The History of the Trade and Barter System

Items that are used as money often have little value in and of themselves. For example, the paper used to print money is not particularly valuable. Money has value because it is an exchange medium that people understand and accept as such. When everyone accepts that a bill or a coin has value, people can use it as a form of payment to purchase goods or services. Before money existed, people used other systems to perform exchanges.

Bartering involves a direct trade for goods and services. Although some aspects of this transaction are similar to the exchange of money, bartering required time as people hammered out the terms of the deal. Utilizing money as the medium for trade simplified transactions significantly. Trade and barter were precursors to the monetary system used in today's society. Although trade and barter may seem almost archaic, they were the business solutions for people who lived before the convenience of credit card processing.

Bartering is the process of trading services or goods between two parties without using money in the transaction. When people barter, everyone benefits because they receive items or services they need or want. Bartering also has an advantage because even people without money can get something they need. Bartering might involve trading a service for an item. For example, you could agree to perform yard work for someone in exchange for a bushel of apples from a tree in their yard. When people choose to barter to meet a need, they can save their money for other needs.

  • Native American Trade Routes and the Barter Economy – This lesson plan is great for teaching kids at the middle school level about both the history of Native American tribes and the nature of the barter system, blending concepts into one plan.

  • History of Finance – In the early days of the American colonies, foreign banks controlled the currency, and bartering was commonplace.

  • American Indians of ND: Bartering – Practice a game of bartering with your students, and you'll quickly see the difficulties in negotiation that can sometimes ensue.

  • Trading Post – For much younger students (in grade 4), this lesson plan combines show-and-tell with bartering.

  • What Is Money?– Young students (grades 3-5) will delve into what money is, why currency developed, and how bartering worked.

  • Bartering Lesson – Teachers can use this printable packet, which is full of useful terms and phrases.
  • Barter and Money – This plan is for much older students (grade 10), and delves more into the nuances of bartering and trade.

  • Barter Relationships – Can you create an equation and mathematically validate a trade? This article delves into that question.

Mesopotamia tribes were likely the starting point of the bartering system back in 6000 BC. Phoenicians saw the process, and they adopted it in their society. These ancient people utilized the bartering system to get the food, weapons, and spices they needed. Because of salt's great value, Roman soldiers bartered their services for the empire in exchange for salt. In Colonial America, the colonists used bartering to get the goods and services they needed. Even after the invention of money, people continued to barter.

  • Bartering Through the Seasons – This lesson plan for grades K-5 discusses specifically bartering fabrics and coats during winter seasons.

  • The History of Money – Most of early monetary exchanges were still a part of bartering systems. Some of the most early accepted currencies were simply valued items: cowrie shells, gold nuggets, and fine metal pieces.

  • The Transition of Barter to Fiat Money – The vast transition from bartering goods that had value to exchanging papers backed by what the state or government said had value was a long and arduous one.

  • The Benefits of Bartering – Bartering still exists today. In the 1990s, it was happening in Russia.

  • The History of Money – The development of money is discussed in this lesson plan for grade 1.

  • How Bartering Works – This source discusses the pros and cons of bartering, and how it still remains useful today.

The simplicity of bartering is one of the main advantages of this system. Issues with international trade, foreign exchange, and unbalanced economic power are virtually nonexistent with a bartering system. However, some disadvantages also exist. For a bartering transaction to occur, both parties’ wants or needs must coincide to lead them to make a deal. Without a standard measure of value of goods and services, parties in the bartering transaction will need to spend time agreeing on the terms of the deal.

It’s common for both parties to place a higher value on their own goods or services and a lower value on the other party’s items. Trust is also a component of bartering, because the representation of the goods or services offered must be accurate. If something is misrepresented in a transaction, the other party will have little recourse when a problem ensues. When bartering, people may need to store their accumulated possessions to preserve their purchasing power. Depending on the types of items, this might be difficult and inconvenient.

Because bartering does not involve the exchange of money for goods and services, it might seem like an ideal way to avoid paying taxes on transactions. However, the U.S. Internal Revenue Service informs taxpayers that the fair market value of goods or services received via bartering is considered taxable income. Parties who engage in bartering transactions must report this value as income on tax returns. The IRS requires reporting of bartering for the year it occurs. Failure to report bartering activity could lead to tax penalties.