Final resource paper!!

Running head: CURRENCY 1

Breaking down Down the Existence of Currency: Barter and Exchange

STUDENT NAME

Department of Economics, University of Victoria

ECON 225: Writing for Economists

March 15,th 2017

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Abstract

Standardized currency exists in the modern world for the purposes of achieving efficiency and

equity. Currency is derived from the inefficiencies of barter and exchange and, as a result, there

is a lack of equity. Currency exists only in proper economic conditions, whereas moneyless

barter and exchange exist in dire economic conditions.

Keywords: standardized currency, barter and exchange, efficiency, equity

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Commented [AC1]: Do not insert extra space between “Abstract” and the first sentence.

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Breaking down the Existence of Currency: Barter and Exchange

Barter and exchange have both existed since the beginning of human historytime. Ever

since humans realized that differing specialties exist, trade has naturally always occurred. The

origin of barter and exchange takes root in our physiological needs for shelter, food, and water.

to shelter, feed, and hydrate ourselves. Without trade, this task is not so simple.

In “Doing Business Without Exchanging Money: The Scale and Creativity of Modern

Barter,” Kaikati and Kaikati (2013) stated that the existence of a thriving moneyless marketplace

exists in modern economies and is growing. I will use this journal article to highlight both the

efficiencies and drawbacks of non-monetary exchange.

In “Simulating a Multiproduct Barter Exchange Economy,” Levy and Bergen (1993)

describe an experiment involving a simulated traditional barter economy that allowed students to

freely trade amongst one another without using money. The purpose of the experiment was to

outline the inefficiencies that come with this kind of open market. I shall use Levy and Bergen’s

findings on the role of money in the economy to complement the proposed drawbacks of Kaikati

and Kaikati’s (2013) journal article.

Kaikati and Kaikati (2013) provide an extensive background on the current level of

business done without the use of money. In 2013, the amount of total barter transactions

amounted to $3.7 trillion internationally and $1.7 trillion domestically—a substantial portion of

23% and 11%, respectively, of total business transactions (Kaikati & Kaikati, 2013, p. 43). This

figure outlines how many moneyless transactions are done in the world and acts as a clear

indicator of the importance of barter. Historically, barter has existed since the first human

civilizations and slowly became more and more obsolete with the introduction of money.

Although Kaikati and Kaikati state that many economists still believe barter to be “an extinct and

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Commented [AC2]: Specialities of what?

Commented [AC3]: What task?

Commented [AC4]: With APA, we restate the publication year unless it was already mentioned in that paragraph.

Commented [AC5]: Amount?

Commented [AC6]: In Economics we do argue this. However, some anthropologists argue that this is not correct. I included an article you may want to read in your references. Nevertheless, I would leave this sentence, as from an economics perspective it is what we believe.

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inefficient system of transactions that may only be observed in backward economies” (p. 47),

these economists talk only of moneyless barter and exchange. Today, barter and exchange

combined with the addition of currency is extremely common and prominent in the world of

business. We must look further into its context in order to fully understand its purpose.

Today, Greece is experiencing more and more barter as a part of everyday life. Ever since

the Greek government-debt crisis of 2010, the unemployment rate, along with their GDP, took a

staggering blow. A comparative analysis between unemployment rates in figure 1 shows that

wary job-seekers affected by the Greek financial crisis are closely comparable to those of The

Great Depression; Greek unemployment rates peaked at 28% and U.S. unemployment rates

peaked at 26% (see Figure 1). In the presence of this economic instability, barter economies

emerged in Greece. Many of the small barter economies that emerged in Greece created

alternative currencies that allowed for more equitable trade without having to rely on the already

instable banking system-- – these alternative currencies allowed holders to trade them for other

goods or as complements to their own goods to their trades (Alderman, 2015, para. 12). The

introduction of barter economies allows people, under further economic constraints, to attempt to

maintain a standard of living that they had when the economy was more stable. It is certain that

the Greek peopleGreeks are better off because of this barter and exchange;, however, you cannot

overlook the context in which these systems emerge. The only time that true barter economies

emerge in the modern world is in the case of dire economic circumstance, such as The Great

Depression or in present-day Greece. From this, I gather that there must be a reason as to why we

use standardized currency during times of economic stability. We must now look at the benefits

of currency before comparing the two.

Levy and Bergen’s (1993) experiment beginbegan with multiple groups of people

Commented [AC7]: Can you provide an example? One might be how we trade in our used vehicles.

Commented [AC8]: This sentence is a bit awkward.

Commented [AC9]: people who are under further economic constraints?

Commented [AC10]: What two are we comparing.

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receiving various amounts of food, drinks, and receptacles for eating and drinking that are also

tradeable. The variability of these items forms a natural incentive to trade., Ffor example, one

group only having forks and cups but also the largest supply of these. Furthermore, some groups

have less desired items or a less valuable bundle. The experiment provides students with a hands-

on experience of what it would be like to trade without the convenience of standardized money.

If currency had been distributed along with the food items, there would exist a more pareto-

efficient allocation of goods than what they ended up with at the end of the experiment. The

main functions of a standardized currency are as follows: “Homogeneity, divisibility, storability,

durability, and scarcity” (source? p. 4). These five functions are what makes having a

standardized currency so efficient. If we included currencycurrency was included into this the

experiment, the students we could have overcome the issues of equity, initial and final. Instead,

we primarily used barter and exchange; this resulted in them being better off than they were with

the initial allocation of goods, although, however not necessarily as well off as they could have

been with the use of money.

The existence of currency is not necessary; however, it is necessary for achieving a

greater level of efficiency and equity. Where currency is unavailable, as in poor economic

conditions, barter and exchange will naturally occur as a replacement in its absence. Given these

circumstances, it is more efficient to use barter and exchange. However, if currency is, in fact,

available, it will be the primary source of trade value. Today, we see a combination of both. The

use of currency is dependent on the exchange of goods and services and thus cannot exist

without it; this proves that we must use a combination. Since it is proven that we must use a

combination of both and that the greater use of currency will results in greater levels of utility

achieved, it follows that only 23% of international business transactions should be moneyless.

Commented [AC11]: This is a bit awkward and could be clearer.

Commented [AC12]: Need to be careful throughout with tense. The experiment has already been conducted and the research written. As a result, you need to use past tense.

Commented [AC13]: Not sure what is meant by this.

Commented [AC14]: Who is we…or do you mean they? Did you also partake in the experiment?

Commented [AC15]: Is it necessarily poor economic conditions or is it during periods of currency instability as like what happened in Greece?

Commented [AC16]: Sentence is a bit redundant.

Commented [AC17]: Reference? Where did you get 23%?

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Through this, I cIn conclusion, onclude that barter and exchange exists in poorer economies,

however currency is necessary to achieve optimal levels of efficiency and equity in developed

economies.

This is a fascinating article. You have definitely made some excellent points about the bartering

system. I have suggested a few stylistic changes. One thing you might want to consider is to

make greater use of your Greek example, which serves as a case study. For instance, you might

want to argue in your conclusion that the barter system is more prevalent in poorer counties and

in countries where currency is unstable, such as is the case with Greece.

Commented [AC18]: But some level of barter and exchange still occurs in developed economies. Maybe you want to instead argue that barter and exchange is more prevelant in pooerer economies. You might also want to replace poorer with “developing.”

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References

Alderman, L. (2015, September 21). Trading meat for tires as bartering economy grows in

Greece. The New York Times. Retrieved from http://nytimes.com/

Alderman, L.,; Buchanan, L.,; Porter, E.;, & Russell, K. (2015, July 9). Is Greece worse off than

the U.S. during the great depression. The New York Times. Retrieved from

http://nytimes.com/

Kaikati, A. M., & Kaikati, J. G. (2013). Doing business without exchanging money: The scale

and creativity of modern barter. California Management Review, 55(2), 46-71.

Levy, D., & Bergen, M. (1993). Simulating a multiproduct barter exchange economy. Economic

Inquiry, 31(2), 1-8.

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Commented [AC19]: An interesting journal article to read might be Caroline Humphrey’s article “Barter and Economic Disintegration”

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Commented [AC20]: Only double space your references. You had extra spacing between each reference.

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Appendix

Figure 1: Unemployment rates in the U.S. (1930-1936) and in Greece (2008-2014)

Source: New York Times (2015, July 9)

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