What can I do to make a Bartering system stable?

The Bartering system is a means of trading goods for other other goods, very similar to the Currency system except minus the money. The problem is that as the population of a location increases people begin to disagree on the value of the items; what use is a goat to a sailor compared to a baker? So the simplest solution is to create a currency system. It just becomes to unstable to depend on a barter system, so what can I do to make a barter system stable in a modern American society?

• I think they would quickly develop their own commodity money. An excellent example would be how in prisons trade works with cigarettes - that is even in modern day america and seems to work. – bdecaf May 21 '16 at 7:08
• Another good example is scrap metals in the game Team Fortress 2. Every 2 items can be turned to 1 scrap, and you can buy/sell (well, barter/trade) any items with scraps (well, prices of items vary from 1 to 1000+ scraps). Not every item is wanted by everyone, but nearly everyone will buy/sell with/for scraps. Games are good experiments (they are literally new worlds, with set rules), whether be social or economical. – Ave May 21 '16 at 19:30

First some background about why currency tends to replace barter in economies. In general, a currency acts as a lubricant between trading partners, resulting in less complexity when used to trade or purchase any desired item.

Simple example with three people:
person 'A' has a sword and wants a massive block of marble.
person 'B' has a massive block of marble and wants a wheel of cheese.
person 'C' has a wheel of cheese and wants a sword.
Barter solution: they all meet in one place and trade items.


Possible problems with barter shown using this example:

1) Lack of information: How do the three discover that collectively
they have the items they want so they can agree to the barter?

2) Inequality of value: 'A' thinks his sword is worth more than the
crappy block of marble offered by 'B'. How do you trade half
a sword?

3) Non-portability of items: transporting the marble block to the
barter is difficult.

4) Non durability of items: The wheel of cheese will go bad over
time, requiring the barter to be completed quickly.


Currency fixes all four of these problems:

1) No need to match what you have to what someone else has;
make a currency sale and then a currency purchase instead.

2) If your item is worth more than an item you want, you end up
with extra currency to use later.

3) currency is portable, unlike a block of marble.

4) currency hold value over time, unlike cheese (ignoring
the whole fiat money/inflation issue here).


Currency also tends to be divisible into small enough values (no selling a single item for 1/2 penny) and be acceptable by everyone in the economy.

I don't think the efficiency of currency over barter will allow you to create a realistic complex society that uses ONLY barter, at least as long as your world rewards economic efficiency. Simple or small economies can get away with barter.

If your world has cultural values that totally ignore economic efficiency, then that society might avoid currency and only use barter. "Our religion has banned money/coins".

If your world has a has an efficient way of discovering possible barters, ala internet matching of potential barters, then two of the problems of barter, lack of information and non-portability of items can be greatly reduced. You will still have problems of inequality of trades and non-durability of items though.

My final answer is that you might want to consider a world with multiple non-traditional forms of currency. This would somewhat resemble a barter economy where you bartered (using non traditional currencies such as grain, crude oil, or other evenly divisible and value holding "things" like that). Your exchange rate between your non-traditional currencies (grain vs. crude oil) could be published so as to help potential buyers or traders decide on what form of 'currency' they wanted to use for the transaction.

• There is at least one example of bartering in modern American society. But you're right, you really just have to hand wave and say, "money is immoral/anti-<whatever>" – Wayne Werner May 21 '16 at 14:19
• That wont help. The society will define away money - it isn't money, its, um... something else (which oddly fulfils the function money fulfills). This is what happens when an genuinely near-unavoidable matter meets a religious prohibition. – Stilez Jun 1 '16 at 23:54
• @Stilez: Exactly. Because of the way humans do economics, money is too useful a tool to allow complete abolition. I suggested religion as one possible reason why a society might want to attempt to banish money, but that doesn't mean it won't spring up in some other form. The only way to get rid of money in all of its forms is to change the nature of humanity. If the society consisted of aliens or brainwashed humans or for whatever reason didn't act like humans do, a lack of money might be possible. – Mark Ripley Jun 2 '16 at 5:22
• You make a good point but there's one place you're wrong. The half farthing 1/8 of a penny – Separatrix Dec 8 '16 at 8:38
• @separatrix: If physical denominations are so small as to not be usable when buying things, they tend to be dropped like the half farthing was in 1870. Just try to buy a \$5 coffee using 500 pennies; it may be legal but expect dirty looks from both coffee seller and people in line behind you. Part of my answer was 'currency is portable'. 20 pounds of coins works against portability. – Mark Ripley Dec 8 '16 at 8:55

Currency is not just about setting value for bartered goods. Money is a common yardstick for different goods.

• Currency is a shortcut for multi-partner deals. Say Alice needs charcoal to forge a plowshare. Bob needs a plowshare to grow grain. Charles produces charcoal, but he'd rather have fish and not grain. So the deal has to involve Drew who takes Bob's grain for some fish.
• Alice needs the coal now, but Bob won't produce grain for quite some time. Will Drew be prepared to hand over fish for a promise of future grain?
• Alice produces relatively high-value objects, but she won't make all that many. If she made a plow this week, how can she get fresh food next week?

Follow-up:

How about tax incentives to barter? Get some precedents that cash transactions are taxed but barter is not, or at least that those who do barter can try and argue that the cash value of their transaction is very low.

How about a move in your story to make most cash digital (a rider on one of those if-you-don't-vote-for-this-you're-no-patriot-acts to combat money laundering) coupled with a society which effectively denies bank accounts to poor people?

• Good analysis of the problem, but somehow lacks an actual answer. – Mołot May 21 '16 at 13:38
• @Mołot, yes, I've added some ways. – o.m. May 21 '16 at 18:35

…what can I do to make a barter system stable in a modern American society?

Make the society itself massively unstable.

Simply positing a catastrophe, either physical catastrophe or an economic one such as hyperinflation, that makes trade outside a local area is impossible will not be enough. For the reasons already stated by Mark Ripley and o.m., some alternative form of currency will reassert itself quite quickly. The catastrophe has to be ongoing and make it impossible to predict what anything will be worth next week. Then barter will be the only means left to people to survive. Not many of them will. Such instability would also make agriculture or animal husbandry very difficult.

If you want to write a less depressing story, how about a technological society that for some reason (e.g. a political or religious prohibition on profit) feels the need to pretend to operate by barter. That society's version of eBay would operate with an underlying structure that placed a numerical value on whatever you had to sell, but this would be concealed and denied. Ostensibly it would be a complex chain of swaps such that everyone got approximately what they wanted in the end. This would be extremely inconvenient and could only be enforced by repression but that is no bar to it happening in real life or in fiction.

• This is a side comment to my second scenario above. In the Soviet Union factories often had trouble making their quota for the Five Year Plan because the raw materials or components they needed weren't available from the official suppliers. Failing to make quota could be dangerous, so what they would do is secretly barter with other factories, collective farms and so on. Barter had all the problems described in other answers, so these deals were often very complicated involving multiple participating organisations, and often fell through. But they did happen and kept the system going. – Lostinfrance May 21 '16 at 9:42

Create a barter system in modern American society

Currency provides at least two major benefits over barter:

1. Storing value.
2. Making change.

To replace these, you could have a place like Ebay - where you can offer a goat and the system takes the goat "in". Later, you want a dozen eggs and the "system" would determine that the "trade" is 1 goat for 100 dozen eggs. So it could "debit" your goat by 1/100.

This is borderline ridiculous because the "system" would essentially create a currency. I use eBay as an example because a larger, barter based eBay would involve not just selling, but also "buying" at auction. In other words, people could offer to sell a goat, and someone "buying" the goat would need to already have "sold" something or else "sell" something of equal or greater value - and the system would handle "making change" and "storing value" for the inequity of the trade.

However, the reason currency exists is because barter is terribly inefficient by comparison. With today's technology, this may work to some extent. However, it would likely fail for trades like rare artwork, intellectual property, private musical performances, etc. And it would struggle to handle selling tickets for a cruise ship, construction of a national monument, donating land for natural resource preservation, etc. And then there are things like credit/lending, insurance, taxation, utilities, medical services, education... it's a pretty long list of things we enjoy in today's world because currency makes the "trade" efficient.

To the Q of "what can I do to make a barter system stable in a modern American society?"

Think of currency transactions in the time/quality/cost frame:

• currency is very fast (credit card swipes, stock exchanges etc.)
• currency gives high quality (it's very granular from cents to billions, so it is a good language to discuss value in, it also allows a common language to compare different transactions over time)
• transaction cost is very low (most by computer, some by physical currency)

How can you replicate those qualities in barter market?

Time:

• you could use computer networks as a place to advertise your goods and look for goods that you want. This record of past barters would help during the haggling process.
• same network can can be the permanent record of a barter agreement

Quality:

• the network can have a searchable history of similar barters that you can use as a yardstick when judging a proposed barter
• the network could have middlemen (or artificial intelligence) who put together baskets of goods and propose those baskets to parties

Transaction Cost:

• the network will electronic record the agreement

It sounds like a hybrid of eBay. There are websites attempting barter exchanges today. It hasn't caught on yet. One problem, there are several companies doing this, which makes one stop bartering impossible and reduces the probability of a match because buyers and sellers are in different non-connected markets. You'd have to create some kind of incentive that would cause people use one particular exchange.

I agree with others, that currency is best. But I wanted to answer the Q you asked.

And a semi-serious proposal: Tinder should copy their software to a new server called Bartr. Take a picture of the item for sale and Bartr broadcasts it. Consider items from others for your item, swipe left for No, right for Yes. It actually could work in a flea market environment.

There is an interesting halfway house in which any individual or group can issue it's own currency. This is how money starts in a barter society: as IOU notes. "I'll give you a day's carpentry when you need it in exchange for these groceries today". And you can in turn trade the carpentry promise for, say, some clothing.

At a certain point in the development of society the rulers see the advantages of giving themselves a monopoly over creating currency. If the nation collapses into anarchy, local currencies and IOUs again appear, only to be killed off when a new nation is formed.

Money is power.

So what you need is stable anarchy or libertarianism. Human nature means that anarchy or extreme libertarianism is unstable. But if humans had been made part of some alien society which stabilised that form of near-anarchy? Perhaps omnipresent robotic enforcement of "an eye for an eye" unless the victim offers mercy, plus termination with extreme prejudice of anyone wielding a lethal weapon in anger. No rulers, no coercion, just voluntary associations. Could it work?

Change the scale, might be one solution. As several people point out, currency allows transactions over time and at a distance (unknown parties). Suppose individuals in some rural isolated area could only transact with those in their town, that would be plausibly sustainable (somewhat anyway). Then towns can barter with other towns, and towns in a region leads to regions bartering with regions. Since at each level of this barter hierarchy, the distance is not unreasonable for the parties concerned, and the trade is larger and focuses on different kinds of needs, perhaps it is sustainable.