Before money was invented, the barter system was used for all kinds of things. Many cultures such as the Aztecs and the aborigines used bartering successfully for many years. There was no currency, so bartering was the only way they could get the goods they needed to survive. The barter system was not without its problems.
There are advantages and disadvantages of the barter system. Advantages for small businesses include being able to dispose of excess inventory, preserving cash and helping seasonality. If you are a car dealer wishing to dispose of stock, you can offer a particular car to a media company in return for advertising and marketing expertise. Bartering is simple and avoids the complexity of using money. You only barter for what you want, so there is no over or under production.
Disadvantages are that bartering can be impractical. It can be very time consuming. You may want to barter your goods within a particular time frame but cannot find anyone who wants your goods right now. The main difficulty was exchanging like for like goods. The comparable value of goods applies even in the corporate barter carried out in the modern economy. If you have a small company wishing to barter, you should check out the viability of the business you are bartering with. If you are a service company, do not be caught out by offering your services in return for stock if the business is in financial trouble. You may never receive the stock.
Bartering is very popular when there is a downturn in the economy and cash is scarce. Inflation can cause a decrease in the value of money. Many bartering networks have been developed during the current economic crisis. For a joining fee, the network allows people to find each other to barter with. The problems of geography are overcome by bartering and the service allows the use of trade credits which means that the problem of timing of the barter is overcome. Members can find each other quickly and easily and trade can continue without any money changing hands.
If you are bartering goods, you should ensure that you do not fall foul of the tax authorities. Make sure that you declare any trade credits you hold and what products and services you are offering for barter.
The barter system works solely on the needs and wants of the participants. It also depends on the value of the goods or services being offered. An air conditioner would be less attractive to an Alaskan living in Alaska that it would to an Arab living in the Middle East. The Alaskan would have very little need for an air conditioner, whereas the Arab would welcome it. Farmers can find bartering very useful. One farmer may have a tractor and no plough but may have a machine for sowing seeds. Farmers often join machinery rings to barter use of their machinery so that they do not have to own all equipment they may want to use on the farm.
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