07/04/2020
Smell The Roses
During times of drought, conflict or recession, throughout history there are examples of people turning to barter. When money is scarce or of little value, people instinctively start trading their produce or skills for things they need to survive. The need for food, clothing and other essentials previously taken for granted, is now shared and understood, resulting in stronger community support and spirit.
One unique example is Cuba. With the collapse of the Soviet Union in 1990, Cuba was thrown into turmoil. Overnight the import of Soviet oil ceased, US embargos ensured future supplies were scarce, industrial and agricultural machinery stopped, and people began to starve. Around Havana, vegetable gardens started to appear in backyards, rubbish dumps, balconies. Where previously farming had relied heavily on fertilizers to produce to***co and other exportable luxuries, it now reverted back to more organic methods, growing produce for the local market.
Local food co-ops opened up, shop keepers and accountants paid for their groceries with trade vouchers. These vouchers in turn could be used to trade with other communities, in a controlled ethical manner. Transactions were done face to face, information and knowledge shared.
The oil shortage affected transportation, education and housing. Where previously people used to travel large distances to work or school, now new local schools opened up, cities and towns were beautified to accommodate workers moving closer to work. An entire economy was stabilised and strengthened by bartering, and the people made it happen through necessity, they had no choice.
Pre 1990, 8% of the Cuban workforce were involved in private enterprise, today 24% do not rely on the Communist Government for employment, they now own their own businesses, many are partners in cooperatives created during the crisis, over 20 years ago.
In times of financial crisis, people instinctively turn to trade. Today in Greece over 100 local currencies have started to combat the crisis; in pre WW11 Switzerland the WIR Bank started to counteract currency shortages and global financial instability (today it has over 62000 members).
Barter in times of financial stability
There are 3 main types of organised barter today;
1) Corporate Barter – this involves large organised trades between corporations (majority public listed). The exchange usually takes a cash commission of about 15% per transaction.
2) Retail Barter – this involves small businesses trading via an exchange. The exchange usually takes a cash commission of 5-10% per transaction, and often charge joining and administration cash and local currency fees
3) Community barter – non for profit exchanges for individuals to trade often home based products and services. The exchange usually charges 3-5% local currency commission per transaction.
Corporate barter is an incredibly effective tool for large businesses or countries to have someone sell their unwanted goods (often at full RRP) and arrange purchases. Pricing is set and guaranteed, and member satisfaction is high.
Retail Barter varies greatly in it’s performance and customer satisfaction . The most efficient communities are located in small states or countries because the communities are closer and traders have a better chance of getting to meet and trade face to face, building trust and forming tentative bonds.
In some of the larger retail exchanges, there can be franchises that pay licensing and commission fees to the owner, tin order to operate in a virgin region or state using the same currency. A common problem with this expansion is the ‘dilution’ of trades and personal contact by increasing the distance between traders. It would be more effective to start a ‘local’ currency that could be balanced economically and maintained, however there is a risk to the owner of the franchisee starting his own exchange once relationships developed between himself and his local members .
Another obstacle with retail barter is the cash fees often associated with membership, administration and transaction fees. By charging a membership fee to small businesses to join, the exchange owner is reducing the transparency by ensuring the community cannot grow naturally through referral, there is no natural association between members and by putting strangers together to exchange fairly in an alternate currency is fraught with danger as inflation and poor member conduct can escalate unless the owner is motivated to enforce fair trade practices and remove bad members.
In 2005, economist Mervyn King, the Bank of England’s governor wrote;
“Is it possible that advances in technology will mean that the world may come to resemble a pure exchange economy? Electronic transactions in real time hold out that possibility. There is no reason, in principle, why final settlements could not be carried out by the private sector without the need for clearing through the central bank. There is no conceptual obstacle to the idea that two individuals engaged in a transaction could settle by a transfer of wealth from one electronic account to another in real time. The same system could match demands and supplies of financial assets, determine prices and make settlements. Financial assets and real goods and services would be priced in terms of a unit of account. Final settlement could be made without any recourse to the central bank. Without such a role in settlements, central banks, in their present form, would no longer exist; nor would money.”
With the use of computer algorithms, it would be possible to replace cash with an alternate currency if the traders are assumed to be consistent in cost and quality. Unfortunately people are not so predictable and in a stable economy, greed would prevail and the system would gradually weaken with rising inflation and ever diminishing membership unless transactions were policed and a fair trading practice enforced. Unless the alternate currency was localised (e.g each community has their own accountable economy) it would eventually turn back into another ‘cash’.
If you gathered a group of trustworthy, experienced traders, and gave them control of their own local currency, would they need an exchange owner, a banker no different to a high street bank charging cash commissions?
The challenge would be motivating participation and trading, without stimulus trade activity would be left to each member of the group and eventually would stop, accounts stagnating and the economy shrinking to collapse. However, with organisation and education theoretically the group could develop into a team that trusted each other and traded ethically because it made sense. Slowly the group would grow as word spread from members who were trading effectively and new small business owners would join. As the numbers grew there would come a time when they had to restrict size to maintain an advantage over competitors in the cash market, and the group would consist of a large range of local business owners in set quantities to offer variety and exclusivity.. Eventually, it is not inconceivable to imagine a closed group of traders working as a team, a collaboration, to arrange trade between themselves where supply and demand for each small business member is known and coordinated, trade quietly taking place alongside the cash economy to maximise the groups profits.
To assist with effective trade, algorithms would be used to coordinate supply/ demand between members, the growing trust would eventually result in stronger relationships than cash alternatives. Algorithms would also be used to arrange co-operative ventures between trading partners, assisting with trade flow and coordination, similar to the algorithms now used in most stock market trades. Eventually the group would develop their own form of currency exchange on mobile devices, shifting trade between business partners, friends.
There would need to be rules of conduct, the integrity of the group is only as strong as the poorest trader and membership would be respected, unethical traders to be replaced by their cash competitor. Organised meeting between traders would take place to arrange supplies and collaborate in small cooperatives or ventures.
Joint ventures would start to develop between businesses with synergy. With restricted membership, members could calmly collaborate without fear of competition or inflation. They might talk about swapping fellow trade customers to save travel costs or share the trade cost of a video promoting themselves to the cash market using the groups media cooperative.
Barter must not be controlled by one person or a company, it must be owned by it’s members. In Cuba, the barter community wasn’t manufactured, it naturally grew and developed into many small trade communities, there were no joining fees or admin fees.
It’s not possible to recreate the desperation of the starving Cubans or the desperate Greeks today, but is it possible to create an environment where trading is hugely beneficial between individuals in a stable economy?
Algorithm definition: In mathematics and computer science, an algorithm is a step-by-step procedure for calculations. Algorithms are used for calculation, data processing, and automated reasoning. Some algorithms, known as randomized algorithms, incorporate random input.
Ethical, intelligent small business owners who understand the potential of trade are scattered in little groups of twos and threes in large organised barter exchanges, surrounded by the constant turnover of trading partners, inflated prices and cash fees. They are not encouraged to collaborate for the owner’s fear of losing their cash commission. They make do, sometimes finding a good contact or shifting some goods at healthy profit margins, but they’re in jail and even little victories are welcome.
150 small business owners could be infinitely more powerful using a simple algorithm.
