Barter clubs and monetary theory

When I was a kid my father belonged to a barter club. He sold advertising space in his magazine, published for a chamber of commerce, in return for free restaurant meals. The system involved a county-wide network, involving trading stamps and pledges to supply real-valued goods to other members. Being a Jersey boy, I had many a veal piccata this way.

More generally barter clubs expand in deflationary times. They were prominent in the 1930s, during the Great Depression, and very common after the Argentinean financial crisis.

I can think of at least three reasons for such arrangements:

1. They may offer tax advantages, not always legally.

2. They serve as a form of price discrimination. Some people won’t pay the full cash price, but you will accept a bartered service for some of your wares.

3. Barter clubs expand the real supply of money, when monetary policy is bad. This is why we see them in times of financial crisis. Prices can be sticky downwards. If the government won’t maintain the real supply of money, to some extent the private sector will issue scrip to make up the difference.

Bernard Lietaer thinks that scrip is an important monetary institution for the future. Irving Fisher had a fascination with related ideas, as did the German monetary economist Heinrich von Rittershausen.

My view: Scrip will remain limited in economic importance and may even decline in use. Scrip allows you to issue your own money, backed by the goods you sell. But the more effective financial intermediaries become, the less such monies are needed. It is no accident that scrip picks up in times of depression. As for the price discrimination motive, growing resale opportunities (e.g., ebay) should diminish this over time.

Thanks to Carnival of the Capitalists for the pointer.