Barter and money have different means of balancing an economic exchange. Barter is used in societies where no monetary system exists. When there is one, it is also used, especially in economies suffering from a very unstable currency (as when hyperinflation hits).
Barter is possible when coincidence of wants of economic actors enables an exchange cycle between their bids. Before any transaction can be undertaken, each party must be able to supply something another party desires.
– Some communities develop a system of intermediaries who can store, trade, and warehouse commodities, but who may suffer economic risk.
– Others develop a system with a virtual value unit ("barter dollars," for example) to measure and balance exchanges, very similar to a monetary system.
– Multilateral barter is more complex to settle but allows trades that would not be possible with bilateral barter. This complexity can be reduced by openbarter software.
– On the west coast of the United States the Beyond Barter organization extends the concept to a system based on free sharing of services. Although there's no attempt to balance contributions in individual transactions, controls ensure that members are not overburdened.
History of barter
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 organised using barter. Relations of reciprocity and/or redistribution substituted for market exchange. Trade and barter were primarily reserved for trade between communities or countries. It is also used when the monetary system failed to measure the economic value of goods.
Barter becomes more and more difficult as people become dispossessed of the means of production of widely-needed goods. For example, if money were to be severely devalued in the United States, most people would have little of value to trade for food (since the farmer can only use so many cars, etc.)
It is used on important transactions between firms or countries to exchange economic values, when monetary constraints are too expensive for the economic actors.
A well-known example of multilateral trade is the triangular trade.
Money used to be considered as simpler for small trades; but use of the Web has changed that perception, especially in respect to Swapping.
Swapping is the increasingly prevalent informal bartering system in which participants in Internet communities trade items of comparable value on a trust basis.
While swapping is an excellent way to find and obtain items that are inexpensive, it relies upon honesty. A dishonest participant might arrange a swap, and then never complete their end of the transaction, thus getting something for nothing. This practice is called swaplifting, a pun on shoplifting. The victim's recourse is often limited to shunning the swaplifter, or taking him to small claims court.
Misuses of the word "barter"
As of 2007, it is popular (especially on UK daytime television) to use the word "barter" in place of "haggle". To Buy Or Not To Buy uses the word in one of their catchphrases: "Will you barter or scarper?" It is commonly understood that the guests on the show will be paying solely with money and not, for example, offering them part exchange on their A reg Ford Cortina.