Friday, December 17, 2010

Barter Economy

Before there was money, people dealt with their desire for things they didn't own with trading. This allowed you to turn extra goods that you didn't want (let's say you're a cattle rancher. You would have lots of milk, cheese, and beef, but you'd be disappointed if you needed say a potato), into goods that you do want.
Now, there's a reason we stopped doing it this way. For one, you have to find someone who wants what you have, and has what you want. There's a famous German story about a group of Prussian officers trying to trade around their possessions, and some 62 trades have to be made to finally get everything they want. This is essentially the ancestor that famous red paperclip story in which a series of trades turns one ordinary, fraction-of-a-cent in value paperclip into a house, but has to do a lot of trades for things he didn't want in order to get there. Money, by contrast, is a singular store of value that I can trade for almost anything under the sun.
However, in the depression climate, Barter can be useful again. Many Americans have old, unwanted possessions from fatter times. What we need is money, and money is hard to come by, but I still think we can get what we want. By trading. Trade that old stereo that you're tired of to someone who has more booze that he can drink. Trade your old car to an enthusiast, who can give you, say, a new set of tools. No money traded hands, but as I understand Economics, all of this trading would make us all richer. Something we didn't want has been turned into something we do. And that thing need not be a good. There's no reason that services couldn't also be bartered.
See, wealth is not just dollars. Wealth is also having things that you want, and more importantly, need. A broken old car isn't wealth to you, unless you're a mechanically minded old car fan. A book on how to speak Russian isn't very useful...unless you need to learn to speak Russian. Maximize the wealth.
And when the depression ends, there's an even better thing you can do -- garage sale. You unload stuff that's worthless to you, in exchange for cold hard cash, and the people who bought it get it way cheaper than it would have cost new or in a secondhand store. Everyone wins, and that's pretty rare in Economics.


TCG said...

Oh come on surely you know section 10 of the US constitution? I'm not even American and I know it! Money in it's current form via central banks is a form of control and almost a slave master relationship. There is a separation of personality like a Ltd liability company which makes it less obvious. American forefathers knew this which is why they were so against central banking and prefered gold and silver. As per sec 10 of the constitution.

There are benefits as you say of trade and having small wallets. But the opposite side is you are indentured to the bank. Not to mention the magic printing press the fed owns and isn't afraid to use. Gasoline in the UK just hit $9.4 a gallon because of the printing press!

Mad Engineering said...

There are many libertarians who frantically salivate at the idea of private currency in the form of gold coins, but there are reasons that we moved away from those.
One is authenticity. I could fill my gold coin with lead or aluminum and no one is the wiser. but if I pay for my groceries or rent with counterfeit money, there are cheap and easy ways of determining this.
Hell, do you know how many dollar bills I've handled in the last four months? three. Most of my buying and selling and paying is even abstracted from that. I get paid with direct deposit, I buy with credit cards, and I pay them by transfer. My money is a number in a database.
I would not even accept a gold coin as a payment. Too hard to liquidate. If you paid me in pounds, renminbi, Hong Kong Dollars, or even pesos, I know immediately places that I could convert those to dollars or even directly deposit those. But gold coins I'd have to take to a numanist.
Now, I agree that running the printing press is an astoundingly bad idea. The more dollars you have, the less any one of them is worth. It's why Zimbabwe now uses US dollars when they originally had their own. Namely, the Zimbabwe government decided that the best way to pay off their massive debt was to inflate it away, and then to blame the resulting hyperinflation on foreigners taking money out of the country, which frankly Fails Economics Forever.
However, if the US government continues with this, the currency I change to will not be gold coins. It will be another country's currency. Probably Brazil's, I understand they have a kick-ass 10% interest rate on bank deposits. I feel that I can convert reales to dollars at shopping time without too much crazy delay.

The Chinese guy said...

Hey you got a job then?


Btw the US debt is currently a terrifying figure! (UK debt is almost as bad!)

Mad Engineering said...

Let's see, when the debt was $7 x 10^12, I calculated it would take an extra $10, per person per year, for the next 63 years to pay it off.
The population went slightly up since then, but the debt went up more, so it's probably more like for the next 80 years. And $10 per person isn't very realistic, because I'm using population counts that include people that could not hope to see $10. Babies and children. Perma-bankrupt hobos. Single families who will lose their house for want of a dime.
It's grim, but not yet hopeless.

KaiWen said...

Economics make no sense to me. The idea of economics was created entirely by humans yet we have no control over it. Its things like these that often make me think about Communism. In a pure communist society, everyone would work for the benefit of the community as a whole. There would be no need for government and there would be no economy in a modern sense. Everyone would receive what they need and give what they can give. In theory, this system works very well. However it is in human nature that we always put ourselves before anyone else. Greed makes this system impossible to implement in any human society. Not even the Soviet Union was a pure communist society. The reason I know that pure communism works is because it has worked for thousands of years… in ants. Think about it, in an ant colony, the workers each work for the benefit of their colony, never for themselves. Each ant has an assigned task that contributes to the machine that keeps their colony going. In exchange they receive food, shelter and protection from the rest of the colony. Ants would never survive without Communism, if they couldn't work together the way they do, they would be far to weak to survive, gather food, and avoid being eaten. This system would never work for humans, were just to selfish.

Mad Engineering said...

Economics is about resources and distribution. There is a Marxist branch of economics. (How do you keep the people's factory staffed and supplied, comrade?)
One big problem with Economics is that it's very prone to ignoring facts. People develop a theory, and then frantically ignore or handwave away any evidence that contradicts this theory. And that's just plain bad science. This is also why economists have successfully predicted nine of the last five recessions.

Don said...

I thank KaiWen for his/her insight into communism... What a great way to think of that system... I am truly worried over the developed world's current economic situation..having all my retirement investments within an unbalanced and truly broken mess, I think its time for me (wife and I) to make a change, towards an alternative that is more promising 20 years out.

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