Tag Archives: barter

Moneyless Exchange in One Easy Lesson

When the division of labor has been once thoroughly established, it is but a very small part of a man’s wants which the produce of his own labor can supply.  – Adam Smith, Wealth of Nations.

We have become so accustomed to using money to get the things we want and need that most people find it nearly impossible to conceive of any other possible way. Whenever I tell people that my work is about exchanging goods and services without using money they invariably ask, “Oh, you mean barter?” Then I go on to explain that barter requires a coincidence of wants between two people — I must have something you want, and you must have something I want. No, we must think beyond barter.

Through intensive study of monetary history and exchange principles extending over a long period of time I’ve come to a deeper understanding of the exchange process and the possibilities for advancing beyond our present dysfunctional and destructive monetary system.

“Mutual credit clearing” is a process that enables producers to trade goods and services directly among themselves without the need to use money. The credit clearing process is not a new invention; banks have been using it for a long time to settle accounts among themselves. But businesses can also use it to trade with one another and settle accounts among themselves, and they have been doing so for the past several decades. There are now scores of commercial “trade exchanges” operating around the world to provide credit clearing services for their tens of thousands of member businesses. While these exchanges are often referred to as “barter exchanges,” they do not do barter in the conventional meaning of the word. Rather, they utilize the collective credit of the members themselves as the internal payment medium. Members earn “trade credit” when they sell goods or services to another member, and they spend trade credit when they buy goods or services from another member. It is a simple process of accounting for value given and value received. When a member sells something their account is credited (increased) and when the buy something their account is debited (decreased). 

What enables the system to work is the fact that some trusted members who offer for sale goods and services that are in high demand are allowed to spend trade credits before they earn them. In other words, these trusted members are given a line of credit against their future sales; their account balances are allowed to be negative, up to some predetermined limit that is based mainly on the amount of value they are ready willing and able to sell to the other members.

Here, in a minute and a half, one of the major trade exchange operators explains the processes in its utter simplicity:

Note, this is not meant to be an endorsement of Bartercard or any other company. I refer to this video only as a good description of how credit clearing works to enable producers to trade among themselves without needing to make payment with conventional money, nor the need to borrow from banks.

And in this video a member of another trade exchange describes how credit clearing works for his business:

Properly organized and managed mutual credit clearing exchanges provide an effective, stable, and sustainable means of creating interest-free local liquidity and enabling companies and individuals to enhance their opportunities for success despite the adverse policies of banks and governments.

A more complete description of the credit clearing process can be found in my book, The End of Money and the Future of Civilization, particularly Chapter 12, Credit Clearing, the UnMoney.

Addendum: This subject is further explicated in my recent conversation with Greg Magarshak, founder of Intercoin, in which we discuss the essence of money, reciprocal exchange, credit allocation and whether or not cryptocurrencies and/or blockchain have a role to play in the reciprocal exchange process. A particularly pertinent clip is here. The entire two hour conversation can be seen at https://community.intercoin.org/t/interview-with-thomas-h-greco-community-currency-economist/1341.

How does mutual credit clearing enable moneyless exchange?

Here’s and excellent, short and sweet description of how mutual credit clearing works to provide interest-free liquidity. From Bartercard New Zealand…

Complimentary Currency Systems: Richard Logie at TEDxLeeds

Richard Logie has been for a long time one of the leaders in the commercial  barter industry. As owner and operator of The Business Exchange in Scotland and developer of GETS, a moneyless trading platform, Richard has a wealth of knowledge about moneyless exchange in general. His presentation below provides a valuable learning tool for anyone, either in the entrepreneurial realm or at the grassroots level, who is starting or operating a currency or exchange system.

Please pay particular attention to the way in which Richard determines the credit lines to be provided to members’ accounts, the list of advantages that membership in a credit clearing exchange provides, and the elements that need to be standardized in order for exchanges to be effectively networked together.–t.h.g.

Coming soon: a world without money and banks.

Who in their right mind would be so bold as to predict the end of money and banking as we’ve known it (besides yours truly, that is)?

Well, how about the Governor of the Bank of England?

“There is no reason products and services could not be swapped directly by consumers and producers through a system of direct exchange – essentially a massive barter economy. All it requires is some commonly used unit of account and adequate computing power to make sure all transactions could be settled immediately. People would pay each other electronically, without the payment being routed through anything that we would currently recognize as a bank. Central banks in their present form would no longer exist – nor would money.”

— Mervyn King – Governor of the Bank of England

You see, even the insiders can see the writing on the wall.

Another observer who has been in the thick of cashless trading developments for decades is Bob Meyer, publisher and editor of Barter News. A while back, Bob wrote an article that gives some pertinent history of the “barter” industry and sketches his vision of how “Simple One-to-One Exchanges Will Give Way to Organized, Computerized, Multi-Lateral Barter.” I strongly recommend that people read it: THE ORIGINAL MEANING OF TRADE MEETS THE FUTURE IN BARTER

Taking Cashless Trade to a Higher Level

When I spoke at the IRTA convention in 2007, I pointed out that many people associated with the business of commercial “barter” had told me that the industry was at what might be called a “plateau of complacency.” That seems to remain the case today with trade exchange operators content to operate profitably on a small local scale instead of venturing to tap the enormous potential demand that exists for the cashless exchange of goods and services.

This is not merely an opportunity to increase profitability, but an opportunity to provide a much-needed service that is becoming more urgent every day. As conventional money and banking continue to malfunction, small and medium sized enterprises (SMEs) find it increasingly difficult to provide the goods and services that their customers value and need. The inadequate liquidity provided to this sector of the economy by the government and banking establishment, and the misallocation of money to bank bailouts and wars, has caused the current economic depression.

Just like the WIR Economic Circle Cooperative during the Great Depression of the 1930s, the modern trade and barter exchanges are well positioned to ameliorate liquidity problems by providing, as they do, direct allocation of members’ credit to one another. But if they are to improve the value of their services, and if they are to have any significant impact on the economy as a whole, the trade exchange membership base must be greatly expanded. How to achieve that without taking inordinate risks or cutting into exchange revenues has been the knotty question that has blocked progress in that direction.

But now, entrepreneur and experienced trade exchange member, Sergio Lub, has come up with a great idea that provides a suitable answer for expanding the scale and scope of cashless trading, but trade exchange operators must be willing to embrace it. Just days ago, Sergio posted this idea on his blog under the title, Empowering Barter Members to Recruit Their Suppliers. You can click the link to read it there, but I’m including the full article below. Please read it, spread it far and wide, and invite discussion. Mutual credit clearing, the primary service that trade exchanges provide, is the highest level in the evolution of reciprocal exchange, one that makes conventional money obsolete. The world needs it now, and the modern trade and barter movement is best able to provide it.—t.h.g.

Empowering Barter Members to Recruit Their Suppliers

Sergio Lub, Saturday, December 17, 2011

Barter is older than money and is now experiencing a Renascence thanks to two factors: One is the increasing scarcity of money due to the global recession, the other is new software that increasingly allows people to earn and spend their barter credits as easily as they use PayPal. Our shopping carts at SergioLub.com and WearCopper.com, for example, accept barter as well as credit and debit cards for the payment of online orders.

Barter will grow even larger if it were to overcome the persistent problem members have when most of their suppliers do not belong to the same barter group as they do. Understandably, suppliers do not want to incur the time and expense of joining another system, while barter administrators need filled applications to check references, and the application fees to pay commissions to their recruiters.

This old Catch 22 problem will disappear once barter administrators allow their trusted members to make barter payment to their suppliers, even when they do not yet belong to the system.

We users will enter the needed data as we process the online transaction, so there is no typing work for the barter office. The new account does not need extensive credit checking since it is known and recommended by a trusted member. It also does not need an initial credit line since it starts by earning barter credits and therefore with a positive balance.

A common objection from new potential barter members is: “What if I cannot find where to use my Barter Credits?” I suggest to address this problem by allowing the inviting member to reassure the supplier somehow, for example by offering a “One Year Money Back Guarantee.”

So, instead of paying my printer cash at 30 days (and then asking for more time a month later because others are not paying me), my printer will be able to spend the trade credits right away. If my printer cannot find anywhere to spend them, then I will buy those credits with cash after a year. Even in the rare case that this happens I still would still enjoy extra free financing and my supplier gets a chance to play barter with no costs or risk.

An extra benefit of having members sponsor their suppliers is that our new members will deliver goods and services that we normally consume, thus reducing the present disproportion of luxury items and this should also help with the problem of having members “on reserve” because they cannot find where to spend their earned credits.

One last objection may come from the barter’s Road Reps that recruit new members for a fee, since for them, for barter administrators to allow members giving memberships for free, could be considered unfair competition.

The barter administrator should explain that the free memberships are gift certificates that members have traded for or have earned, for example one per year of membership. Furthermore, the barter administrator can gradually switch compensation for road reps to a percentage of the transaction fees, so their earnings become proportional to the volume of transactions their customer’s make. Doing this will give road reps the incentive to visit existing clients and help them become more knowledgeable and efficient in the barter economy.

As more businesses accept Barter Credits it does not take long to see a future in which we could choose to issue Barter Credits to all our vendors, to be used on a trial basis, during the time it takes for their bills to become due.

In the era of networking, tapping into our established relationships is the viral and sustainable way to go. Imagine what will happen when my suppliers will in turn earn the right to invite their suppliers, eventually closing my trading loops and making the use of money increasingly optional.

Writing this in December, with the spirit of the Holidays all around, it is quite easy to visualize barter group administrators acknowledging their senior members with free memberships to gift to their suppliers, and with a little effort I can see a few innovators empowering their barter members to recruit their suppliers year-round, thus helping unleash the huge potential of barter.

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Interest and the Role of Trade Exchanges

As cashless exchange becomes an ever more significant portion of total transactions in the economy, the regulatory issue will become a greater concern. It is important that trade exchanges NOT be perceived as issuers of credit, so as to avoid running afoul of banking regulations and possible tax liabilities. Everything that trade exchanges do needs to support the position that the role they play is that of “third-party record-keepers” and that it is the members themselves who provide credit to one another.

Paul Suplizio, former Executive Director of the International reciprocal Trade Association (IRTA), has expressed it this way:

“This means members with positive balances are the issuers of credit and the exchange has only administrative powers, delegated by the members, to regulate credit extension.”

It can be argued that the credit clearing process is simply one of generalizing (collectivizing) the longstanding practice of businesses transacting trades with one another on “open-account,” i.e., selling to one another on credit and allowing some period of time in which to pay.

It has properly been a cornerstone of the trade exchange business that there is no interest charged on negative account balances and no interest paid on positive balances. Therefore it cannot be argued that trade exchanges are acting as banks or lenders of money.

Vermont Business Exchange, an Emerging Force for Local Trade

The localization of an economy requires local control of credit. That can be achieved by participation in a local credit clearing association. There are many such business-to-business (B2B) exchanges that provide this service on a for-profit basis. Now the lines between for-profit and non-profit are beginning to blur as credit clearing services are teaming up with existing non-profit business organizations. One example is the Vermont Business Exchange which is now being launched in association with Vermont Business for Social Responsibility.

Watch this video of a recent interview in which Amy Kirschner explains the project history, vision, and current status.

Modern Trade and Barter – How It Works

IMS is one of the leading trade exchange operators in the United States. It’s a publicly traded company that has in about 24 years grown from one local trade exchange into a network of more than a dozen trade exchanges scattered around North America. The IMS website contains a five minute video that does a pretty good job of explaining how commercial trade exchanges work. View it here.

How Might Credit Clearing Be Used to Make International Trade More Rational and Fair?

Clearing works at any level to settle claims – (1) among banks to settle claims arising from their clients’ check transactions, (2) among companies and individuals engaged in trade to offset their accounts payable against their accounts receivable, and (3) among nations to settle international trade balances. The first of these is well established and generally understood. The second is what occurs within grassroots mutual credit clearing systems (like LETS) and the commercial “barter” or trade exchanges that have proliferated around the world and are now enabling billions of dollars of cashless trading to take place every year. These private initiatives provide the inspiration and the prototypes that are now being scaled up and interconnected to make for more a efficient, secure, and equitable transaction infrastructure.

The third, which requires action at the highest levels of government, has been done on a bilateral basis (like barter) but the potential for multi-lateral clearing of trade balances has yet to be seriously considered. Is there sufficient vision, will, and independence of action at that level for anything useful to be done? That remains to be seen.

The present global financial order, which was largely established at Bretton Woods toward the end of World War II, is based on dollar dominance and exploitative initiatives that are managed through the intuitions that were forced upon the world at that time (the IMF and World Bank). I’ve not made a detailed study of the proposals that were made then, but according to a recent article by George Monbiot in the Guardian (UK), the Bancor proposal of John Maynard Keynes might deserve a second look. The article is titled, Keynes is innocent: the toxic spawn of Bretton Woods was no plan of his, and I encourage anyone who has an interest in this subject to read it. According to Monbiot, “The economist’s dream was blocked for an IMF serving the rich. Reforms proposed by G20 leaders are too little, too late.”

The details of the plan as described in the Guardian article may not be entirely to my liking, but it may be a good starting point for negotiations among a few enlightened governments to create an independent system for managing trade among themselves.  – t.h.g.

UPDATE: I have since found an IMF document that purports to present the details of the Keynes Plan. I’ve not yet studied it in any depth, but it can be downloaded here.