Bar
ter
The Curious Case of
in Today’s World
By Srinivas Balasubramanian
Srinivas Balasubramanian, better known as
‘Hanni’, is an alumnus of NITK. He received his Bachelors degree in Information
Technology in 2010 and his Masters degree
in 2012. Currently working for Microsoft at
Redmond, USA, Hanni enj oys a legendary
status at NITK. He is remembered for being a great teacher, a liberal soul, a prolific
quizzer, an avid football fan and a vicious
competitor in any strategic arena.
28
The Shoreline
B
efore any of you jump to conclusions, I would like to say up front
that the butler didn’t do it. Butlers are some of the most honorable professionals in existence and despite constant attempts of society to cast aspersions on their impeccable character, they have endured and
will continue to do so, much like our good old friend the barter. Getting back
to the matter at hand - this case was brought to my attention by a friend of
mine, a notorious Parjun Rao a couple of years ago, while working on a product that could revive the barter system, and has got me thinking ever since.
The barter system is widely accepted as the logical precedent of money as we
know it. Does the barter exist today? The answer is a resounding yes! We trade
information in college on a daily basis: Notes for missed classes, explanations of
concepts we understand, information about the best place to grab a bite, all of
these are examples of barter. But barter even in our daily life goes beyond just information, right? The right to your favourite spot in class (only if you are a regular),
or the right to other people’s food when they make a trip home or even borrowing
stationery for an assignment or exam- these are all common trades that are carried
out as a barter on a regular basis. Well, you may argue that when you lend your notes
to someone you don’t really ask for anything in return, so it does not constitute a
trade, but in most cases it’s technically just deferred payment that is made when the
opportunity arises. In some cases the payment might just be something as simple
as good will, but technically we can classify these activities as trades, and going
forward it is easy to see why this would be convenient.
Clearly the spirit of barter lives on, and with good reason I might add. Do
we really want all our transactions to go through money? Would you want every
transaction in your day to be a formal one? Not only is it cumbersome but could
also leads to a loss of intangible factors like goodwill, bonhomie, etc which play an
important role in defining our happiness. Moreover there is also a possibility that
such a system would prevent trades. “Trade is good”- I know that this differs from
the wisdom of Gorden Gekko who professed that “Greed is good”, but greed
facilitates trade. A trade happens only when both parties believe that it is beneficial
for them. In other words, the seller needs to get a value higher than what he values
the product at and the buyer needs to get the product for a price below which he
values the product or as Michael Scott would put it, it’s almost always a “win win
win”. This disparity in the valuation of a commodity is what facilitates trade and
drives the world’s economy. Coming back to money preventing trade, here is an
example: Say you need help with a couple of chapters before your final exam and
you decide to ask your friend for help. If you were to offer him some money, say
Rs 10 for a couple of hours of his time, there is a possibility he would be offended
and refuse to help you. If the amount were say Rs. 10,000 perhaps he would help
just because it represented a decent payment in itself. However, if you were not
willing to part with that kind of money, the introduction of a monetary incentive
in this case could work against you and prove a hindrance to the trade. Obviously
money has its advantages, simply put it enables markets to establish “fair prices” in
a market through healthy competition. Money in itself has no value but derives its
value from being a widely accepted medium of exchange. The medium is provided
by a credible third party - in most cases the government - and facilitates trade. A
barter inherently requires a social relationship, a well-defined system or interaction
of some sort to facilitate trade - but money opens up avenues for new trades by
abstracting away some of these requirements.
So there is clearly incentive for people to use money, i.e. to open up a set of
trades that would otherwise be rendered inaccessible. But is there incentive for
people to barter? In fact other than the convenience to barter with individuals in
close proximity, there is additional incentive for those of you who celebrate the
fifth of November to barter as well; namely taxes. Taxing barter transactions becomes complex and not many countries have a framework to deal with the same.
Accounting barter transactions just makes it worse. Interestingly enough it was not
until Karl Hess, a free market anarchist and tax resister who was denied the right
to own money by the Government of the United States, exploited bartering to
sustain himself that laws were put in place to tax bartering in the US. Now I am
not suggesting that you try holding off on taxes by exploiting such loopholes but
this is just one of the chinks in the shiny armor of the economic system which we
have chosen to embrace. But beware if you do trade yourself from a pin to a ship,
something that a certain Mr. Dwight Schrute could help you with, the tax agencies
around the world might not care much for legal loopholes.