How Bartering Works

I just woke up? Crud? Yeah, I got something to look forward to all downhill, buddy, I'll tell you something that the prisoners in Florida's state penal system have something to look forward to, springs off fall. In addition to that, okay, buying honey buns at the commissary? Is that? Is that the new guy on sub black Sea? You know what I wrote about this, and somebody had a funny comment like that honey buns joke? Yeah, uh no, which is really terrible joking. I think about it, but um no

actual honeybuton you know, like the pastry dessert. It's the best. Love it, do you? It depends on which brand you're talking about. In my opinion, Krispy Kreme honey buns are pretty rocking. I never tried about are they frosted? Oh, I've got to try one of those. I had no idea. Yeah, wow, Okay, Well,

the ones I'm talking about coming cellophane. They're sold for about a buck or so UM in prison, so you know, it's not the greatest brand on the planet probably probably um And apparently in Florida, I think around the country, but in Florida in particular, they're like the new prison currency. Honey buns are because it's a new product that people

just crave. No, it's just been kind of quietly building up over time, and everybody's been making the cigarette joke for decades and didn't noticed that, actually tobacco is out sold in the in the Florida State penal system by honey buns. Everybody loves a honeybun. Yeah, so we're envelope. They're like the number one seller in state prisons in the county. In the county lock up, uh free dried

coffee and ramen noodles still outsell honeybuts. But if you're up, if you're up the river in the state, honey buns are number one. Wow, and then envelopes because people are clearly like to write their letters, right, yes, or they use envelopes as napkins for hunting buns. It's just dumb if it seems like they would give them envelopes. Come on, if these guys are gonna take the time to write, somebody, give them an envelope. No, you gotta buy it, Yeah,

with your thirty five cents an hour making license plates anyway. Um, so these honey buns are They're used as bribes for protection. Um. They're used in exchange for other food items, maybe some envelopes if you're running low. Right, they're used for bets as wagers. Seriously, there's a really cool article in St.

Petersburg Times that was really well written about it. Right, but what these people are doing, Let's say in the case of a bribe, Let's say, um, Todd, the white collar criminal who somehow ended up in a state prison, is paying Tiny, the ironically named huge guy, for protection in honey buns. What's going on there is bartering. Todd is bartering a honey bun in exchange for Tiny's service protection, beating the tar out of guys who want to take Todd's honey buns or he himself not doing that with

his own cronies. Now that's a racket, that's that's not necessarily the same thing. Oh yeah, still trading without money, I guess. So okay, So, so we've finally reached the end of that god awful intro and we're now talking about bartering, Chuck bartering new or old old old as the hills, Uh, the earliest civilizations. Josh bartered for stuff because there was no currency back in the day. So, I mean, you know, caveman took took that. We always

talked about cooktok trades. Uh, you know animal pelt for spear made from rhino horn. Yeah, because he's he's like, I've never seen one of those, but I've got all these great pelts, and you look a little cold. So let's work out a deal here parting it is, And you're absolutely right, it is pretty old. Um. It really started to take off after we left our hunter gatherer roots, though. Yeah, once we settled down into communities. Yeah, it made a lot more sense. Um, you might be some sort of

farmer and end up with a surplus. You've got all the grain you need, but you need some meat too, And this guy over here has some pigs that have been looking pretty delicious lately. So you trade them some of your surplus grain for a pig, and the guy who has pigs gets some of your grain, and he has pigs. You have pigs and grain to everybody's happy. Yeah, Jerry thinks this whole thing is funny for some reason. Uh yeah, I mean that's how it all started. I

actually did a report in um elementary school. We had to social studies report where we had to devise a city of our own, like a town, and we had to construct you know, how it all looked at and what they did. And I was the only kid who had a barter system instead of money. The teacher thought at the time that that was very you know, a very smart kid for doing that, because I was, you know,

like nine years old. Every once a while, you just kind of like drift off while you're taking a shower thinking about the congratulations the teacher gave you that day. That was my last one congratulations chuck. So that has stuck with me all these years though, that it's funny that as a little kid, I thought bartering was kind of a cool system, and it and it was and it still is. We'll find out. Yeah, um, there's a there's a lot of cool. Maybe cool is not the

right word. I don't think cool is an economics term, but there's it has a lot of benefits and that uh, Bartering generally doesn't lead to surplus, right, it leads to um basically people just having what they need. Yeah, you're exchanging something you need or something you have that someone else needs for something that you need. And in most cases, most cases, you don't want a whole lot of leftovers. You just kind of you have something that you're willing

to exchange for something else. Everybody's seeking an even trade, so nobody's giving anybody a lot more than they need or you know, conversely screwing the other person over and taking as much as possible because both parties have to be cool with it. Right, there's no trade, so there's not a lot of surplus. Not a lot of surplus.

To anyone who's read Jared Diamonds, the greatest mistake in the history of the human race means that you don't necessarily have anybody who's in charge or has control over other people. By controlling the surplus interesting very well. When bartering, Josh, it's everything's relative obviously, because if you need if you live someplace where it's cold and you need more shelter blankets, let's say or whatever, or let's modernize and say heater,

or then that's going to be pretty valuable to you. Right. Um, what you're talking about is the relative value of an item, right exactly. So like in a money system, like there's a fixed value to the dollar, and it fluctuates, you know,

there's inflation and deflation and stag inflation. But ultimately, when you're coming to somebody with a dollar, you both have an agreed upon awareness of what that dollar's worth, which is a dollar, Like you were saying, with a heater, somebody who lives in a hot climate is going to value that thing less than somebody who lives in a cold climate. So the person in the cold climate would be willing to pay more or trade more for that

relative value. It's the distinction between um, bartering and money, one of them, um, but the main one. It's my favorite. Timing is another big deal when it comes to bartering, because depending on when this is happening and what your situation is things canna have a different value. Uh. The article used an example of Richard the third my Kingdom

for a horse when he was in a battle. Uh. I was on a hike in Utah one time where I would have paid a thousand dollars for a bottle of gatorade or lift down the hill and I wanted the gatorade? Was that hot and dehydrated? Yeah? It was bad? Did you were you hospitalized? Now? Now we we hiked out and made it to the spot and bought like five gatorades and drank them all. Your urine was just chunky style, A little bit came out, a little pebbles.

Uh So Yeah, timing has a lot to do with the value of something as far as how much you might need that item. Yeah. And Jane McGrath wrote this one. Jane, she did a good job to remember Jane. Yeah, let me ask you this, what about when it's not just a one to one deal, Like you've got corn and your friend, uh, Ralph next to your farm has cows.

But Ralph doesn't want corn, he wants wheat. But your buddy, your Yeah, your buddy Pete has wheat, so you want you can arrange a little three way trade there if you're an innovative guy, and it's called a triangular barter. And NBA teams do this. Any sports team can, but it happens more than NBA than anywhere else and stuff, well just trading players like you know, I want your center, but you don't want my point guard. You want there forward, but I'll take their forward and package it in such

a way that it's accommodates everybody. Huh. So that's a triangular barter, which so you you you are pointing something out and that it's not necessarily the most common thing in a barter economy where you have something that I need and I have something that you need at that moment too. That well, that's what works because we talked about timing and relative value, right, that's one of the downsides of the barter. And it gets even more complex

than a triangular barter. That's a lot of work, you know, that's a lot of walking. You know, Um, if you find that third person and so, um Ralph has that cow you want, Pete has wheat, You have corn, but Pete doesn't want your corn. You're gonna have to go find somebody who wants your corn who has something that Pete would want, yes or more, which is called the multilateral trade. You can see it gets kind of convoluted

as well. You know, well, and when it gets convoluted, there's a greater risk for making a bad deal just to get it over with, just because you really need that cow. And that's one of the you know, we'll talk about the downside. It is certainly one of them. Yeah, well, well I think we kind of are all are we already there? Okay? Well, that's one of the downsides is that a lot of work goes into this, and in the end you might settle for less than a great

deal because it's there's so much work involved. Um, there's some other factors that might force you to settle for poo poo deal, and that is um, time works against you. You remember we kind of used the example of you with the gatorade. Yeah, yeah, right, Um, were you somebody who had something to trade for that gatorade at that moment and somebody came along with gatorade and gouged you?

Say you had tomatoes to trade, right, You kind of need to trade your tomatoes because they're a perishable item. So time is working against you, so you might take a bad trade. It's just to get rid of these tomatoes, right right, or in the article example is a great one. Let's say you're a craftsman. You build these great banquet tables. Banquet tables are big and heavy. You go to trade

for tomatoes because you really need those tomatoes. And the guy was like, hey, you know, I mean, I'll give you fifteen tomatoes, and I was like, no, this is worth like three hundred tomatoes. But what are you gonna do with three hundred tomatoes. So it's when you don't have equal You've got a lot of small things, you have one large thing. You're kind of in trouble. I

don't know if you pick the right business model. Yeah, as a craftsman, and even if you even if you did take, uh, three hundred tomatoes, you're gonna run around, you know, trying to trade those surplus tomatoes for you know, um other stuff you may or may not need, which when you could be building tables. You should be building tables. It's what you do, it's what you're good at. Yeah, exactly. So that's because you know, bartering initially sounds like, oh

that's so great. You just trade things and there's no money, and money leads to badness. But it's not that simple. It's rare that you just find that perfect match and perfect timing to work out in a wonder one trade and then establishing that that value considering that everything in a barter system has a relative value. You know, there's as Jane put it, you know, comparing apples to oranges is still comparing you know, fruit of roughly the same shape and size. She yeah, she points out that it's

a terrible thing. It's like the low man on the totem pole. Yeah. I gonna start saying, Uh, that's like comparing cows to table legs exactly. People like, what the heck are you talking about? You just be like, listen to the podcast exactly. So chuck Um. Because our ancestors are four people, UM ran into these problems where they couldn't figure out how many tomatoes equal the table, and when they did, it just was way too much. They

got tired of lugging tables around. Um. They came up with something that we call money currency and it solved a lot of problems for all of its drawbacks and ills and evils. Uh, money solved a lot of problems. It's easier to carry money around than a table, for one. Yeah, think about how much a hundred dollar bill ways. Not much, not very much. It sits heavy in my pocket, though, my friend, it burns mine, It burns all. It can

also be divided pretty easily. Sure, you know a hundred one dollar bills still isn't as heavy as a table, right, Yeah, well, and it levels of playing field, like you said said, then you don't have to compare tomatoes to tables. It's pretty easy to set your price. If people want to buy it, great, then you got your dough and you can just buy your two tomatoes for dinner that night. But a cool, that's uh, that's money. You I'm sensing something. Are you cool with this one? Or you like the

barter system? No, it's fine. Which would you prefer money or barter? Uh? Well, I mean as a nine year old, I thought bartering was kind of neat, and I still like the concept of trading, like the musical instruments section on Craigslist is is lousy with dudes like I'll trade my list Paul for your Martin acoustic. Right, so you've you've hit upon a the modern revival of bartering. It's

all over the place. Actually, yeah, I think Craigslist has an entire section for each city dedicated to bartering, specifically right sub sections in the I don't know this, you know, I think Craigslist does have a section. But on like the music Instruments board, there's people trading just because that's where they seek trades. But um, there's whole sites dedicated just to bartering and bartering services. That's got to be included. Yeah,

Emily actually does that. I didn't know that. Yeah, she'll trade. Uh, she's been getting her hair done in exchange for soap. And actually the craft scene, the indycraft scene, this like that's all they do is trade, Like you know, I'll give you this kid's jumper for a bottle of lotion and this is uh, you know, bartering is pretty old, but a resurgence and bartering isn't new. Um. There was actually an explosion in the late seventies of barter clubs.

Not to be confused with racquetball clubs or swingers clubs, which were both also huge in the late seventies. These were barter clubs really. Yeah, they were around for a little while so people meet and swap things. Um, I think it was mail order. Oh yeah, okay, but when you take a look at these clubs then and today,

what you described Emily doing is is pure bartering. Um. But you know one of the big limitations of bartering, well, two of the big limitations are geographic boundaries, right, which which the Internet overcomes because you know, some guy in Tacoma has something you need is willing to ship it, and you have something he needs. Geographic boundaries gone, right,

But the timing thing is still a problem. So what barter clubs and barter websites have come up with is, um, if if the person doesn't have anything to give you, right, then they can trade you in credits. Yeah. I didn't know that was going on. That's kind of cool. That's money, Uh yeah, in a way. No, that's currency. That's it. Think about a dollar bill. It's a it's a credit, it's a promissory note. It doesn't hold any inherent value. Yeah,

but only within that network is a currency. Like it's not like you can take those credits out to McDonald still say, no, totally, you can't, but it's still currency. Yeah, right, So like within that barter network. It's still they're still using currency. It's just so difficult to get past, you know, the necessity for currency. That's a good point. Yeah, it's a big shamnon. You were talking about the craft scene

being like huge and bartering, right, they love it. Marketing is as well, like business barters, way more than I ever realized. Yeah, I have a stat for you if I may. Yeah. Yeah. In two thousand and eight, North American companies, not even internationally, but North American companies bartered twelve billion dollars in goods and services. Yeah, and apparently that was partially a result of the recession, because in two thousand one they did like seven point seven five billion.

But still it's a substantial amount of stuff that was traded, either in the form of goods or services. Right, people striking a deal like Chicos bail bonds will sponsor your baseball team and they'll pay for your jerseys if you put Chicos bail bonds on the back. Yes, you will eventually. In the case of the yankees't you remember who their sponsor was? In bad Newspayers Denny's. Was it really? I just saw the other day and I'm like, huh Denny's. They were a high profile team. Oh well, they got

a high profile sponsor. UM. We were talking about the recession, UM accounting for an increase among businesses. One of the great things about bartering is you it says you're cash to pay down debt or to keep workers on the payroll or the cash is always good for business. Yeah, Um, So that's why corporations do it. People do it in times of crisis, which was the case. Well, it's part of the case right now. There's been a huge resurgence

in UM consumer bartering, right because of the economy. Yeah, but UM in Argentina and I think two two thou nine, their economy was really in shambles and they were bartering clubs everywhere. Well. Yeah, in in places where there's natural disasters, a lot of times, the first thing they will turn to was bartering, at least in a in a temporary sense until they can kind of get things restored, because I don't know the end of the world. What's what's that dollar bill going to do for you? You know?

I read almost that same phrase on a post collapse blog of survival blog and the guy was rambling off items that will be good for bartering. Dollar bill is not among them, of course not. I R S. Josh. Let's let's talk about that, because if you think, hey, this is a great way to skirt taxes, I can trade my haircut for my homemade soap all day long? Am I outing myself? Now? Ask an auditors? Now? Yeah,

because you know you're supposed to report this stuff. Yeah. Um, those barter clubs from the late seventies actually ruined it for everybody. Um. Time was you could barter everything and not pay a cent of taxes on it. But the barter club that the artificial economy created by the barter clubs reached about an estimated two hundred million dollars um in size, and I R. S went, we want some

of that. So they reformed the tax code in and came up with the ten B form Proceeds from broker and barter exchange transactions and if you're bartering, you have to both parties have to fill one of these out, create like a an estimated market value of the goods or services and pay it. Hey, you know when Emily first brought that form home filled it out of it? What is this you had another form. She said, Yeah,

you can't trade. You gotta pay the piper. And the piper is the I R S. Yeah, it certainly is, Josh, but that's not necessarily well that that's a bad thing. But the I R S. You can also write stuff off that you you have traded. Yeah, so it goes the other way a little bit too, And we would be remiss to not mention that. Yeah, um, you you can right off as an expense something you trade because it's value and it's lost and you didn't get any money for it, which is how the tax systems set up.

If you're not getting any money for it, it's different and stuff that you're getting money for. Well, and they point out that if you get one of those trade credits, you could donate that trade credit to a charity and write that off if that charity will accept trade credit. Yeah, I've never heard these trade credits. I can look into that. It's money. I mean, is it a point value they assign a wonder. Yeah, there's actually day it's worth this

many dollars. Well, one that I came across, dib space um had something called Dibbitts and their trade credits, and there were one dibots worth a dollar, So it's money based on money in a bartering network. Well money, Did we ever say that money inflation? That's one of the downsides of of currency. We didn't say it, but go ahead, Well yeah, I mean that's the big deal. Like you buy a peck a bushel of peaches one year for ten bucks, and the next year that might buy ten peaches.

That's the downside of money. Although I suppose I could happen bartering too. They could just say, rough, peach crop this year now, will only trade you this many for your core. Yeah. That I would think relative value would be affected by supplying demand. Yeah, I mean that makes sense. I would think it wouldn't happen on such a widespread level, though. I mean, think about how many people are affected by the dollar bill and its fluctuations, right, Think about how

many people are affected by a local peach crop. And that's actually one of the things that barter systems are um so appealing to people these days. There's such a movement towards local economies. Barter system can't be sustained by a country of three million people, so basically everybody has to split up. I read an essay about how um secessionism could save the US and that if we don't

break up, we're in big trouble. Yeah, that any any non authoritarian system of government can't be sustained or adequately administered in populations over I think either three million or thirty million. Yeah, it's pretty cool. As in the Utney Reader the last month. Get that ought to check that out. It was the one with Marge Simpson as Rosie the river Y. Yeah, yeah, it's pretty cool. I'll check that out. So we're done. I'm done. You got anything else except

for me? If you want to hear mention of Kyle McDonald, the kid we mentioned in the house Swapping podcast a little prematurely. I guess who traded a paper clip for a house? He had to pay taxes on that, he had to it, I'm sure, I hope. So maybe Corbyn Burnson paid one. If you want to see a picture of that kid, you can type in barter at the search bar at how stuff works dot com and that brings up, of course, listener a, Josh, I'm gonna call this one of two eventual mafia letters that we got.

We got very many who knew by letters took means broken thumbs. Yeah, sit in little boxes? Yeah? Who knew? So many people are connected to the Mafia day A lot of people have stories to tell. Yeah. I think it's also like saying like whose name who his Native American and him, Yeah, I do a little bit. I think. Uh so we're going to read two of those, one of them right now and one on the following episode. And this is from Calvin. This is pretty interesting. Calvin

the Mafia as Yeah, Calvin the MAFIASA. I just listened to the episode about the Mafia, and I have a couple of things to say. Firstly, I am grossly disappointed in both Josh and Chuck for talking about a Joe Velichi and not once mentioning the greatest Simpson episode ever, Homie the Clown. I was disappointed about this one, yeah, in which Homer disguised this Krusty gets captured by Fat Tony in the Springfield family and tried to convince them that he is all different kinds of people, Joe Vlachi

being one of them. I didn't make that connection. I remember He's like, I'm I'm not Homer, I'm Joe Vlachi, Joe Lachi, the rat he's like something like that. He said, if you did mention it, then shame on the editor Jerry for removing it. So let's just go with that. Ye, let's go with that one, Jerry, shame mind you boo. Also, I thought you guys would be interested to hear some

hypotheses about why it is called the mafia. One says that during the War of the Sicilian Vespers, a woman found her daughter at the Vespers being raped by French soldiers and then ran through the streets shouting mafia, mafia, which is a dialectical translation of my daughter, my daughter, my daughter, mafia. Did the mafia come to her rescue or what? I don't know, that's just what he says, Sicilian, Okay, I mean, I don't think he's making this up. It's

a theory, I'm sorry, hypothesis. The second hypothesis is also a remnant of the occupation of Sicily by the French. The word mafia might be an anagram for morta allah Francia Italia, which translates into something like Italy longs for the death of France. Yeah a f I A huh. I don't know about that, but they both sound pretty plausible. To me. So, I guess the word mafia doesn't mean anything it's in a family name or anything like. I don't know. I never really thought about the originally name.

We didn't cover that. So these are two hypothesis from Calvin. He says both of these came from a book called The Secret Society's Handbook by Michael Bradley. Might be complete Bologne, because I'm not sure how reliable that book is, but it's sure is interesting. I thought you might like it very cool. Thank you who is that Calvin? Calvin the Mafiosa. Of course, thank you Calvin the Mafiosa for writing in. And um, we want to hear from you guys too, so we would urge you to send us an email.

If you have something to trade, we want to hear about it. Wrap it up spanking on the bottom and send it to stuff podcast at how stuff works dot com For moral on this and thousands of other topics. Is it how stuff works dot com. To learn more about the podcast, click on the podcast on in the upper right corner of our homepage. The house Stuff Works iPhone app has arrived. Download it today on iTunes. Brought to you by the reinvented two thousand twelve camera. It's ready, Are you