The Difference Between Market and Barter: Money and the Making of Markets

Market is in many respects distinct from barter. This distinction needs to be emphasized, because the conventional theory treats market and barter erroneously as the same. Barter is essentially bilateral in nature. It requires the reciprocity of supply and demand. The supplier has to demand the good that the demander of his goods offers and vice versa. Further, when both—the supplier and the demander—have found an exchange partner, they still have to agree on the relative price which both can accept. This is a disadvantage, because for every new exchange a new price has to be found. Competition, and hence the efficiency of economic activity, is therefore restricted in two ways. First of all, there is the difficulty in finding a suitable exchange partner. Secondly, since the prices are necessarily expressed in different (real) units, parties cannot compare systematically across a range of supply and demand the prices and in this way look for the cheapest supplier or the best bidder. On the other hand, barter has the advantage that, if an exchange takes place, demand and supply are always in equilibrium, and consequently the earnings and the expenditures of the exchanging parties are equal. This follows from their agreement on the relative price, without which there would be no exchange. If there is an exchange at an agreed price, then the value of whatever is supplied matches the value of what is demanded. For example, if apples and pears are exchanged and the agreed relative price is 2 kg of apples are worth 1 kg of pears, one of the parties gives up at this relative price 100 kg of pears and receives from the other party 200 kg of apples. For him therefore