Barter: the rebirth of sound money
- Ivo Vegter
- 17 Apr 2012 08:21 (South Africa)
Advocates of free-market economics have long railed against the advent of so-called “fiat currency”. Many have predicted that business cycles, exacerbated and synchronised by the insistence on a central currency and single base interest rate as the price of credit, must eventually destablise the global economy enough to cause a widespread collapse. They believe official currencies governments can create out of thin air will eventually give way to “sound money”, by way of barter trade, a return to gold, or some other form of market-based currency.
In the turmoil of today’s dismal economy, these adherents to the “barbarous relic” of gold seem to have been prescient.
Government-issued fiat currency has, by contrast to commodity-based currencies, always appeared modern and benign, offering a trusted, standardised medium of exchange and unit of account. After all, what could go wrong with the great United States of America? However, even in the most powerful economies in the world, it has had effects hidden from most ordinary citizens.
Of these, the most insidious is the ability of governments to print money at will, in order to finance deficit spending. Beyond the technical public goods that taxpayers agreed to fund communally, government was seen as an effective way to cushion economic downturns and stimulate economic activity in the hope of sparking a recovery. This idea lies at the root of the conception of macro-economics proposed by John Maynard Keynes, and which became almost universally accepted and adopted.
However, even Keynes would have balked at the excesses his theory spawned. Few governments have ever been responsible enough when the “counter-cyclical” intervention was no longer needed, during economic boom times, to stop spending and start saving.
The reasons aren’t hard to fathom. Being able to dole out endless government contracts offers politicians a lever on power they never had before. The corrupt relationship between the corporate establishment and the political elite is startlingly obvious in even the most developed of countries.
Moreover, countries that grew wealthy on the back of industrial production and commercial trade soon began to institute extensive welfare policies. Many of these were emotionally defensible, being akin to charity in their hope to feed the hungry, sustain the aged, protect the disabled, and comfort those “less fortunate than ourselves”. Emotional appeal, however, does not make money grow on trees. Many welfare states now find themselves groaning under commitments to which citizens are legally entitled, but which governments are unable to meet, forcing them to turn central banks into money trees.
The political pressure to sustain cronies, spend into downturns, and maintain welfare establishments has led to mounting sovereign debt and ever-faster money printing, euphemistically known as “quantitative easing”.
Governments – by means of their monopoly central banks – have pursued an inflationary monetary policy for most of the 20th century. The idea was that by increasing the money supply, they could invisibly reduce the value of money already in the economy, and consequently reduce (or “deflate away”) government debt.
If the “inflation rate”, as measured by an artificial measure of one particular effect of inflation, consumer prices, remained low enough, citizens would not become restive and rebellious, it was believed. And while the going was good, this was for the most part true.
However, there were spectacular exceptions. When excessive spending could not be matched by sufficient production or trade, as was sometimes the case in the aftermath of wars, sovereign debt and money printing got out of hand. The worst four cases in history are the German Weimar Republic in 1923, Yugoslavia in 1994, Zimbabwe in 2008, and worst of all, Hungary in 1946.
Mere survival required people to return to traditional barter arrangements.
After all, when official currency is scarce, companies are failing, unemployment is skyrocketing, nobody pays their bills because tomorrow they’ll be worth half as much, and nobody can make their pay stretch even a few days without losing its value, the only option left is to trade your labour or produce for commodities that have real value, instead of for money that isn’t worth the paper it’s printed on.
But that can’t happen today, can it? The economists employed by the governments and central banks of the world have surely solved these problems? It can’t happen in modern economies with responsible governments that have signed up to respected multinational institutions such as the European Union, and have access to lenders of last resort like the International Monetary Fund, surely.
Oh, but it can. Increasing demands on governments, from welfare entitlements, war spending, to corporate bailouts and consumer spending stimulus has made the debt racked up by governments, and the inflationary pressure of printing money to service it, acute. Ultimately, it becomes unsustainable, you end up where Greece is today.
Sovereign debt and low productivity by European standards has forced radical austerity measures on the Greek population, and the country may be forced to leave the common European currency in favour of a devalued version of the drachma it once used.
Greece is no stranger to hyper-inflation. Its currency also failed it in 1944, when it became the fifth-worst case in history.
No surprise, then, that barter is resurfacing as a means of doing business in modern Greece. Faced with buyers who want goods but do not have the means to pay, many producers of foodstuffs and essential services have taken to accepting payment in kind.
One fisherman told National Public Radio that business is so bad, it's time to start swapping goods. “Give me two kilos of potatoes, and I give you a kilo of fish,” he told reporter Sylvia Poggioli. “Why not?”
In some communities, organised barter networks have been established, where people can earn an alternative currency for their products and services, and can spend them electronically or by means of vouchers at any merchant who will accept them.
Many do. Some accept part payment in what the Greeks know as “TEM”, or “local alternative unit”, while still recovering costs they owe to workers and suppliers in official euros. Others accept TEM vouchers unequivocally, even offering discounts to customers who use them in favour of the discredited European single currency.
This recalls the roots of money: a common medium of exchange, decided upon by the free choice of individual market participants. Facilitating barter in cases where a direct exchange was not desirable wasn’t the only reason for the adoption of currencies, but it was an important driver.
Originally, commodities that were easily marketable were used. Some were preferred for their durability, others for their portability, some for their convenience as a standard unit of account, and still others for their alternative decorative or industrial uses. Historical examples include rice, salt, cowrie shells, cattle, beads, ivory, nails, and vodka.
Eventually, most societies settled on precious metals as the most convenient way to trade.
Banks also emerged, where customers could deposit their goods in return for depository receipts. Like personal IOUs before them, these “bank notes” became representational currency standing in for a given amount of a physical commodity itself.
When banks became more sophisticated, and units of account more standardised, some depositors chose banks that would not merely safeguard their deposits, but pool them for investment in order to earn interest. This permitted banks to issue loans on the back of the deposits they held, and better supply the market’s demand for money. Fractional-reserve banking was born.
Coinage and banknotes issued by different countries, city-states and banking establishments competed with each other. People wanted and trusted the more reliable currencies. Those that were not expected to hold their value, because supply could be increased easily, they could easily be forged, or their backer was not financially secure, were disdained.
Note that governments were not required for the development of money, nor the establishment of banks, nor the evolution of currency. What was accepted in any particular trade was entirely up to individuals trading with each other. Some accepted simple foodstuffs. Others accepted gold or silver. Some would take or offer payment in labour, and many would trust notes of deposit issued by some banks, but not others.
However, governments soon found that a common currency and standard unit of account made taxation much easier, and they rapidly adopted “official” currencies. Often, they banned unofficial alternatives, by means of “legal tender” laws that still exist today to protect fiat money. By requiring creditors to accept payment in the officially sanctioned currency, kings and emperors could control the entire trade of their domains, tax every transaction, and exert power over even the wealthiest citizens.
Once in control of the sole official currency, many governments could not resist the temptation to “debase” their store of gold or silver currency with lead or copper before reissuing the coinage. By this means, they stole from their citizens and enriched themselves.
Ancient Greece, too, was an early example of inflationary monetary policy, in which the government debased the coinage as an invisible tax on citizens. Not until John Maynard Keynes published “The General Theory of Employment, Interest and Money”, however, did monetary debasement officially become thought of as a good idea.
There’s a poetic symmetry to the re-emergence in Greece of barter trade on a significant scale. It seems just that Greece is the location where money is re-invented by the market, wresting control over the (mis-)allocation of capital away from a government that has proved to be reckless and unresponsive to the needs of productive citizens.
Of course, governments will likely resist the rise of barter and alternative currencies. Control over the official currency is a necessary tool in the Keynesian conception of government-controlled economies. The taxman also has a great interest in discouraging barter transactions that are invisible to the government, and entire fleets of lawyers stand ready to advise you on the complexities of the tax treatment of swopping this for that.
However, the respect accorded to governments, and in particular to their right to tax productive economic activity and issue paper money, is waning. This is a good thing. While there will always be a need for taxation, it does not require the complex and costly layers of bureaucracy that are associated with the legal, formal economy.
The informal economy of South Africa has long been a refuge for citizens that are ill-served by government’s management of the formal economy. Production and trade free of the stifling bonds of government control is ultimately the last, best way to produce the needs and wants of our daily lives.
In the face of bankrupt welfare states, profligate politicians, rising unemployment, corrupt cronyism, crippling tax burdens and collapsing fiat currencies, there is a resurgence of barter trade and free-market currencies even in what was once revered as the “developed world”. This can only improve the lot of the ordinary people trampled by the top-heavy machinery of the debt-ridden Keynesian state.
Ask your average Greek fisherman: “Why not?” DM
Further reading on the rise of barter trade in Greece:
- Modern Greeks Return To Ancient System Of Barter, by Sylvia Poggioli (NPR)
- Battered by Economic Crisis, Greeks Turn to Barter Networks, by Rachel Donadio (New York Times)
More on barter and the history of money:
- Let me mansplain statistics to you
- Free the hippies! Don’t ban their drugs!
- Which principle: precaution or progress?
- How to kill a baby, naturally!
- Miserere mei, the Ebocalypse is here!
- Advanced technology or magic?
- Tourism: Still doing okay? Let’s fix that!
- Green-left messiah desperately seeking spin-doctor
- The gun genie and its bottle
- On energy, environment, and regulatory independence
- South Africa’s schools of witchcraft and wizardry
- Grab shale gas opportunity, but avoid opportunism
- It’s about who you don’t vote for
- Free markets as a moderate position
- Voting: there’s still time to change your mind
- Green tech is cool, but not because it’s green
- How Mmusi Maimane swindled a vote out of me
- The case to elect Malema to Parliament
- The intellectual gnome, Chomsky
- If Malema isn’t Pol Pot, is he still dangerous?
- Do Malema's followers understand ‘agrarian reform’?
- Look ma, I'm defending Shell's record in Nigeria!
- Any weather is evidence for global warming
- U-turn prof finds his fracking fears are avoidable
- Ramphele et al: The world according to angry feminists
- On HIV/Aids and scary-big numbers
- Cherry-picking ‘grey literature’ on rhino horn
- 350,000 reasons to kill a black rhino
- Eight myths about libertarians
- New Year’s resolutions for other people
- All I want for Christmas is a fire pool
- In defence of Donald Trump
- My old South African flag
- Fearful Fukushima fiction fatigue
- Do we tolerate private sector corruption?
- In defence of a lion killer
- Save the rare wine and endangered craft beer
- Forever blowing bubbles: shale gas economics
- Promotion and Protection of Investment Bill: When “certainty” means “wait and see”
- This land is my land: a revolution
- The launch of SA's Libertarian Party: herding cats in time for 2014
- The African case against the ICC
- The fossil fuel subsidy myth
- Think of the little fishies!
- The hilariously misunderstood libertarian
- The sickly history of sweeteners
- Pants on fire, but they’re not mine
- The obstructionism of shale gas activists
- How mind-numbing numbers whip up fear
- Why pick on Khanyi Dhlomo?
- Half-measures will fail the rhino
- Malema’s righteous anger... and naïve confusion
- Lottery licence to go to one lucky winner
- Vaccinations: when the state stabs the people
- Do reusable shopping bags kill people?
- The long walk to serfdom
- The Karoo desperately needs development
- The trials of Samson Shuttleworth
- The girl who kicked the hornet’s nest
- Raping the discourse about rape
- Who is the reasonable man?
- Fracking: Debating a big deal
- Who needs the Queen’s English?
- Electric cars: Taking from the poor to give to the rich
- Business Licensing Bill: An indefensible defence
- Red-tape tourism
- The Big Business Bribery Bill
- On Thatcher and society, Vavi and the market
- Extinction: Let’s make up numbers and panic!
- Feeding the world is getting easier
- Stop talking shit: Build your own toilet
- Climate change is pseudo-science
- Anti-competitive competition law
- The Department of Less Government
- An open letter to President Zuma
- In defence of Kim Kardashian
- The world’s weirdest wildlife sanctuary
- Boycott calls are simple-minded
- In defence of vegans
- The population explosion implodes
- Environmental backpedalling picks up pace
- How Mangaung can help and hinder entrepreneurs
- The elusive libertarian enclave
- The Gathering: Ivo Vegter
- The hidden overemployment crisis
- The case for constructive environmentalism
- Privatise the Western Cape's shacks
- Tenders: Not open to employees or their families
- Hurricanes fuel climate sensationalism
- Next: Gross-out warnings on food
- No new deal: The failure of Zumanomics
- Benoni has a bright idea
- Was I wrong about acid rain?
- Public food gardens: Where dumb ideas thrive
- Rethinking the costly food label madness
- Give hunting a chance
- Fracking gets green light, but here's the risk
- Socialists, bless 'em, visit Cape Town
- Buy a 1Time ticket now
- Give the ANC credit where credit is due
- The myth of the competent apartheid government
- It's a disaster that 'peak oil' is not a disaster
- No Gravy: a label for sustainable business
- This lightbulb's going to blow
- Smokers? Get 'em up against the wall!
- Inflating the obesity scare
- Bring a Shotgun to School Day
- GMOs: Hacking genes to feed the world
- The hidden dangers of charity
- Fracking: the unread paper debated
- Fracking: The “U-turn” paper nobody has read
- Eco-cronyism is as dangerous as any other
- SKA: Be grateful Karoo residents didn't object
- Energy: Get cracking on fracking
- Fair trade, unfair trade-off
- Casual labour is only bad for Vavi's unions
- 'Externalities', the catch-all justification for regulation
- 'Externalities', the catch-all justification for regulation
- How do we fix our dismal education?
- Barter: the rebirth of sound money
- Rights are not entitlements
- Debunking 'limits to growth' inanities
- Tax: Why align with "most other countries"?
- Newspaper sensationalism doesn't help rhinos
- Rolling Stone reprises Gasland's fracking fantasies
- Cosatu's manipulative march move
- Why do 16 million people not constitute an economy?
- The age of smear politics
- Does fracking cause earthquakes?
- The Chinese model is morbidly obese
- Green tech: doubling down on a losing bet
- Rape, pornography, and hell's grannies
- Petrol taxes won't hurt the poor
- Jailtime mooted for bad weather warnings
- Let's ban bans, and start with CITES
- In defence of overpaid sport stars
- On the death of Kim Jong-Il
- COP17: Let's ban fire
- Cancer gets you when nothing else can
- COP17: The 'party on' agenda
- COP17: The Blue Line of Death
- New seven natural inanities
- Occupiers' anger is all that makes sense
- The Luddites and Technocrats live on
- Malema marches for economic slavery
- Profitable purveyors of pudendal prettiness
- Sense? Us?
- If they want rhino horn, let's sell them some
- "Stimulate" economy by ending telco abuses
- Executive pay makes nobody poorer
- Malema's real persecution
- Mogoeng: Lock up your daughters
- Don't mandate insurance, deregulate healthcare
- I sympathise with Malema's persecution complex
- Short selling: panicked pols ban proof of failure
- Don't blame those who saw it coming
- What's obscene about profit?
- In defence of Bombela
- Dear president Zuma, you are not above the law
- The economics of love
- Treasure the Karoo? Ban the SKA!
- Malema is right, you know
- Gautrain's PPP: political patronage profiteering
- Kumi Naidoo is no hero
- LeadSA fails to lead when it matters
- No logo means carte blanche
- The drug war: dopey but dangerous
- A response to fracking critics
- Don't vote. It's your right.
- Welcome Walmart
- If you're happy and you know it clap your hands
- Buy local, support poverty
- Ubuntu, the free-market way
- Karoo fracking scandal exposed!
- I'm ashamed for my profession
- The bill of bunkum
- Being gay: a brand new concept!
- Who's afraid of the nuclear wolf?
- The nationalisation canard
- Ogilvy should grow a spine
- The new robber barons
- A classy revolution: Why we cared
- Bombastic Bombela balks
- Liberty is more than mere democracy
- Gautrain has a law unto itself
- The irony of 'services for all'
- How to hire a hitman in SA
- Arrive alive and neurotic
- The oppression of taxis
- Protection of Information Bill and why WikiLeaks is so dangerous
- Fifa, Russia and Qatar deserve each other
- One day, we'll all hate WikiLeaks
- The cycling mafia strikes again
- What Julius got for Christmas
- Let's return the beads
- Away with fascist seat belt laws
- Tintin Mbeki in the Sudan
- How the ANC can make everyone happy
- Currency: the race to the bottom.
- Hurrah for national healthcare!
- Give Zimbabweans citizenship
- Carte Blanche has no carte blanche
- That finger-licking, lip-smacking taste
- Bomb the barbaric lot already
- Green tax: another raid is coming
- Do strikers deserve anything?
- The media will lose this battle
- Global warmism needs a fisking
- A glass half-full
- Go ahead, have a baby
- Stop the handouts - end xenophobia
- The right to fire
- FIFA's heart of darkness
- Have some self-respect
- I ordered an orange skirt
- Secretly, Match blames South Africa
- The stupendous Gautrain: a rare marvel!
- The Fifa conquistadors are coming!
- What's wrong with everyone?
- Leave poor BP alone
- The destructive power of government
- The bonsai economy
- The darkness of Africa
- Who is ripping off whom?
- Anatomy of a whitewash
- While FIFA takes over, we fight
- The pointless pretence of Earth Hour
- Ten reasons to reject climate alarmism
- Really, boycott the FIFA farce
- The climate dominoes fall
- Lessons in ethics from Dick Cheney
- Screw the consumer
- In defence of bankers
- Break the banking cartel
- Julius Malema, the walking contradiction
- Boycott FIFA
- Climate clarity
- In defence of Boney M
- Pray Copenhagen fails
- Capitalism is not unkind
- Climate fraud kills people
- Pop goes the hot air balloon
- Peace, love and schadenfreude
- The irony of the left
- Too late to cool it?
- Going cold turkey