Barter

Barter is a type of trade that doesn't use any medium of exchange, in which goods
or services are exchanged for other goods and/or services. It can be bilateral or
multilateral as trade.

Barter and money are different means of balancing an economic exchange. Barter is
used in societies where no monetary system exists. When there is one, it is also
used, especially in economies suffering from a very unstable currency (as when
hyperinflation hits).

Why was it done?

A transaction is possible when coincidence of wants of economic actors

enables an exchange cycle between their bids: each party must be able to
supply something another party desires.

Some entities develop a system of intermediaries who can store, trade, and
warehouse commodities, but who may suffer economic risk.

Others develop a system with a virtual value unit ("barter dollars," or "trade
credits," for example) to measure and balance exchanges, very similar to a
monetary system.

Multilateral barter is more complex to settle but allows trades that would not
be possible with bilateral barter. However with the use of a singular platform -
like a barter exchange, bartering amongst businesses is easily facilitated,
even if the barter trade is done across borders.

History of barter

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 organised using barter.
Relations of reciprocity and/or redistribution substituted for market exchange. Trade
and barter were primarily reserved for trade between communities or countries. It is
also used when the monetary system failed to measure the economic value of goods.

Barter becomes more and more difficult as people become dispossessed of the
means of production of widely-needed goods. For example, if money were to be
severely 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.)

It is used on important transactions between firms or countries to exchange

commodities, when monetary constraints are too expensive for the economic actors.

A well-known example of multilateral trade is the triangular trade.

On the west coast of the United States the Beyond Barter organization extends the
concept to a system based on free sharing of services. Although there's no attempt
to balance contributions in individual transactions, controls ensure that members are
not overburdened.

Money used to be considered as simpler for small trades; but use of the Web has
changed that perception, especially for Swapping.

In finance

In finance, the word "barter" is used when corporations trade with each other using
non-money or "near-money" financial assets, such as U.S. Treasury bills.

Corporate Barter

Corporate Barter entails the use of a currency unit called a "trade-credit". That which
the trade-credit represents, must be known and guaranteed (contractually) as a
deliverable in order to eliminate ambiguity and risk. Trade-credits are redeemed with
cash much as a consumer might use a coupon toward desired goods in a
supermarket.

Corporate Barter can be a powerful financial implement used to provide full recovery
of value to an asset with an impairment in values (book value to market value). In a
well constructed barter transaction, Company A receives full book value for an
impaired asset (x), in exchange for another asset (y) which Company B owns. The
asset (y) is typically something (acquired capacities in commonly purchased goods or
services) which Company B owns, which company A intends to purchase during the
course of day-to-day business. Examples are things such as print, shipping,
packaging, travel, etc. The result is a full recovery in value for asset-x for Company A
by the conclusion of transaction term.

Often maligned due to shaky beginnings, todays barter transactions have come along
way. Many companies have done, and currently engage in successful Corporate
Barter transactions. Practices such as requesting references help to significantly
reduce risk.

Swapping

Swapping is the increasingly prevalent informal bartering system in which

participants in Internet communities trade items of comparable value on a trust
basis.

While swapping is an excellent way to find and obtain items that are inexpensive, it
relies upon honesty. A dishonest participant might arrange a swap, and then never
complete their end of the transaction, thus getting something for nothing. This
practice is called swaplifting,[citation needed] a pun on shoplifting. The victim's recourse is
often limited to shunning the swaplifter, or taking him to small claims court.

Complex business models based on the concept of barter is today possible since the
advent of Web_2.0 technologies. LicenseBarter[1] - a barter platform for DEPB /
DFRC licenses - is a good example for B2B barter.
Nonstandard uses of the word "barter"

As of 2007, it is popular (especially on UK daytime television) to use the word

"barter" in place of "haggle".[citation needed] To Buy Or Not To Buy uses the word in one of
their catchphrases: "Will you barter or scarper?" It is commonly understood that the
guests on the show will be paying solely with money and not, for example, offering
them part exchange on their A reg Ford Cortina.

The drawbacks of barter system:

1.Difficulty of double coincidence of wants
Double coincidence of wants implies that goods in the possession of two different
individuals must be useful and needed by each other.
2.Lack of common unit of value
We can't develop any system of account when there is no common unit of value
and when commodity is valued in terms of other commodities in the market and
there is no money valued.
3.Lack of a system for future payments or contractual payments
Contractual payments or future payments would certainly be very difficult under
barter system of exchange.
4.Lack of system for storage of value
Becos of lack of money in the C-c economy or barter economy wealth is stored in
terms of goods.However store of wealth in terms of goods is subject to some
problems such as cost of storage,loss of value etc.

Credit

Credit may refer to:

Debits and credits, a type of bookkeeping entry

Credit (creative arts), acknowledging the ideas or other work of writers and
contributors
Credit (education), a system of measuring academic coursework
Credit (finance), the granting of a loan and the creation of debt
o Credit rating, assessment of credit worthiness
o Credit score, a representation of credit worthiness
o Credit history, a record of an individual's or company's past borrowing
and repaying
Adverse credit history
o Credit card, a plastic card for access to a credit account
Motion picture credits, a list of the cast and crew involved in the production of
a movie or television program
o Opening credits or Closing credits
Credit (creative arts),
Credits (science fiction), a unit of currency used in science fiction
Token coin, coin-like objects used instead of coins
Credit River (Ontario), a river in southwestern Ontario, Canada
Credit River (Minnesota), a river in Minnesota, United States
 Functions of Money

We say traditionally that money has four major functions. It is a medium of exchange

Whatever people usually give in exchange for the things that they buy is the
medium of exchange. As we have seen, this is the function that defines
money.
unit of account
The unit of account is the unit in which values are stated, recorded and
settled. The differences between this and the medium of exchange may seem
subtle, but there are a few cases in which the unit of account is different from
the unit in which the medium of exchange is expressed. In Britain a few
decades ago, Guineas were often used as the unit of account, while the
medium of exchange was expressed in Pounds. Both Guineas and Pounds in
turn could be expressed in shillings -- the Pound was 20 shillings and the
Guinea was 21 shillings. (British currency has since been redefined).
standard of deferred payment
This is the unit in which debt contracts are stated. Deferred payment means a
payment made in the future, not now. Here, again, it is usually the same as
the medium of exchange, but not always. During periods of inflation, people
may accept paper money for immediate payment, but insist on some other
medium, such as real goods and services or gold, for deferred payment --
because the medium of exchange would lose much of its value in the
meanwhile.
store of value
Again, this is something that people keep in order to maintain the value of
their wealth. Again, while it would usually be the same as the medium of
exchange, in inflationary times other media might be substituted, such as
jewelry, land or collectable goods. In this sense, money is "set aside" for the
future.

The Importance of Money

There is nothing more crucial to launching and sustaining a music career than
money. It is also the most misunderstood element amongst artists. At least five to
ten times a week, I get calls from musicians asking for my help, "If you take me on
spec, when my album goes double platinum I'll take good care of you!" My response
is always the same, "Are you funded? Are you self-distributing?" The standard
answer: "No, but the response has been phenomenal...." Let's explore the
importance of money.

Advances: A label's purpose is to make a profit, and the statistics aren't exactly
encouraging. For every 12 albums released, roughly two break even and only one
makes money. The winner not only has to cover its own production, distribution,
manufacturing, advertising, promotion, and tour support costs, but all the losses of
the 10 other failures as well. Most record labels would do better if they invested in
high-yield bonds. In 20 years in the entertainment industry, I've never seen an
unproven artist get a multi-million dollar advance; maybe, with a good lawyer or
agent, a moderate advance, and better than average percentages. But the notion
that labels throw money around like water, under these conditions, is pure fiction.
Switch roles, and put yourself in the record company's position: Would you invest in
an unproven band or artist who has no money, and hasn't shown any significant
independent record sales? Wouldn't you prefer to risk your capital on someone with a
regional following and proven fan base? The bottom line: it's up to the artist to lay
the initial foundation. The numbers generally pan out like this: sell over 10,000
records on your own, and expect to hear from the labels. Otherwise, expect to self-
promote or do a co-production or co-distribution deal.

Raising money: Self-promotion is time consuming and expensive. Most

breakthrough artists had a cash influx early on; whether from savings, a loan from
family or friends, or credit cards (which is a particularly bad idea). Once private
money is raised, guard it with your life. Nothing can ruin a burgeoning career faster
than lack of cash. Develop a plan of attack, a viable budget, and keep a 15%-20%
contingency on hand. Use it to hire experienced professionals, who can help you
avoid costly mistakes. If the money goes out the door on a bad decision, it's gone. If
it goes out because you succumbed to fraud, it could take years to recover.

Nobody Rides for Free: It is the rare philanthropist who signs cash strapped
hopefuls on spec, and then works like a dog to make them big. Attorneys,
accountants, and professional advisors all have something in common: families, cars,
heat and water bills, student loans, and mortgages. If you are lucky enough to get
representation on spec (most attorneys work on an hourly plus percentage), realize
that it doesn't absolve you from responsibility for your career. Agents and attorneys
can only do so much. In the end, you usually get what you pay for.

"A Bird in the Hand is Worth Two in the Bush": Once the independent route
progresses, remember that concrete offers beat wanton enthusiasm. That's not to
say it's advisable to jump at the first proposal. However, playing the game "I can't
talk to you now because I have ten other bigger labels pursuing me" seldom works.
Most record companies know who's interested in you, and what your market value is.
Never alienate serious pursuers. If label discussions go for more than two-three
weeks without a preliminary offer, you're probably getting jerked around; a.k.a. the
Monday/Friday principle: Monday we'll know Friday, Friday we'll know Monday. Labels
do this for several reasons. First, initial label contact is usually with underlings, who
don't want to be fired for either overlooking a potential hit or bringing forth junk. So
they stall, waiting to see if someone higher up the food chain will take responsibility
for the pitch. Second, music is a flavor of the day business. While there might be
interest today, tomorrow something better might come along. Don't allow things to
drag on incessantly. Further, the old adage holds true. The less you need them, the
more they'll want you. The hardest part of the music in-dustry isn't hitting it huge.
It's getting to the point where you make a consistent living. After that the rest is
gravy, and you can continue trying for the brass ring indefinitely.

Money
Money is any token or other object that functions as a medium of exchange that is
socially and legally accepted in payment for goods and services and in settlement of
debts. Money also serves as a standard of value for measuring the relative worth of
different goods and services and as a store of value. Some authors explicitly require
money to be a standard of deferred payment.[1]

Money includes both currency, particularly the many circulating currencies with legal
tender status, and various forms of financial deposit accounts, such as demand
deposits, savings accounts, and certificates of deposit. In modern economies,
currency is the smallest component of the money supply.

Money is not the same as real value, the latter being the basic element in economics.
Money is central to the study of economics and forms its most cogent link to finance.
The absence of money causes an economy to be inefficient because it requires a
coincidence of wants between traders, and an agreement that these needs are of
equal value, before a barter exchange can occur. The efficiency gains through the use
of money are thought to encourage trade and the division of labour, in turn
increasing productivity and wealth.

Economic characteristics

Money is generally considered to have the following characteristics, which are

summed up in a rhyme found in older economics textbooks and a primer: "Money is
a matter of functions four, a medium, a measure, a standard, a store."

There have been many historical arguments regarding the combination of money's
functions, some arguing that they need more separation and that a single unit is
insufficient to deal with them all. 'Financial capital' is a more general and inclusive
term for all liquid instruments, whether or not they are a uniformly recognized
tender.

Medium of exchange

Unit of account

A unit of account is a standard numerical unit of measurement of the market value

of goods, services, and other transactions. Also known as a "measure" or "standard"
of relative worth and deferred payment, a unit of account is a necessary pre-
requisite for the formulation of commercial agreements that involve debt.
 Divisible into small units without destroying its value; precious metals can be
coined from bars, or melted down into bars again.
Fungible: that is, one unit or piece must be exactly equivalent to another,
which is why diamonds, works of art or real estate are not suitable as money.
A specific weight, or measure, or size to be verifiably countable. For instance,
coins are often made with ridges around the edges, so that any removal of
material from the coin (lowering its commodity value) will be easy to detect.

Store of value

To act as a store of value, a commodity, a form of money, or financial capital must

be able to be reliably saved, stored, and retrieved - and be predictably useful when it
is so retrieved. Fiat currency like paper or electronic currency no longer backed by
gold in most countries is not considered by some economists to be a store of value.

Market liquidity

It is important for any economy to move beyond a simple system of bartering.

Liquidity describes how easily an item can be traded for another item, or into the
common currency within an economy. Money is the most liquid asset because it is
universally recognised and accepted as the common currency. In this way, money
gives consumers the freedom to trade goods and services easily without having to
barter.

Liquid financial instruments are easily tradable and have low transaction costs. There
should be no--or minimal--spread between the prices to buy and sell the instrument
being used as money.

Types of money

In economics, money is a broad term that refers to any instrument that can be used
in the resolution of debt. However, different types of money have different economic
strengths and liabilities. Theoretician Ludwig von Mises made that point in his book
The Theory of Money and Credit, and he argued for the importance of distinguishing
among three types of money: commodity money, fiat money, and credit money.
Modern monetary theory also distinguishes among different types of money, using a
categorization system that focuses on the liquidity of money.

Commodity money

Commodity money is any money that is both used as a general purpose medium of
exchange and as a tradable commodity in its own right.[2]

Commodity based currencies are often viewed as more stable, but this is not always
the case. The value of a commodity based currency as a medium of exchange
depends on its supply relative to other goods and services available in the economy.
Historically, gold, silver and other metals commonly used in commodity based
monetary systems have been subject to regular and sometimes extraordinary
fluctuations in purchasing power. This not only damages its stability as a medium of
exchange; it also reduces its effectiveness as a store of value. In the 1500s and
1600s huge quantities of gold and even larger amounts of silver were discovered in
the New World and brought back to Europe for conversion into coin. As a result, the
purchasing power of those coins fell by 60% to 80%, i.e. the prices of goods rose,
because the supply of goods did not keep pace with the increased supply of money.[3]
In addition, the relative value of silver to gold shifted dramatically downward.[4] Such
discoveries of huge sources of gold or silver are a thing of the past, and lend to their
supply stability. More recently, from 1980 to 2001, gold was a particularly poor store
of value, as gold prices dropped from a high of $850/oz. ($27.30 /g) to a low of
$255/oz. ($8.20 /g).[citation needed] It should be noted that gold was not a currency at
this time, and was fluctuating due to its status as a final store of value that is, the
price never goes to zero as fiat currencies inevitably do.[citation needed] The advantage of
gold and silver, however, lies in the fact that, unlike fiat paper currency, the supply
cannot be increased arbitrarily by a central bank.

It is also possible for the trading value of a commodity money to be greater than its
value as a medium of exchange when governments attempt to fix exchange rates
between different commodity monies. When this happens people will often start
melting down coins and reselling the metal used to make them. This has happened
periodically in the United States, eventually causing it to move away from pure silver
nickels and pure copper pennies.[citation needed] Shipping coins from one jurisdiction to
another so that they could be reminted was sometimes a lucrative trade before the
advent of trusted paper money. [citation needed]

Commodity money's ability to function as a store of value is also limited by its very
nature. Copper and tin risk rust and corrosion. Gold and silver are soft metals that
can lose weight through scratches and abrasions, but this is nothing by comparison
to fiat currencies, where billions of dollars can be injected ("printed") into the market
within moments.

Stability aside, commodity-based currencies may have a tendency to restrain growth

in a very active economy. For example, in order to maintain the price level, the
supply of money in an any economy must be equal or greater than the volume of
goods and services produced. If commodities are used as money, then the total
production can easily outstrip the supply of those commodities, which leads to price
deflation. The lower prices of goods would signal to their producers to reduce the
supply of goods, hence restoring the price level. As such, production within
commodity-based economies tends to be limited by the supply of the commodity
currency.[citation needed]

This problem is compounded by the fact that money also serves as a store of value.
This encourages hoarding (in other circumstances known as "saving")and takes the
commodity money out circulation, reducing the supply. The supply of circulating
commodity currency is further reduced by the fact that commodity moneys also have
competing non-monetary uses. For example, gold and silver are used in jewelry, and
nickel and copper have important industrial uses.

Commodity based currencies also limit the geographic extent of the trading market.
To make large purchases either a large volume or a high weight or both of the
commodity must be transported to the seller. The cost of transportation of the
currency raises the transaction cost and makes long distance sales less attractive.

Banknotes from all around the world donated by visitors to the British Museum,
London
Fiat money

Fiat money is any money whose value is determined by legal means rather than the
relative availability of goods and services. Fiat money may be symbolic of a
commodity or government promises.[2]

Fiat money provides solutions to several limitations of commodity money. Depending

on the laws, there may be little or no need to physically transport the money - an
electronic exchange may be sufficient. Its sole use is as a medium of exchange so its
supply is not limited by competing alternate uses. It can be printed without limit, so
there is no limit on trade volumes.

Fiat money, especially in the form of paper or coins, can be easily damaged or
destroyed. However, it has an advantage over commodity money in that the same
laws that created the money can also define rules for its replacement in case of
damage or destruction. For example, the US government will replace mutilated paper
money if at least half of the bill can be reconstructed.[5]. By contrast commodity
money is gone for good.

Paper money is especially vulnerable to everyday hazards: from fire, water, termites,
and simple wear and tear. Money in the form of minted coins is sometimes destroyed
by children placing it on railroad tracks or in amusement park machines that restamp
it. In order to reduce replacement costs, many countries are converting to plastic
bills. For example, Mexico has changed its twenty and fifty pesos notes, Singapore its
$2, $5, $10 and $50 bills, Malaysia with RM5 bill, and Australia and New Zealand
their $5, $10, $20, $50 and $100 to plastic for the increased durability.

Some of the benefits of fiat money can be a double-edged sword. For example, if the
amount of money in active circulation outstrips the available goods and services for
sale, the effect can be inflationary. This can easily happen if governments print
money without attention to the level of economic activity or counterfeiters are
allowed to flourish.

Perhaps the biggest criticism of paper money relates to the fact that its stability is
highly dependent on the stability of the legal system backing the currency. Should
the legal system fail, so would the currency that depends on it.

Credit money

Credit money is any claim against a physical or legal person that can be used for the
purchase of goods and services[2]. Credit money differs from commodity and fiat
money in two important ways: It is not payable on demand and there is some
element of risk that the real value upon fulfillment of the claim will not be equal to
real value expected at the time of purchase[2].

This risk comes about in two ways and affects both buyer and seller.

First it is a claim and the claimant may default (not pay). High levels of default have
destructive supply side effects. If manufacturers and service providers do not receive
payment for the goods they produce, they will not have the resources to buy the
labor and materials needed to produce new goods and services. This reduces supply,
increases prices and raises unemployment, possibly triggering a period of stagflation.
In extreme cases, widespread defaults can cause a lack of confidence in lending
institutions and lead to economic depression. For example, abuse of credit
arrangements is considered one of the significant causes of the Great Depression of
the 1930s. [6]

The second source of risk is time. Credit money is a promise of future payment. If
the interest rate on the claim fails to compensate for the combined impact of the
inflation (or deflation) rate and the time value of money, the seller will receive less
real value than anticipated. If the interest rate on the claim overcompensates, the
buyer will pay more than expected.

Over the last two centuries, credit money has steadily risen as the main source of
money creation, progressively replacing first commodity then fiat money.

The main problem with credit money is that its supply moves in line with credit
booms and bust. When lenders are optimistic (notably when the debt level is low),
they increase their lendings activity, thus creating new money and triggering
inflation, when they are pessimistic (for instance because the debt level is perceived
as so high that defaults can only follow), they reduce their lending activities,
bankruptcies and deflation follows.

Money supply

The money supply is the amount of money within a specific economy available for
purchasing goods or services. The supply in the US is usually considered as four
escalating categories M0, M1, M2 and M3. The categories grow in size with M3
representing all forms of money (including credit) and M0 being just base money
(coins, bills, and central bank deposits). M0 is also money that can satisfy private
banks' reserve requirements. In the US, the Federal Reserve is responsible for
controlling the money supply, while in the Euro area the respective institution is the
European Central Bank. Other central banks with significant impact on global
finances are the Bank of Japan, People's Bank of China and the Bank of England.

When gold is used as money, the money supply can grow in either of two ways. First,
the money supply can increase as the amount of gold increases by new gold mining
at about 2% per year, but it can also increase more during periods of gold rushes
and discoveries, such as when Columbus discovered the new world and brought gold
back to Spain, or when gold was discovered in California in 1848. This kind of
increase helps debtors, and causes inflation, as the value of gold goes down. Second,
the money supply can increase when the value of gold goes up. This kind of increase
in the value of gold helps savers and creditors and is called deflation, where items for
sale are less expensive in terms of gold. Deflation was the more typical situation for
over a century when gold and credit money backed by gold were used as money in
the US from 1792 to 1913.

Monetary policy

Monetary policy is the process by which a government, central bank, or monetary

authority manages the money supply to achieve specific goals. Usually the goal of
monetary policy is to accommodate economic growth in an environment of stable
prices. For example, it is clearly stated in the Federal Reserve Act that the Board of
Governors and the Federal Open Market Committee should seek to promote
effectively the goals of maximum employment, stable prices, and moderate long-
term interest rates. [7]

A failed monetary policy can have significant detrimental effects on an economy and
the society that depends on it. These include hyperinflation, stagflation, recession,
high unemployment, shortages of imported goods, inability to export goods, and
even total monetary collapse and the adoption of a much less efficient barter
economy. This happened in Russia, for instance, after the fall of the Soviet Union.

Governments and central banks have taken both regulatory and free market
approaches to monetary policy. Some of the tools used to control the money supply
include:

currency purchases or sales

increasing or lowering government spending
increasing or lowering government borrowing
changing the rate at which the government loans or borrows money
manipulation of exchange rates
taxation or tax breaks on imports or exports of capital into a country
raising or lowering bank reserve requirements
regulation or prohibition of private currencies

For many years much of monetary policy was influenced by an economic theory
known as monetarism. Monetarism is an economic theory which argues that
management of the money supply should be the primary means of regulating
economic activity. The stability of the demand for money prior to the 1980s was a
key finding of Milton Friedman and Anna Schwartz [8] supported by the work of David
Laidler[9], and many others.

The nature of the demand for money changed during the 1980s owing to technical,
institutional, and legal factors and the influence of monetarism has since decreased.

History of money

The first golden coins in history were coined by Lydian king Croesus, around 560 BC.
The first Greek coins were made initially of copper, then of iron because copper and
iron were powerful materials used to make weapons. Pheidon king of Argos, around
700 BC, changed the coins from iron to a rather useless and ornamental metal,
silver, and, according to Aristotle, dedicated some of the remaining iron coins (which
were actually iron sticks) to the temple of Hera[1]. King Pheidon coined the silver
coins at Aegina, at the temple of the goddess of wisdom and war Athena the Aphaia
(the vanisher), and engraved the coins with a Chelone, which is to this day as a
symbol of capitalism. Chelone coins[2] were the first medium of exchange that was
not backed by a real value good. They were widely accepted and used as the
international medium of exchange until the days of Peloponnesian War, when the
Athenian Drachma replace them. According other fables, inventors of money were
Demodike(or Hermodike) of Kymi (the wife of Midas), Lykos (son of Pandion II and
ancestor of the Lycians) and Erichthonius, the Lydians or the Naxians.