Barter

Barter is the direct exchange of goods or services without the use of money as an intermediary. It is often assumed that bartering is an exchange system limited to nonliterate societies, collapsing states, and the margins of official economies, but it is important to recognize that bartering plays a role in any economic system. Adam Smith famously asserted that it is part of human nature, removed from any utilitarian motivation, to truck, barter, and exchange one thing for another. According to a strict definition, barter demands both that each exchange is balanced and that the exchanged goods are actually desired by the acquiring parties. The first postulate assumes that each meeting results in a trade that both parties deem fair and that neither party walks away with any debts or obligations. In practice, delayed transactions and various forms of credit are often worked into barter systems. The second postulate assumes that the parties are trading to meet some demand or, in other words, that the traded goods have an immediate use-value for their recipients. When one party acquires goods that are not needed with an eye toward retrading them at a future date, such goods are basically functioning as a unit of exchange. For example, in a black market economy such as the one in a prison, a pack of cigarettes may function simultaneously as a commodity and as a medium of exchange. In such cases, multiple commodities can potentially act as media of exchange. Anthropologists often define barter as a purely economic transaction, to distinguish it from other forms of nonmonetary exchange that have more of a social than an economic function, the most widely cited example being the exchange of gifts.

The term countertrade refers to modern agreements where goods or services are reciprocally exchanged without pure cash transactions. Countertrade has become an umbrella term that encompasses a number of practices in addition to simple bartering, including bilateral clearing, compensation arrangements, counterpurchases, offsets, production sharing, switch transactions, and technology transfers. Estimates of countertrade as a percentage of world trade differ widely, ranging from 5% to 40%. Countertrade was a standard component of Soviet-bloc trade, especially in the 1980s, and continues to play a major role in trade with developing nations. The primary motivations for countertrade are large debts, hyperinflation, a lack of hard currency with which to import goods, and a desire to promote exports in new markets. Less scrupulous companies have used countertrade to avoid or minimize taxes. The tax codes of most countries consider the value of what is changing hands the equivalent of a cash purchase, but the complexity of many of these transactions allows for “creative” accounting practices in determining revenue. Countertrade can be risky and quite complex, but many companies see a willingness to engage in countertrade as a competitive advantage. Countertrade has been criticized as running contrary to the principles of free trade by fostering bilateral agreements and tampering with markets.