http://www.nytimes.com/2009/11/29/us/29sfbarter.html
Summary
During the recession near the end of 2009, many people have lost their jobs, including Jeff Horwitz, a building contractor from Campbell. Because of the recession, Horwitz has decided to use the barter system to keep himself employed. For about a decade, he has been using the barter system for his services and since the recession, he estimated that 30 percent of his business consisted of bartering. Even though the barter system was a form of business exchange from a long time ago, the usage of it had increased. Websites such as Craigslist and groups like International Monetary Systems became more popular. Steven Tadelis had said "Because of our lack income and our inability to get long-term credit at reasonable rates, we can't use the normal market. By me offering a service that you accept, we are creating value." Internet has become the medium for bartering; many people are looking for swaps with others.
Connection
At the beginning of chapter 7, the textbook explains the problems associating with the barter system, even if it is used occasionally in this economy. It states that when one has an item to trade, they would have to find someone willing to trade with them which may not be easy to do. Even though the textbook said that the barter system would not work efficiently in our advanced economy, there would be exceptions when the economy is not doing very well as stated by Horwitz "Anything is better than nothing. I take my profit in trade." Another reason why the barter system might not work which is listed in the book is divisibility. It would be difficult for several people to determine the value of an item if they do not come to an agreement and someone may want the item to be divided up while the other party may not agree to it. Then how would they agree whether the trade is fair or not?
Reflection
I agree with the textbook that the barter system will only work in a less-industrialized economy since the workers are self-employed and many of the items are made by themselves. When one has an item of a greater value, it would not be easy for them to find something that is of equal value to be exchange with. Sometimes when you want an item, the other person may not have a desire for what you have to offer; therefore, limiting the exchange that may take place. Bartering would work when both parties come to an agreement to the trade, but in the end it would be money that is easily accepted for the value of the item and it generates wealth for the economy.
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There are pros and cons to the barter system. Barter system has another problem, which is what if we need to borrow items from someone else? The barter system would not work as well as the money system. With money, we can pay loans to borrow items. Like you said, it is hard to evaluate the value of item, therefore making it hard to state out specific instructions for borrowing items. The pro of the barter system is to avoid paying income and sales taxes. We can perform services for another to exchange a product. In developed countries, people do that because they have no money and very less likely do it because they prefer this system. In many situations the result would involve using the money system. For example, my dad likes to help out his friend on fixing some easy technology stuff, and his friend would feel that he needs to offer something back to him. At the end, his friend would invite him to a restaurant for dinner. The paying of the bill for the dinner will involve the money system.
ReplyDeleteVanessa Lo
Economics 12
D1 P3