Trade Secrets

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Clearly, the notion is absurd. The discounting must stop mathematically and a real-dollar markup enjoyed. What does it profit a man if he ends up with a warehouse full of cheap goods? Somewhere either a universal unit of exchange -- in this case, the dollar -- must reenter the picture, or barter credit must become the universal unit of exchange. If the latter, then in the end nothing will have changed.

For the obvious reason that ultimately a profit is necessary to finance business growth within a dollar economy, most trade clubs advise that barter dealings not exceed 10% of gross sales. Furthermore, barter has yet to devise a method of paying interest on idle earned trade credits. Thus a business that cannot trade out immediately is not making efficient use of the system. (But now barter credits can be insured like bank deposits: In July, Barter Systems instituted protection against the Chapter 11 demise of any of its franchises.)

If a business's contributions are judged useful -- and some are apt to be marginally so, since many businesses choose barter because of distress -- the business must pay an entry fee of several hundred dollars, plus a yearly renewal fee of about the same amount. It is also charged a percentage of its sales -- usually 8% to 10%. Says David A. Hawley, national sales vice-president for Business Exchange, "Look at bartering as marketing, more than anything else. The 8% fee is like paying a salesman."

Right now, bartering is effective because it takes place within very tight circles.There is mutual handwashing within each parent club. Each barter company issues trade units -- the equivalent of a dollar. (But there is inflation even in barter: When Barter Systems audited its books, it found that its trade unit was worth only 84? in dollar terms.)

Once a business is admitted to trading, it registers its offerings, for whatever level of barter it deems appropriate. Exchange salespeople then get busy and try to dig up customers. To facilitate the resultant swap, most trade clubs employ homegrown credit cards that vouch for the customer's membership. One club, Business Exchange, uses a checking account and "certifies" customer checks. Although some clubs tolerate a small amount of trade-unit debt, only Business Exchange arranges for larger lines of credit -- up to $20,000 at 12% interest as of this summer. So far one problem has been that, unlike coin of the realm, trade units are not exchangeable even among the clubs, since spending another's "specie" would unravel everything.But now Barter Worldwide Inc., a broker out of Los Angeles, with a computer-accessible data base of traders, has begun acting as a clearinghouse for all barter and anticipates establishing centralized barter credit.

Such modifications tend to blur the distinction between barter and money. The idea of trade units functioning as money, for example, has now leeched into the outside economy. A few cash-strapped businesses are paying employees partially in trade units; the recipients can then go to a company store -- Barter Systems, for one, operates showrooms filled with merchandise -- and pick up gewgaws, take vacations, or purchase whatever else may be available through barter members. Other companies give their workers trade units as bonuses, again expending wholesale dollars.

Although barter by definition eschews the use of money, in fact money is very much involved. For one thing, a barter company may pay cash as principal to stock up on inventory (such as stereo components), which it resells for trade units through company stores. Other barter companies accommodate transactions that are only partly barter, the rest being money on the barrelhead. But of more concern to a member is that goods exchanged for trade credit within the system have been paid for with money somewhere along the line. Salaries, raw materials, overhead, and not the least of it, taxes, all have to be accounted for. Eventually, inventories will have to be replenished.

It is one thing to be a haven in the midst of adversity. What will happen when today's economic black clouds blow over and the sun shines on the dollar again? Undoubtedly, many of barter's advantages will remain. But if each business continues to trade solely with other businesses within the system or if businesses are allowed to compete freely within the system, that microeconomy will gradually wind down and expire.

Nonetheless, as Xerox discovered, barter has earned its place. Like the world's oldest profession, the world's oldest way of doing business will always be with us. It seems unlikely that barter can continue to make inroads into the dollar economy much beyond its present level. Its proponents, of course, believe otherwise. Argues Exchange Enterprises's Rigby, "We provide wants and needs without the use of cash; people's wants and needs will never cease." But even if the goose laying golden eggs is smothered by its own weight, one by-product will linger: Because businesspeople must often meet each other face-to-face to iron out the details of a brokered swap, says Frank Sahlman, barter "creates new friends, not just a bunch of anonymous order clerks."

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