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Reason Foundation

Barter Country

As the economy suffers, a nation turns toward cashless transactions

Greg Beato
May 12, 2009

You may have lost your shirt in the market, but chances are you have a few dozen more in your closet, half of which you haven’t worn since the Clinton administration. If your home has never been featured on Clean Sweep, Neat, or one of the dozens of other cable shows where a team of professional organizers and designers gives your rec room an enema, you are sitting on a trove of tradable commodities. We’re broke but we’re loaded, and even if we’ve lost our jobs and cut up all our credit cards, that doesn’t mean we have to stop consuming. In the midst of the Definitely Above Average Recession of 2009, cash may still be king, but barter is that guy who sometimes looks more like the king than the king himself.

When the economy tanks, it’s not just dumbass comedies like Paul Blart: Mall Cop that do surprisingly well. Open your newspaper’s business section, and amid gloomy tales of foreclosures, credit crunches, and government bailouts, you’ll see bullish reports on the booming, almost magical world of barter. Acquaintances solidify friendships via swapped sweaters. Single moms trade housesitting for children’s clothes. Refrigeration companies get paid with sandwiches. The number of listings in the barter section of Craigslist jumped 100 percent from January 2008 to January 2009. According to the International Reciprocal Trade Association, more than 250,000 U.S. businesses now conduct $16 billion in barter transactions per year. Who cares where the Dow’s at when fence builders are exchanging their labor for Jet Skis and barter websites are attracting new members faster than a Bernie Madoff investment fund?

Along with being the world’s oldest form of commerce, barter is impeccably au courant. You want sustainability—I’ll trade you my junk for your junk. You want authenticity—there’s nothing more primal than getting paid for your Web design services with 50 pounds of meat. And at a time when the public has soured on impenetrably complex subprime financing instruments, barter is the ultimate antidote. You have some excess beads and trinkets you can’t move, your trading partner has an island, and you swap. It doesn’t get any simpler than that.

Of course, it’s not always easy to find parties who have what you want and want what you have. That’s where barter exchanges come in. In the U.S., these markets go back to at least 1960, when Marvin J. McConnell created a company called Business Exchange in North Hollywood, California. In a barter exchange, a company pays an annual membership fee to join, then earns “trade dollars” each time it provides a product or service to another member company. It can then use those trade dollars to make purchases from any other member of the exchange. In addition to the annual membership fees, the exchange takes a cut from each transaction.

It took eight years for Business Exchange to turn a profit, but similar businesses started popping up around the country too. One reason for their initial popularity was the tax advantages that exchanges appeared to offer. As the trade newspaper Barter World advised its readers in 1973, it was “quite permissible under [U.S.] tax laws for business owners to trade products or services with each other which represent relatively equal values as tax-free exchanges.”

The Internal Revenue Service didn’t necessarily agree with that, and in 1980 it explicitly said so. Barter club members, the IRS declared, had to report credits earned through trade as income. Exchange growth slowed some at that point, but tax avoidance was just one of barter’s virtues. The system also allows businesses to conserve cash for things like rent and wages. It introduces them to a network of other local businesses that may need their services. It functions as a kind of wholesale marketplace. That is, if an appliance retailer has an item he sells for $100 but paid only $50 for, he will offer it through the exchange for $100. The trading partner on the other end of the transaction—a stationery store, say—will be doing the same thing. For only a $50 outlay, both end up getting goods they’d otherwise have to pay $100 for.

According to International Reciprocal Trade Association estimates at the time, about 400 American barter exchanges in 1987 were generating between $1.8 billion and $3.7 billion (in 2009 dollars) per year. In 1997, those numbers had risen to 686 exchanges and $12 billion. In the midst of dot-com mania, venture capitalists and other investors began pouring hundreds of millions of dollars into barter start-ups like Bigvine.com and Lassobucks.com. For a moment, barter was, like every other thing at the time, the Next Big Thing, with boosters predicting that online exchanges would lower transaction fees, expand trading networks, and ultimately make barter as mainstream as cash.

Like so many dot-com casualties, most of those big-name sites have already been forgotten. But a new generation of start-ups has emerged to take their place. Businesses are using online exchanges such as ITEX, BizX, and NuBarter. Individuals are trading books, CDs, DVDs, and videogames at sites like Swapthing and Bookmooch.com. And of course there’s Craigslist, where every day people offer up everything from seismic retrofitting to gluten-free baked goods for trade.

For recreational browsers and shopaholics who buy simply because they enjoy the hunt, barter functions like retail methadone: You get to experience the pleasure of shopping without spending any real money, while simultaneously freeing up space for your new acquisitions.

Barter fosters a sense of impulsiveness at a time when shoppers generally are more circumspect about the purchases they make. People who use barter exchanges often treat the credits they earn as mad money. An attorney, say, doesn’t need a $500 painting to decorate his new office. If he were paying out of pocket, he’d spend $50, tops, for a framed print from Target. But he has $500 in “trade dollars,” so why not? Similarly, an artist decides to finally get her leaky sink fixed; $100 an hour for a plumber has been deterring her, but she just unloaded one of those seascapes she hasn’t been able to sell to some lawyer. Economy, you’ve just been stimulated!

Barter also taps into a desire for social interaction and a sense of purpose. Amazon, eBay, and many of the Web’s most successful commercial sites have worked hard to foster a community around the transactions they facilitate, so it feels as if people are doing more than just purchasing goods and services: They’re building friendships, expressing their tastes, fashioning communities of interest. Barter exchanges take this a step further by removing the most impersonal element, cash. Transactions are preserved, which is important, because while we want to develop friendships and share our opinions, we also want to get stuff. But with money playing a less apparent role, the deals feel more personal, more authentic, more noble.

Indeed, in the age of Obama, when service and sacrifice are the buzzwords of choice and AIG executives are the new national villains, barter is an excellent way to reconcile our idealism with our hard-to-shake materialism. When you’re trading DVDs and linen blazers, you’re not just getting new things; you’re creating new communities and saving the environment! When you trade graphic design services through a barter exchange, it almost feels as if you are doing volunteer work— except that volunteer work isn’t very efficient. You might end up doing things you have no real aptitude for, like serving soup to homeless people or teaching immigrants to read. With barter, you are functioning in the area of your expertise. You are doing what you are good enough to get paid for, only you’re not getting paid, so it feels meaningful. Thanks to your skill as a graphic designer, you’re helping other small businesses make it during these tough economic times, and helping to ensure that your community retains a robust business infrastructure. The fact that you’re getting a new air conditioner out of the deal is just gravy.

Contributing Editor Greg Beato (gbeato@soundbitten.com) is a writer in San Francisco. This column first appeared at Reason.com.



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