Reasons behind barter reconsidered

Traditional explanations for the existence of barter trade have only very limited explanatory power. In particular, barter trade can neither overcome liquidity shortages nor make up for marketing deficiencies. It is argued that barter trade makes sense only in the presence of interventions in national and international markets. Owing to its opaque and selective character, this archaic and highly inefficient form of trade enables a certain degree of flexibility in rigid situations to be regained which are maintained for various political reasons. Barter trade may help to unload surplus production, caused by domestic price controls; it can act as a selective devaluation, when the domestic currency is overvalued and windfall profits can be obtained via barter by underpricing of a cartel's official price. Finally, barter trade enables the evasion of taxes and tariff liabilities. Hence it follows that this form of trade may be regarded attractive for decision-makers, given the underlying distortions as a parameter.