Greece isn’t the first country to turn to barter in an economic crisis, but as a member of the Euro-zone, it is a canary in the coalmine for major government-printed fiat currencies.
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:
More on barter and the history of money:
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