ss 1,2

prout.econ

Barter Trade

December 17, 1994

Q: When should trade be on a barter basis, and when should it be on a money basis?

Trade may be done either way. It is a complex question and the answer is also complex. You see, when trade is done on a barter basis, there is direct payment, there is no intra medium, no indirect payment. "I give you a carton of eggs, you give me a loaf of bread." This is direct, and in simple societies it has been often used.

Now, it may also be used in complex societies, but under strict conditions. Barter is very beneficial if there is equality of need and equality of resource. But if there is difference in need and difference in resource, then barter becomes problematic, and financial payments are more fitting and are necessary in fact. So that when a country may have high living standards and many natural resources and also industrial resources, and they wish direct trade with another country, and that country also is rich in resources and rich in development, then one country may say, "I will give you so much technological equipment which you require, and you will give me so much medical equipment, medical resources which I require." Or "I will give you tractors, and you will give me coal." It can be direct. But if, for example, one country is very undeveloped and the other country is highly developed, this system will break down. One country will say, "I am needing medical supplies. I am needing technological training. I am needing industrial resources. I am needing so many things." And the other will say, "I have all of these things. I do not need anything from you but your cheap labor. I need only to be able to produce my products cheaply." Now, there is no good barter system here. Or even they may say, "You have bananas. I want your bananas, or your coffee beans. You have so many needs. For your coffee beans, I will give you computers." But what is the bargain? There is no one who knows how to use the computers; there is nothing of significance in this. So it is better if they are given the financial resources, and they can make their own way, their own decisions, as to what they will do. Otherwise, they may be controlled, saying, "You give me the bananas, you give me the coffee beans, and for that I will give you what I choose." And their society becomes dominated in this fashion. There is no equality.

If financial resource are given, then that country of lesser development may take the money and do what they like. But if the money is controlled, and they say, "I will build my plant there, and I will employ your workers, and I will then pay them," then the people of that place become the slaves of that capitalistic enterprise, and though the country has gained industry, it has gained nothing at all. Likewise, if barter is used, products may be imported which are not what the people need. They may be what the government desires, they may serve some political end, but they are not what the people need. It is better that the economic payments be employed.

So the overall answer to this question is: the barter system works between those who are of comparable development and have rich resources at their disposal, and money system is best when there is inequity between those who are trading.