shoes. In the absence of any standardized money system, the father of the family might attempt to barter with the village cobbler, offering eggs, milk, and butter in exchange for shoes.
Barter can be simple and effective when it works well, but there are substantial obstacles to bartering efficiently. What if the colonial cobbler did not need eggs, milk, and butter? Or what if he asked for a larger quantity of those items than the farmer wanted to give him? Even if the farmer surmounted these obstacles and got shoes for his family, he would have to face the same uncertainties every time he set out to barter for his family’s nonfood needs.
Economists and historians believe that money arose in response to the complexities of barter. Money greatly simplifies transactions. The farmer, for instance, could sell his surplus goods at market and buy shoes with the money he earned. He could do this at his convenience, regardless of whether the cobbler needed milk, eggs, and butter.
When Did It Begin
The circumstances surrounding the beginnings of barter are matters of speculation rather than fact. The theories that have most heavily influenced economists’ views on the origins of barter are those of the ancient Greek philosopher Aristotle and the eighteenth-century political economist and philosopher Adam Smith.
In Politics, one of the most influential texts on political philosophy in the history of Western civilization, Aristotle argues that barter developed when social groups grew larger than a single household. With the development of communities, trading between different households became desirable because it allowed people to obtain the necessities they lacked and to contribute their surpluses to those who needed them. Aristotle approved of barter for household necessities; he disapproved of the accumulation of wealth, which was made possible by the introduction of money. Wealth served no purpose, in his view, when it went beyond a household’s needs.
Smith’s view of barter, included in his landmark work An Inquiry into the Nature and Causes of the Wealth of Nations, focused on the phenomenon called the division of labor, the process whereby different people concentrate on different forms of work. This process is usually seen as having originated early in the development of civilization. In any society people ideally focus on the work most suited to them and that they can do most efficiently; this allows for greater overall efficiency. At the same time, in Smith’s view, specialization reduces people’s self-sufficiency. Once people specialized, they lost the ability to provide for all of their needs within the household, and they had no choice but to barter for what they lacked. The troublesome complications of barter, Smith and Aristotle agreed, led to the development of money.
More Detailed Information
The details of barter vary depending on the community in which it occurs, but most barter transactions share some key characteristics. These characteristics demonstrate the complexity of a barter system compared to transactions in a money-based economy.
First, anyone who wants to barter must find someone who has what he or she needs and who also needs what he or she has to trade. Economists call this a “double coincidence of wants” and is the most serious obstacle to barter. Imagine a community of 40 households in which each household produces a specific commodity. The intricacy of pairing those who need one another’s goods or services would be enormous, and it would increase with the size of the community and the number of goods and services available for trade.
A second characteristic of barter is that both parties must agree that the items being offered are of equal value. If you trade primarily in apples, and you want, say, a horse, you and your trading partners must arrive at a suitable value, in apples, for that horse. Bargaining often plays a key role in this process, and successful barter usually requires that one or both sides be flexible in the amount of goods or services they are offering. Sometimes this is not possible. For instance, if you are trading a wagon for a cow, there is no flexibility in the amount of wagon you might offer.
Related to the act of bargaining is another defining attribute of barter: in any instance of barter, both sides simultaneously perform the acts of buying and selling. If you are trading a leather jacket for a bicycle, you are buying a bicycle and selling a leather jacket at the same time. When you buy something like a bicycle, you must look at its age, its condition, its suitability to your purposes and tastes, then make a decision about its value; and when you sell something like a leather coat, you must make equally difficult calculations about its worth, both to you and to the other person. Having to perform both functions at once, while negotiating, makes barter much more complex than a money-based purchase or sale.
Many communities have dealt with these and other difficulties by developing alternatives to a strict barter system. In a system that anthropologists (people who study humanities and cultures) and economists call gift exchange, for example, people with a surplus of any commodity give gifts of that commodity to their neighbors. Their neighbors, in turn, are expected to give something back of equal or greater value at a later date. A farmer might slaughter a cow and have more beef than he can use all at once. He might, therefore, make gifts of the meat to a number of residents in his village, with the expectation that those people will later help him harvest his wheat. People who fail to give as generously as they receive or who don’t give gifts at all lose their standing in the community.
The use of money is almost universal today, so barter is less necessary than it was in the past. Barter remains a useful way to do business informally, however. It is somewhat common for acquaintances to exchange business products or services. For example, a lawyer might provide legal advice to the owner of a sporting-goods store in exchange for a set of golf clubs. A form of barter also has a role in international business, especially when corporations sell very expensive items (such as aircraft) to poor or less-developed nations. In this type of transaction, the buyer nation might pay partly with a good it has in excess (such as wheat), which the corporation would then itself sell on the world market. Barter also becomes widespread at times of war and economic collapse, when a nation’s money loses its value. During an economic crisis in Argentina in 2001–02 in which the country’s money (the peso) lost 75 percent of its value, many citizens reverted to barter to satisfy their daily needs.
Barter is a form of exchange in which goods and services are directly traded for one another without the use of a monetized means of payment, such as cash, checks, or commercial credit. There are two principal kinds of barter systems: commercial barter, in which the exchanging parties receive their desired goods and services simultaneously, and non-commercial barter, in which the parties enter into a continuing series of exchanges without simultaneous reciprocity and which therefore may or may not be in balance at any particular time. Both types were important to North American indigenous and European settler economies down to the nineteenth century.
During the period of European settlement, for example, commercial barter was central to the trade in furs, arguably the most important locus of economic interaction between indigenous North Americans and European settlers until the mid-nineteenth century. Initially at the armed forts and "factories" of enterprises such as the Hudson Bay Company and later at trading rendezvous where the interested parties met on a more egalitarian basis, indigenous trappers bartered hides and furs for a wide range of European manufactured goods. Similar institutions and relationships also characterized the slave trade, especially at its points of origin in Africa.
During the same period, noncommercial barter (characterized by delayed but direct reciprocities) and gift exchange systems (characterized by indirect reciprocities or competitive and ceremonial giving) were the dominant forms of everyday economic interaction within indigenous North American and European settler communities among both men and women. Little is known about the noncommercial and gifting systems in the many different indigenous societies encountered by European settlers and their descendants, though scholars agree that the introduction of European goods and practices ultimately undermined indigenous independence and traditional ways of life. Enough is known about the noncommercial barter systems of the European settler societies of North America, however, to conclude that until the nineteenth century, especially in the countryside but also in the cities, most of the goods and services exchanged among settler households, and even between households and many merchants, were part of a noncommercial barter system; that is, they were paid for with other goods and services, usually after a considerable delay but without marked interest charges. Money and monetary (or commercial) exchange also played a significant role in European and European settler societies during this period, of course, especially among mercantile and urban elites. But money did not begin to be readily enough available to function as a means of payment in most people's everyday transactions until the early nineteenth century.
The transition from a predominantly noncommercial barter economy to a predominantly monetized and commercial one depended, first, on the growth of new technologies and means of distribution capable of supplying the effectively insatiable demand of consumers for an ever-increasing diversity of goods and services, and second, on the spread of deposit banking, banknotes, and other credit-based financial instruments that were acceptable means of payment in most circumstances and of which there was an essentially limitless stock (unlike, say, gold, tobacco, "made beaver," or any of the other material goods that otherwise served as a universal means of payment). It is important also to note that the Revolutionary War and U.S. Secretary of the Treasury Alexander Hamilton's subsequent fiscal policies, concerned as they were to monetize the economy and ensure the central government of its ability to institute tax policies that could support a modern armed force and government service, provided a crucial fillip to the rise of a modern commercial economy in the United States and to the eventual decline of the noncommercial barter system.
Braund, Kathryn E. Holland. Deerskins and Duffels: The Creek Indian Trade with Anglo-America, 1685–1815. Lincoln: University of Nebraska Press, 1993.
Larkin, Jack. The Reshaping of Everyday Life, 1790–1840. New York: Harper and Row, 1988.
Ulrich, Laurel Thatcher. A Midwife's Tale: The Life of Martha Ballard, Based on Her Diary, 1785–1812. New York: Knopf, 1990.
bar·ter / ˈbärtər/ • v. [tr.] exchange (goods or services) for other goods or services without using money: he often bartered a meal for drawings. • n. the action or system of exchanging goods or services without using money: it will be paid for by a mixture of barter and cash. ∎ the goods or services used for such an exchange: I took a supply of coffee and cigarettes to use as barter. DERIVATIVES: bar·ter·er n.
Barter is the exchange of goods and services without the use of money. The technique has been used in commercial transactions since ancient times. More recently, U.S.-based multinational companies have used a form of bartering called countertrade when selling large-value items, such as jet aircraft, overseas. Bartering allows a company to dispose of excess inventory, use surplus production capacity, and obtain necessary raw materials when a cash shortage exists. In addition, the technique also enables firms to gain access to new production channels and customers, resulting in increased sales volume.
The exchange of goods or services without the use of money as currency.
Barter is a contract wherein parties trade goods or commodities for other goods, as opposed to sale or exchange of goods for money. Barter is not applicable to contracts involving land, but solely to contracts relating to goods and services. For example, when a tenant exchanges the performance of various maintenance tasks around a house for free room and board, a barter has taken place.
barter: see exchange.