When people barter, they trade for goods or services without using money.
Imagine living in an economy where there are no stores. If your family needs meat, someone hunts. You would grow your grain and vegetables, make your clothes, and build your shelter. Perhaps your neighbor returns from a very productive hunt. You could trade some clothing for food. This kind of trade is bartering or exchanging two goods or services without using money. Many cultures living in very isolated areas rely on bartering. These include the Australian Aborigines and Amazon tribes. These people live in traditional economies. Traditional economic systems rely on cultural traditions to govern a society’s production, distribution, and consumption of goods and services. Bartering plays a vital role in the distribution of goods and services.
Bartering is also common during periods of hyperinflation. Hyperinflation results in the devaluation of money so rapidly that people find that the goods they own hold their value better than the currency, so they barter. They also spend their paychecks as soon as they receive them to avoid “losing” their money through sharp price increases.
In 2008, inflation in Zimbabwe hit 231,000,000 percent. Imagine a candy bar that cost $1.00 in 2007 costing $2,310,000 one year later! People stopped using their money. Bartering became the norm. When they did pay with money, the currency of choice was the American dollar. Fortunately, Zimbabwe’s inflation is more under control, and the country has begun to emerge from the devastation caused by hyperinflation.
Here is a brief video illustrating how difficult it would be to plan a party by bartering.