Barter

Systems of barter are the one type of currency that predates money. It dates back to the earliest forms of human society and is still in existence today. This is especially true in societies with a very unstable economy or extremely high inflation where the local currency is worthless or nearly so. One classic example of this was in the former Soviet Union where blue jeans were said to be "worth their weight in gold."

The problem with barter is that it is highly subjective. Working out a deal depends on both parties being able to agree on what is fair. It also requires that each party to the deal possesses something the other wants but does not have. Before bartering can work one person has to find someone who needs something they have.

Potlatch Ceremonies

Potlatch ceremonies engaged in by American Indians were a form of barter that performed a social function. The term "potlatch" is a Chinook word that means "to give." These competitive gift exchanges were a means of vying for status. The person with the most to give established themselves as the more successful. This type of exchange was not limited to North American natives. An earlier such event about 950 BCE was recorded in the Bible between Solomon and the Queen of Sheba.

Often barter items took form of commodities because they were easy to store and were durable. Barter was difficult when there were not goods or services that could easily be traded. A successful deal depended on the various parties having something the other wanted.

Modern Barter

Some forms of barter remain to this day. In corporate mergers the companies involved often trade stock in each other's companies which ties the two together and also provides each something of value without affecting either's cash flow. It also has the effect of binding the two together, which, after all, is the whole purpose of a merger in the first place.

In other cases, a barter deal can avoid tax and other implications of regulations. In advertising a company might offer its services in exchange for having its advertisements placed in a publication. For instance, with that type of deal employees of the publication can get free meals at a restaurant while the restaurant owner does not have to take money out of the bank.