How To Think About and Classify the Many Different Types of Barter
Jun 30, 2020
Barter is likely one of the largest and most fragmented industries in the world. It can be found in every community on the planet and yet remains poorly defined and radically misunderstood.
In this article I’ll touch on some of the most common types of barter and related activities.
The word barter can refer to:
Directly trading items (products or services) where no money of any kind changes hands (OR)
Indirectly trading items (products or services) using credits to keep track of the transactions
The word barter can also refer to:
Two individuals simultaneously swapping a small item (OR)
Thousands of people continually buying and selling unlimited items via an organized network for decades.
Below is a quick overview and explanation of several different types of barter transactions.
Direct Barter – two or more parties directly trading items or services. An example would include a dentist providing braces for a lawyer who then provides legal counsel to the dentist. These are often called direct trades, they happen all the time, and are nearly impossible to track.
These types of trades benefit both parties but are very difficult to manage at scale because they are challenging to keep track of, hard for both sides to quantify fairly, and because of the classic problem economists like to call “the double coincidence of wants”. The transaction is unlikely to be reported as income on either side’s tax return.
The remaining versions of barter generally use some type of a credit-based system to keep track of balances and transactions between the participants. This allows for continuous bartering amongst an unlimited number of participants via the simple tracking of debits and credits inside of a closed loop.
These systems are sometimes classified as Mutual Credit Networks or Complementary Currencies. (Both of these terms are very academic in nature, and even amongst hyper-active barter participants, I almost never encounter anyone who is familiar with either term.)
Managed Barter or Retail Barter –conducted between small businesses via a locally organized Trade Exchange. The Trade Exchange is considered a third-party record keeper and their job is to allocate and create credit, to recruit new members, and to manage the overall health of the network. They can be small networks with part-time staff or corporations with large offices in multiple countries.
Since 1982’s TEFRA legislation these organizations and their business model has been blessed by the US government. The IRS requires that all participants in a barter network get a 1099-B and report their income on their tax returns.
Corporate Barter – generally means barter conducted by large companies and can be either direct barter or bartering with credits. This term applies to large transactions conducted by Trade Exchanges on a regular basis and the occasional deal amongst several companies with a broker who is earning a commission (profit or fee based) as goods and services change hands.
One of the most common examples would be radio stations trading advertising spots in exchange for products and services that they give away on the air or used internally.
My favorite example is from the early 1990s when Pepsi traded over 3 billion dollars worth of Pepsi-Cola for vodka and Soviet ocean freighters.
Countertrade – is itself a confusing term (and might be the subject of a future post) but a common definition is a large international transaction where barter (direct or via credits) is a component of the deal. To be considered countertrade the transaction must be relatively large and generally cross at least one international border.
Local Exchange Trading Systems (LETS) – means a community of individuals and/or very small businesses who are bartering with each other using credits. The value of each credit can be pegged to the official currency of the region or based upon time. While Trade Exchanges generally have members who are small businesses, a LETS network will often have members who are individuals.
Time Banks or Time Dollars – while most barter networks function with a credit system whose value is pegged to the official fiat currency of the country, time dollars are pegged to time. Each credit might be worth one hour of a person’s labor as opposed to one dollar toward their hourly rate.
This creates a potential scenario where an hour of a professional’s time such as a lawyer who charges $750/hour could be traded equally for an hour of a non-professional’s time who might earn $15/hour in the normal economy.
Examples include Ithaca Hours.
Community Currencies & Local Currencies – these systems are also considered Complementary Currencies, but instead of earning credits via a barter transaction or created via a loan, they are often purchased using the official currency of the region.
Examples include BerkShares.
Moxey – Moxey is a growing network of Trade Exchanges (conducting retail and corporate barter) all using Moxey dollars as the credit network to track transactions. Moxey is using propriety technology and unique monetary principles to build the most reliable trade dollar on the planet. Contact us to find out how you can launch a Moxey Community in your city.