Merchants And The Barter System For Kids

Merchant Warehouse |

May 31, 2012

Merchant Warehouse has been delivering unparalled support and service to our merchants since joining the market in 1998. We have built our reputation on educating our merchants so that they can understand the extremely complicated subject of credit card processing, and merchant services.

With our Merchant Warehouse Resource Center we hope to expand our offerings and look to develop informational and educational resources on a vareity of topics, reaching beyond simply educating our merchants and partners by developing articles that speak to consumers, students, and educators.

The following is an article on the barter system, the foundation for commerce in today's society without which credit card processing would not exist.

Merchants And The Barter System For Kids

Have you ever swapped sandwiches with a friend at school, or cookies for a candy bar? Bartering is the trade of one product or service for another without the use of money. The word barter comes from the French word, barater, meaning “to trade.” Early civilizations used this type of exchange before there was money. People would trade things that they had for something that they wanted or needed. For example, a shoemaker may trade a pair of shoes for a sack of grain with which his wife could bake bread. Bartering was a good way of getting things most of the time, but could cause problems when two people were unable to decide on a fair trade.

Bartering began at the time when societies were starting to develop and continues in many societies today. Before money was invented, ancient cultures traded items or services of equal value, such as a goat for a pig. One of the earliest documented forms of bartering was in 6000 B.C., with the tribes of Mesopotamia. The Babylonians and Phoenicians further expanded trade to civilizations across the ocean. European explorers made one of the first standard systems, trading their furs for silk in the East and their musket guns for wheat grown by the Native tribes. The invention of money did not end the bartering system completely. Throughout history, trade has been used when money has become scarce, such as during the Great Depression and the recent economic recession in the United States.

Bartering usually takes place between individuals and businesses, or through a third party. A barter exchange is any person or organization with members that create a contract to barter, or trade products or services with one another. Today, the Internet is a common place for barter exchanges to take place. Members can buy and sell products and services among themselves. There is usually an agreement in place to value goods and services exchanged. Barter exchanges have a unit of exchange, known as trade dollars or barter dollars. Trade dollars allow a barter to take place between two parties when one party has the desire for a good or service that the other party has.

When trade or barter dollars are earned through a barter exchange, the earnings are considered taxable income. Money made from bartering is taxable in the year that the exchange is performed. People that barter may have to pay self-employment taxes, employment taxes, or excise taxes to the Internal Revenue Service (IRS). Trade or barter dollars are the same as real dollars when reporting taxes. The IRS determines the price of a good or service by using its market price. Both parties must list the market value of the good or service received when filling out a tax form, usually a 1099-B form. Many businesses use bartering as a way to reduce tax liability.

Bartering has both advantages and disadvantages for one or both parties involved. One of the main advantages is that a barter gives the opportunity to save money. Businesses that have extra products or time to perform services can exchange them for money. They can also trade their own goods and services to buy other goods and services without spending money. Barter exchanges does have some challenges. Exchanges are only possible when two people have something that the other person wants. For example, if Sam wants Jeff's video game, Sam must have something that Jeff wants and considers an equal trade. It can be difficult to find items that each person wants that are of the same value to each person.

As commerce continued to expand, new ways to process payments including commondity money, coins, paper bills, credit cards and now mobile payments have been developed to improve the manner in which we exchange goods for services. To learn more about the new ways in which payments are processed and to track the evolution of how American businesses moved on from batering, be sure to check out our infographic at Merchants Shift to Mobile Payments.

In additon, we encourage you to use the following resources to learn more about the barter system, barter exchanges, history of bartering, how bartering is taxed, and the advantages and disadvantages of barter:

  • Bartering for Goods: Description of how bartering for goods works and why it is still used today.
  • What is Barter?: Brief article on the history of bartering, as well as some advantages and disadvantages of using the barter system.
  • ThinkQuest – Barter System: Web quest on how the barter system came to be and why it was replaced with money.
  • The Barter System: Video and information on the barter system with examples of how a barter exchange would work in the old days.
  • Money Versus Barter Systems: Discussion of how bartering works, as well as a list of activities to better understand the barter system. [PDF]
  • Do You Barter Video: Video transcript that describes what bartering means, what a barter exchange is, examples of bartering, and tax information.
  • History of Barter: Article on how the barter system has grown into what it is today.
  • Bartering – A System of Exchange: Lesson plan that teaches about bartering, differences between wants and needs, and important vocabulary.
  • Needs and Wants: Learn about the relationship between wants and needs and how people earn money to get the things they want.
  • PBS – The History of Money: Timeline of how money has been used, how it was valued, and common things that were traded among one another.
  • History of Coins and Currency: Information on how the barter system was first used, the introduction of coins and real money, and how the banking system was established.
  • The History of Bartering and Money: Step-by-step history of money throughout the centuries.
  • Barter Exchanges: Description of how barter exchanges and trade dollars work, including barter exchanges on the Internet.
  • How Many Began: Article that discusses how currency has gone from bartering to paper money.
  • Barter and Trade – Lesson Plan: Lesson plan that describes how the English and French traded with the Indians.
  • The Taxation of Bartering: Tax information on bartering in the United States.
  • Escape from Barter Island: Interactive game to help kids understand how bartering works through examples
  • Barter Frequently Asked Questions: Questions about bartering, such as its advantages, how it works, and the tax benefits.
  • Four Facts About Bartering: Facts about bartering, including information on barter exchange, income, taxes, and reporting barter transactions.
  • Trade and Barter: Information on the trading and bartering system used in Ancient Greece.