135. THE BARTER SYSTEM

-- by JD

Economics is another side of peak oil doom. The doomers (and even some moderates) are frothing extremists about the current economic system. They hate and ridicule economists, and believe them to be preachers of a false religion. They scoff at the free market. They also hate the so-called "fiat" or "debt" money system. I will be addressing these topics in more detail in future posts, but today I would like to focus on the barter system. This is often proposed by simplistic doomers as the best way to get out from under the current regime of "funny money". Here's a typical doomer soundbite:

Malthus wrote:

The only exchange system than can exist in peak energy and post peak to me is barter. You are making assumptions that money is neutral which it is not, especially when it has no intrinsic value, people will revert to grain based money or something like it.

There's no denying that barter is interesting and has its place. Large companies and countries use it, and the Internet has provided an added stimulus, with ebay-like websites that allow people to barter long distance. I have a hippy friend in Colorado who likes the barter lifestyle, and pays rent by refurbishing the houses he lives in. He likes it because he can dodge taxes and stay off the government's radar screen.

Malthus, however, isn't talking about a pluralistic monetary culture, where barter is a complement to the fiat money system. He is referring to a society which has banished the evil pied piper of "funny money" for good. Could such a society really exist?

Certainly a state of barter could occur under extraordinary circumstances, but I don't believe the barter system is stable. Barter is inconvenient and inefficient. Here's a good description:

This early form of barter, however, does not provide the transferability and divisibility that makes trading efficient. For instance, if you have cows but need bananas, you must find someone who not only has bananas but also the desire for meat. What if you find someone who has the need for meat but no bananas and can only offer you bunnies? To get your meat, he or she must find someone who has bananas and wants bunnies....The lack of transferability of bartering for goods, as you can see, is tiring, confusing, and inefficient. But that is not where the problems end: even if you find someone with whom to trade meat for bananas, you may not think a bunch of them is worth a whole cow. You would then have to devise a way to divide your cow (a messy business) and determine how many bananas you are willing to take for certain parts of your cow.Source

Even if society collapses to such a degree that barter is necessary, society cannot keep collapsing forever, and thus will restabilize at some point. When stability is reached, people must conserve energy and increase their efficiency, so they will streamline the barter system by adopting a more divisible convenient money surrogate like gold (which is better than grain because it doesn't degrade, and thus is closer to abstract money). Once the switch to gold is made, the logic which drove our ancestors to create fiat money will drive the same change again. Gold will lead to fiat money by the usual route. That transition itself will be partly driven by the need to conserve energy. Hauling gold (or any commodity) around to do transactions requires real physical work.

Imagine a whole country going shopping every day with a cow or grain or gold currency. Just one day of that would require a huge, wasteful, unnecessary expenditure of muscular energy. People will tire quickly of having to "lug" their money around. The last thing you would want to do in an energy poor world is buy big-ticket items with "grain money". You know, like: "Hey man, I brought your money over. It's parked out front in that convoy of horse drawn wagons."

No, it's much easier to just deposit the grain or the gold in a storehouse somewhere, and exchange the receipt, or the deed. And there you go: fiat debt money is back in business.