We address the disadvantages of barter as listed by the Russian Supply Chain Management Encyclopedia

Lack of Double Coincidence of Wants

Our Response

This is only true for bilateral barter or trade involving two persons. Smith's system is multilateral barter wherein trade is circular and not direct.




Lack of any common unit of measure:



Our Response

Such objective valuation is true only for commercial transactions which require a fixed price. Smith's system is not commercial as it does not rely of fixed nominal values or even any equilibrium theory, but instead relies on real value or the Labour Theory of Value, facilitated by fellow-feeling, natural to all humans. The goal of trades is not profit, but for "carrying on..life."

Thus, if A and B agree to trade their rice and wheat at a ratio of 1:1, then the price of 1 rice will be 1 wheat. In other words, the price of a commodity will be the other commodity.



Lack of Means of Subdivision



Our Response

Our multilateral barter system categorizes products according to either the smallest unit or the most usual unit that can be traded. For example, one unit of laptop means one whole functioning laptop. One rice will mean 1 kilo of rice. One corn will mean one bushel of corn. In cases where there is leftover value which must be paid, cash or credit can be used as 'fillers'. Thus, in the example, one shirt will be exchanged for one rice, plus cash or credit for the difference, or whatever commodity will satisfy both parties.




Lack of Way for Future Payments

Our Response

Future contracts are addressed by trade contracts administered by the barter authority. This implies that the barter authority has some quasi-legal power to enforce the fulfillment of future contracts. Also, future contracts are generally avoided to prevent unnecessary risk to the economy.




Lack of Way to Store Purchasing Power and the Perishable Nature of Some Goods


Our Response

Supply chain barter is meant to circulate both raw materials and finished products to maintain production to sustain economies. It is not for investment. Thus, a company will trade for eggs only when it needs it, such as restaurants which follow "just in time" production. A child can receive a credit of 10 eggs to be claimed from a farm 50 years later at adulthood.

There are some cases such as in technological products where time is essential. For example, if I received a credit of one Nokia 3310 mobile phone in 1999 (when the phone was very useful and hi-tech) and claim it in 2018 (when the same phone is almost useless and obsolete), then it would be a clear injustice to me. This problem can be solved by finding the equivalent product in the current time. In our example, the new version of the Nokia 3310 can be claimed. So a child in 1998 can receive a credit of Nokia 3310, to be claimed 50 years later as whatever would be the equivalent of a Nokia 3310 by then.




Possible big difference in delivery times and costs for items involved



Our Response

Normally, cheap raw materials are not exchanged for expensive finished goods in a multilateral barter. Iron ore is not directly sent to a laptop factory to be converted to a laptop. Instead, ore is sent to a steel mill, which will send metals to a chipmaker, which will then send chips to the laptop factory. The value of a truckload of microchips is closer to value of a truckload of laptops, than a truckload of iron ore.



Global Price Fluctuations



Our Response

Supply chain barter relies on real prices and not on nominal prices. Any sudden reduction or increase in real prices in the external market is either absorbed or enjoyed by the trade partners. From a global societal perspective, the losses of the losers will be offset by the gains of the gainers, having little impact on the global economy.

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