A free market form was one of the founding principles of the United States. A cornerstone of conservatism is that the government should rarely interfere in markets, acknowledging that the public is capable of making decisions that benefit society through the wonders of trade.
Yet over time, governments around the world have entrenched themselves deeper into the affairs of business and trade, and now many promise that they can fix the very economic problems they helped create. Proposals call for more state control over the economy, running completely contrary to laissez-faire principal that is so important to classical conservatives. Governments exercise this control principally through business regulations and a centralized monetary system.
In response, many businesses throughout the world are beginning to return to the traditional way of doing business that existed long before the creation of governments: bartering.
As the global recession continues to deepen, world credit markets have largely frozen up, unwilling to make loans despite large injections of cash into the money supply by the world’s central banks. On top of this, many businesses have doubts about the value of currencies when they want to carry out transactions; the inflation and volatility caused by central banks may mean a exchange of dollars may soon not be as equitable as planned.
Fortunately, bartering, a system of trade exists which does not require the use of artificial currencies, exists. Bartering is the true, original form of trade. Commodities are exchanged for other commodities, depending on the needs of the parties involved and the relative values of goods and services, which are determined by the participating parties.
Commodities can take the form of anything seen to hold an intrinsic or inherent measure of worth, ranging from basic necessities to precious metals. Exchanges of services also can be very beneficial to both parties through bartering. Farmers exchanging crops or livestock with other farmers who grew different crops probably was one of the first widespread bartering systems. Both parties benefit and no government is needed to mediate the transaction.
Founding father Thomas Jefferson once said “A wise and frugal government, which shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement.” It is becoming increasing clear that the U.S. government is anything but frugal, and if recent history is any indicator, this government also seems incapable of making wise spending decisions. Instead, governments are doing the exact opposite of what Jefferson advised, assuming they know how to best regulate business.
Bartering can offer a way out of this regulatory boondoggle.
Although the IRS tries to regulate bartering with the income tax, the fact that it is so easy to conceal makes it difficult to find just how much bartering takes place. And exactly how a simple exchange of goods or services can be considered “income” to both parties and therefore subject to direct taxation is truly ridiculous. Such a policy discourages efficient allocation of products in the marketplace by assigning numerical currency values (which are taxed) to products, instead of recognizing that products have actual value to the parties.
The current bartering boom is largely due to the Internet, which facilitates bartering by connecting people and businesses offering goods and services. Various bartering Web sites, themselves for-profit businesses, serve as moderators for bartering exchanges. The International Reciprocal Trade Association is a nonprofit based in Portsmouth, Va., that regulates and provides standards for these modern barter-service companies. The association estimates that more than $16 billion worth of business is exchanged annually through barter exchanges in North America alone, with significant growth potential.
New online barter exchanges are springing up worldwide, using innovative systems to make operating an exchange both profitable and beneficial to members.
Asia’s biggest barter trade site, Barterxchange.com, connects over 600 businesses in Malaysia and Singapore and up to half a million businesses participating in over a dozen barter exchanges around the world. Barterxchange’s membership has grown by 30 percent since 2007 as businesses find barter as an easy way to expand their operations without having to borrow money.
Some barter exchanges create their own type of monetary system, translating the values of the goods or services offered into credits. Members gain these credits when another member takes them up on an offer, and lose them when find an offer useful to them. This method does not require the products be of equal value, as these credits can be exchanged interchangeably at any time. The exchange operator takes a small cash cut as a transaction fee, depending upon the scale of the transaction. Old-fashioned barter sites like Craigslist are seeing increased usage as well, with Craigslist reporting an increase of 100 percent in activity on its barter boards.
Cash-strapped businesses and individuals are finding barter a great way to establish relationships with potential future trade partners while at the same time circumventing complex banking procedures. Barter has a new lease on life, a resurgence of an age-old practice is taking place with the help of an unexpected tool — technology.