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Economies by type of trade
closed household economy
barter economy
monetary economy

Barter is a type of trade where goods or services are exchanged for a certain amount of other goods or services; no money is involved in the transaction. It can be bilateral or multilateral as trade. It is a word frequently used as a synonym for 'negotiate/negotiation', but this usage is incorrect.

Barter trade is common among people with no access to a cash economy, in societies where no monetary system exists, or in economies suffering from a very unstable currency (as when hyperinflation hits) or a lack of currency.

A disadvantage of using bilateral barter is that it can depend upon a mutual coincidence of wants. Before any transaction can be undertaken, each party must be able to supply something the other party demands. To overcome this mutual coincidence problem, some communities have developed a system of intermediaries who can store, trade, and warehouse commodities. However, the intermediaries often suffer from financial risk.

To organize production and to distribute goods and services among their populations, many pre-capitalist or pre-market economies relied on tradition, top-down command, or community democracy instead of market exchange organized using barter. Relations of reciprocity and/or redistribution substituted for market exchange. Trade and barter were primarily reserved for trade between communities or countries.

Barter becomes more and more difficult as people become dispossesed of the means of production of widely-needed goods. For example, if money were to be severly devalued in the United States, most people would have little of value to trade for food (since the farmer can only use so many cars, etc.)

In finance, the word "barter" is used when two corporations trade with each other using non-money financial assets (such as U.S. Treasury bills). Alternatively, the standard definitions of money could be seen as being too narrow and needing to be expanded to increase near-money assets.

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Revision as of 17:36, 3 May 2006

See also

External links