That's not the case at Foster & Co., a Seattle certified public accounting firm that has been bartering for six or seven years. Foster & Co. uses trade dollars to help pay for an end-of-tax-season casino party and an annual charity event. "We would certainly spend cash on those things if we had to," says Parrish Jones, who manages the tax and consulting group at the nine-person company, "but we would probably be a little more selective as to how we spent our dollars." Some vendors are less responsive when they're being paid in trade credit, Jones explains. And barter prices can be inflated. Most exchanges require customers to set the same prices they offer customers paying cash, but enforcement is spotty. When Foster & Co. used trade dollars to order pizza for a staff meeting, the company paid two and a half times the cash price.
Barter has its pitfalls, agrees Randy Truckenbrodt, president of Randall Industries, a $4.5-million lift-equipment company in Elmhurst, Ill. However, 18 years of bartering have made him philosophical about doing business through an exchange. "It's not any more legitimate than the cash market," says Truckenbrodt. "But it's not any more corrupt."
If members think items are overpriced, they'll blame BarterTrust's economy, says CEO Mike Edelhart.
Although exchange customers display some ambivalence about barter, the latest generation of Web-enabled exchange operators is predictably bullish. Traditionally, most exchanges started on a shoestring, serving their local communities; and indeed, most members are still small, service-oriented businesses operating within 20 miles of their home base, says Bob Meyer, editor and publisher of BarterNews. But companies like 18-month-old BarterTrust hope to do for barter what eBay did for the garage sale: erase the boundaries of size and geography. "If a plane doesn't have speed, it doesn't have lift," says president and CEO Mike Edelhart. Similarly, without scale, barter won't take off.
Money and technology are fueling the rise of BarterTrust and competitors such as Bigvine.com, LassoBucks, BarterNet, and Ubarter.com. Edelhart has won funding from such big-name corporate investors as General Motors Investment Management Corp. and GE Equity. Bigvine is backed by Silicon Valley kingpins Sandy Robertson and Kleiner Perkins Caulfield & Byers, as well as American Express. LassoBucks was launched with the help of Zone Ventures, the southern California affiliate of Draper Fisher Jurvetson. BarterNet's supporters include Wand Partners, and Ubarter became a subsidiary of publicly traded Network Commerce Inc. earlier this year. Altogether, at least $105 million has flowed into the industry since 1998.
Although everyone agrees that money is transforming barter, the Internet's role remains a matter of dispute. Bippy Siegal, CEO of Bigvine, which is located in Redwood Shores, Calif., is betting that the Internet pure-play model will prevail. By offering real-time online trading without a broker, 24 hours a day, Bigvine can excise time, paper, people, and cost from the process, Siegal says.
Edelhart started with a similar plan but soon became a clicks-and-mortar convert, snapping up three exchanges in the United States, three in Canada, and one in Mexico in the past year. Customers can search listings on a Web site but must contact one of BarterTrust's 50 brokers, scattered across 17 offices, to execute a trade. That's because consummating transactions is more art than science, Edelhart explains. Brokers play an important role in educating customers about barter and helping them trade.
Ultimately, however, an exchange is more than just a trading floor writ large: it's a parallel economy with a private currency, and it lives or dies by its ability to convince customers that that currency is sound. If trade dollars lose their value, customers stop trading, and the economy grinds to a halt. However, determining the currency's value is never simple. Although a trade dollar is the same as a U.S. dollar in the eyes of the IRS, in practice its value ranges widely across the industry, running anywhere from zero (if an exchange folds) to 10¢ on the dollar to the full 100¢. BarterTrust hopes to maintain true parity between its trade dollars and the dollars issued by the Federal Reserve Bank. If prices at BarterTrust equal those in the cash economy across a large basket of goods, BarterTrust's trade dollars can be considered equal in value to U.S. dollars, Edelhart explains.
In order to reach parity, BarterTrust must ensure that its basket is as broad, deep, and balanced as a subset of the larger economy can be. Consequently, its sales force targets new customers in categories in which brokers see excess demand. More laser printers? Absolutely. More massage therapists? No thanks, not today. Meanwhile, a system of spot checks keeps prices in line. "Say there's a computer listed on the exchange for $2,800," says Edelhart. "The compliance officer will call dealers and find out what that particular unit is selling for in the cash market. If there's a problem, we'll get in touch with the company."
Such interventionism has fallen out of favor across most of the world. But Edelhart believes that the BarterTrust economy needs extra care and handling in order to get off to a strong start. With a trade volume of $120 million in 1999, the exchange not only is a tiny fraction of most national economies but also is an unnatural and unfamiliar microcosm. Edelhart points out that a customer who walks into a store and finds that milk is overpriced is more likely to blame the store owner than the currency or the economy. BarterTrust's economy is less likely to get the benefit of the doubt.
Monitoring prices helps minimize the perception of inflation. But if BarterTrust's efforts stop there, suppressed inflation may show up in other forms, such as unsatisfied demand, cautions Janet Yellen, a company adviser and former member of the Board of Governors of the Federal Reserve. Ultimately, the solution to inflation lies not in price controls but in control of the money supply. Giving money away, through sign-up bonuses and other deals, is the easiest way to put liquidity into the system -- and a temptation to which many exchanges have succumbed. However, soon too many dollars are chasing too few goods, debauching the currency, as John Maynard Keynes once wrote, and eventually the exchange.
