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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 suffering from a very unstable currency (as when hyperinflation hits) or a lack of currency.
The disadvantage of using barter in the past was that it depended on the mutual coincidence of needs. 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 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, 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 was 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 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.)
To overcome the mutual coincidence barrier, some people have proposed the creation of "barter exchange companies (http://www.blueowlbarter.net/exchange.xhtml)" that offer an alternative currency, the barter dollar. However, this is not true barter, because it involves currency.
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.
History
SALT as MONEY Aristotle believed that primitive barter trading of standardised commodities 'hall-marked" by an authority for correct weight and quality, represented the first use of "money". He says......."as the necessaries of nature were not all easily portable, people agreed for the purposes of barter, mutually to give and receive some article which.....was practically easy to handle in the business of life.....
The trading of standardised pieces of salt, and metal have all the aspects of dealing in what we call today....money. For instance bread-like moles of salt each weighing about 5 kg still circulate in Ethiopia as a means of payment.
The SALT ARCHIVE (http://salt.org.il/frame_econ.html)
See also
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