What is Barter?

Barter is a act of trading goods or services between two or more parties without the use of money —or a monetary medium, such as a credit card. In essence, bartering involves the provision of one good or service by one party in return for another good or service from another party.

A simple example of a barter arrangement is a carpenter who builds a fence for a farmer. Instead of the farmer paying the builder $1,000 in cash for labor and materials, the farmer could instead recompense the carpenter with $1,000 worth of crops or foodstuffs.

Bartering is based on a simple concept: Two individuals negotiate to determine the relative value of their goods and services and offer them to one another in an even exchange. It is the oldest form of commerce, dating back to a time before hard currency even existed.

While the current senior generation bartered with the limited goods they had on hand (i.e., produce and livestock) or services they could personally render (i.e., carpentry and tailoring) to someone they knew, today most Americans have access to a nearly unlimited source of potential bartering partners through the internet.

Virtually any item or service can be bartered if the parties involved agree to the terms of the trade. Individuals, companies, and countries can all benefit from such cashless exchanges, particularly if they are lacking hard currency to obtain goods and services.

Bartering allows individuals to trade items that they own but are not using for items that they need, while keeping their cash on hand for expenses that cannot be paid through bartering, such as a mortgage, medical bills, and utilities.

Bartering can have a psychological benefit because it can create a deeper personal relationship between trading partners than a typical monetized transaction. Bartering can also help people build professional networks and market their businesses.

On a broader level, bartering can result in the optimal allocation of resources by exchanging goods in quantities that represent similar values. Bartering can also help economies achieve equilibrium, which occurs when demand equals supply.

When two people each have items the other wants, both parties can determine the values of the items and provide the amount that results in an optimal allocation of resources.

For instance, if an individual has 20 pounds of rice that they value at $10, they can exchange it with another individual who needs rice and who has something that the individual wants that's valued at $10. A person can also exchange an item for something that the individual does not need because there is a ready market to dispose of that item.

Companies may want to barter their products for other products because they do not have the credit or cash to buy those goods. It is an efficient way to trade because the risks of foreign exchange are eliminated.

The most common contemporary example of business-to-business (B2B) barter transactions is an exchange of advertising time or space; it is typical for smaller firms to trade the rights to advertise on each others' business spaces. Bartering also occurs among companies and individuals. For example, an accounting firm can provide an accounting report for an electrician in exchange for having its offices rewired by the electrician.

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