Running head: CURRENCY 1
Breaking down Down the Existence of Currency: Barter and Exchange
STUDENT NAME
Department of Economics, University of Victoria
ECON 225: Writing for Economists
March 15,th 2017
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CURRENCY 2
Abstract
Standardized currency exists in the modern world for the purposes of achieving efficiency and
equity. Currency is derived from the inefficiencies of barter and exchange and, as a result, there
is a lack of equity. Currency exists only in proper economic conditions, whereas moneyless
barter and exchange exist in dire economic conditions.
Keywords: standardized currency, barter and exchange, efficiency, equity
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CURRENCY 3
Breaking down the Existence of Currency: Barter and Exchange
Barter and exchange have both existed since the beginning of human historytime. Ever
since humans realized that differing specialties exist, trade has naturally always occurred. The
origin of barter and exchange takes root in our physiological needs for shelter, food, and water.
to shelter, feed, and hydrate ourselves. Without trade, this task is not so simple.
In “Doing Business Without Exchanging Money: The Scale and Creativity of Modern
Barter,” Kaikati and Kaikati (2013) stated that the existence of a thriving moneyless marketplace
exists in modern economies and is growing. I will use this journal article to highlight both the
efficiencies and drawbacks of non-monetary exchange.
In “Simulating a Multiproduct Barter Exchange Economy,” Levy and Bergen (1993)
describe an experiment involving a simulated traditional barter economy that allowed students to
freely trade amongst one another without using money. The purpose of the experiment was to
outline the inefficiencies that come with this kind of open market. I shall use Levy and Bergen’s
findings on the role of money in the economy to complement the proposed drawbacks of Kaikati
and Kaikati’s (2013) journal article.
Kaikati and Kaikati (2013) provide an extensive background on the current level of
business done without the use of money. In 2013, the amount of total barter transactions
amounted to $3.7 trillion internationally and $1.7 trillion domestically—a substantial portion of
23% and 11%, respectively, of total business transactions (Kaikati & Kaikati, 2013, p. 43). This
figure outlines how many moneyless transactions are done in the world and acts as a clear
indicator of the importance of barter. Historically, barter has existed since the first human
civilizations and slowly became more and more obsolete with the introduction of money.
Although Kaikati and Kaikati state that many economists still believe barter to be “an extinct and
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Commented [AC2]: Specialities of what?
Commented [AC3]: What task?
Commented [AC4]: With APA, we restate the publication year unless it was already mentioned in that paragraph.
Commented [AC5]: Amount?
Commented [AC6]: In Economics we do argue this. However, some anthropologists argue that this is not correct. I included an article you may want to read in your references. Nevertheless, I would leave this sentence, as from an economics perspective it is what we believe.
CURRENCY 4
inefficient system of transactions that may only be observed in backward economies” (p. 47),
these economists talk only of moneyless barter and exchange. Today, barter and exchange
combined with the addition of currency is extremely common and prominent in the world of
business. We must look further into its context in order to fully understand its purpose.
Today, Greece is experiencing more and more barter as a part of everyday life. Ever since
the Greek government-debt crisis of 2010, the unemployment rate, along with their GDP, took a
staggering blow. A comparative analysis between unemployment rates in figure 1 shows that
wary job-seekers affected by the Greek financial crisis are closely comparable to those of The
Great Depression; Greek unemployment rates peaked at 28% and U.S. unemployment rates
peaked at 26% (see Figure 1). In the presence of this economic instability, barter economies
emerged in Greece. Many of the small barter economies that emerged in Greece created
alternative currencies that allowed for more equitable trade without having to rely on the already
instable banking system– – these alternative currencies allowed holders to trade them for other
goods or as complements to their own goods to their trades (Alderman, 2015, para. 12). The
introduction of barter economies allows people, under further economic constraints, to attempt to
maintain a standard of living that they had when the economy was more stable. It is certain that
the Greek peopleGreeks are better off because of this barter and exchange;, however, you cannot
overlook the context in which these systems emerge. The only time that true barter economies
emerge in the modern world is in the case of dire economic circumstance, such as The Great
Depression or in present-day Greece. From this, I gather that there must be a reason as to why we
use standardized currency during times of economic stability. We must now look at the benefits
of currency before comparing the two.
Levy and Bergen’s (1993) experiment beginbegan with multiple groups of people
Commented [AC7]: Can you provide an example? One might be how we trade in our used vehicles.
Commented [AC8]: This sentence is a bit awkward.
Commented [AC9]: people who are under further economic constraints?
Commented [AC10]: What two are we comparing.
CURRENCY 5
receiving various amounts of food, drinks, and receptacles for eating and drinking that are also
tradeable. The variability of these items forms a natural incentive to trade., Ffor example, one
group only having forks and cups but also the largest supply of these. Furthermore, some groups
have less desired items or a less valuable bundle. The experiment provides students with a hands-
on experience of what it would be like to trade without the convenience of standardized money.
If currency had been distributed along with the food items, there would exist a more pareto-
efficient allocation of goods than what they ended up with at the end of the experiment. The
main functions of a standardized currency are as follows: “Homogeneity, divisibility, storability,
durability, and scarcity” (source? p. 4). These five functions are what makes having a
standardized currency so efficient. If we included currencycurrency was included into this the
experiment, the students we could have overcome the issues of equity, initial and final. Instead,
we primarily used barter and exchange; this resulted in them being better off than they were with
the initial allocation of goods, although, however not necessarily as well off as they could have
been with the use of money.
The existence of currency is not necessary; however, it is necessary for achieving a
greater level of efficiency and equity. Where currency is unavailable, as in poor economic
conditions, barter and exchange will naturally occur as a replacement in its absence. Given these
circumstances, it is more efficient to use barter and exchange. However, if currency is, in fact,
available, it will be the primary source of trade value. Today, we see a combination of both. The
use of currency is dependent on the exchange of goods and services and thus cannot exist
without it; this proves that we must use a combination. Since it is proven that we must use a
combination of both and that the greater use of currency will results in greater levels of utility
achieved, it follows that only 23% of international business transactions should be moneyless.
Commented [AC11]: This is a bit awkward and could be clearer.
Commented [AC12]: Need to be careful throughout with tense. The experiment has already been conducted and the research written. As a result, you need to use past tense.
Commented [AC13]: Not sure what is meant by this.
Commented [AC14]: Who is we…or do you mean they? Did you also partake in the experiment?
Commented [AC15]: Is it necessarily poor economic conditions or is it during periods of currency instability as like what happened in Greece?
Commented [AC16]: Sentence is a bit redundant.
Commented [AC17]: Reference? Where did you get 23%?
CURRENCY 6
Through this, I cIn conclusion, onclude that barter and exchange exists in poorer economies,
however currency is necessary to achieve optimal levels of efficiency and equity in developed
economies.
This is a fascinating article. You have definitely made some excellent points about the bartering
system. I have suggested a few stylistic changes. One thing you might want to consider is to
make greater use of your Greek example, which serves as a case study. For instance, you might
want to argue in your conclusion that the barter system is more prevalent in poorer counties and
in countries where currency is unstable, such as is the case with Greece.
Commented [AC18]: But some level of barter and exchange still occurs in developed economies. Maybe you want to instead argue that barter and exchange is more prevelant in pooerer economies. You might also want to replace poorer with “developing.”
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CURRENCY 7
References
Alderman, L. (2015, September 21). Trading meat for tires as bartering economy grows in
Greece. The New York Times. Retrieved from http://nytimes.com/
Alderman, L.,; Buchanan, L.,; Porter, E.;, & Russell, K. (2015, July 9). Is Greece worse off than
the U.S. during the great depression. The New York Times. Retrieved from
http://nytimes.com/
Kaikati, A. M., & Kaikati, J. G. (2013). Doing business without exchanging money: The scale
and creativity of modern barter. California Management Review, 55(2), 46-71.
Levy, D., & Bergen, M. (1993). Simulating a multiproduct barter exchange economy. Economic
Inquiry, 31(2), 1-8.
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Commented [AC19]: An interesting journal article to read might be Caroline Humphrey’s article “Barter and Economic Disintegration”
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CURRENCY 8
Appendix
Figure 1: Unemployment rates in the U.S. (1930-1936) and in Greece (2008-2014)
Source: New York Times (2015, July 9)
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CURRENCY 9
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