Tuesday, November 09, 2004

High Tech Barter

I have been considering what a financial system without a "legal tender" would look like. Obviously, it would be barter based, and everybody who is anybody would look at that idea and hold their nose. We all know the benefits of high finance; our economy couldn't function without it—or could it? Journey with me into a fantasyland (or is that science fiction?) of high finance, by high tech barter.

Suppose you work at a factory, say a Capri Sun plant (as I once did). Today, you go in to work, work your eight hours, and go home. You then pick up a check, written in dollars, every two weeks. You then spend those dollars on food, clothing, rent, and whatever else you want or need. Those dollars are backed by the legitimacy of the United States Government, and nothing else. Their value is determined by the combined policies of the United States Congress (who affect it through taxation and spending) and the Federal Reserve (who affect it through the manipulation of interest rates).

Now, imagine there is no "dollar." Imagine, instead, that you have to get paid in Capri Sun. That seems a real inconvenience, since you probably don't have much room in your home to store the stuff, and the time required to sell it off would likely be prohibitive. And without a medium called the "dollar" to smooth that transaction, it's all barter. And since your factory probably makes enough Capri Sun to quench the thirst of an entire state, it likely would have little value in your hometown, making you rely on traders, which is cumbersome... it's all very difficult.

However, you don't necessarily have to be paid in the stuff itself. Instead, you could be paid in "Capri Sun Dollars," or something like that. They'd probably have an expiration, which would preferably be connected to the shelf life of the product. Now, you can store a lot more Capri Sun in your house; they can be redeemed for Capri Sun anywhere they are presented. Shipping them would be easier; you could ship them via first class mail, and let traders and companies worry about getting the product around. But, you still have to trade it yourself...

But how bad would that be? I'd bet there'd be some people who would love the opportunity to try their hand at trading. And in this day and age, they wouldn't even have to leave their home to do it; there'd be plenty of places on-line to do it. They'd just deposit their Capri Sun Check with some financial transmission institution (who'd take a small cut for their service in maintaining the integrity of their network), and transmit it to "bigbarterplace.com" where their Capri Sun share would be registered, and they could engage in an exhilerating round of trading. Ebay is already positioned to do this kind of business; they'd just have to allow bids to be in terms of something other than dollars, and act as a sort of "holding center" for product shares. It'd probably be a lot of fun for some folks, and would result in a vibrant economy.

But for some, bartering isn't exactly their cup of tea. For these folks, we'd have "barter banks." Banks would once again be in the business of issuing their own currency, and would employ barterers of exceptional skill whose sole purpose would be to trade and trade and trade, attempting to accumulate a good quantity and variety of stuff for the bank. People who don't want to barter would go to a bank and deposit their commodity checks; the bank would issue them bank notes in return. They'd probably either have partner stores, or run stores of their own, at which these notes could be spent. They would serve the purpose that "legal tender" currently serves, and the best part is that no central administrative body could influence the system in any particular group's favor (particularly its own). The market would determine any and all prices. If some chain of banks attained a monopoly, that would only smooth the system out even more, but if the monopoly became abusive, people could go back to bartering. They'd still have their commodity checks, and could bypass an abusive system.

So what would government officials get paid in? Well, we refer back to my discussion on a Senate elected by contributors, and the logical conclusion suggests itself: political influence via the Senate.

"Government notes" would be paid to any employee with access to a market in which those notes could be traded. They'd also be paid to any suppliers, whether they be the ones providing office chairs for the bueareaucracy, or bullets for the military. These individuals and companies would then trade these notes on the open market like any commodity note, and anyone with a political bone to pick would very likely be willing to buy it. The value of these notes would be directly related to the demand for seats on the Senate, which would be influenced by how badly people want to tell other people what to do, or else.

The thing is, all the resources the government could acquire would be voluntarily given in exchange for government notes. The government could print them like mad, and all they'd end up doing is inflating the value of government notes, unless there was a real demand for government action. It wouldn't affect the rest of the economy much at all, since the only thing a holder of that note is guaranteed is the right to vote for a Senator, proportional to the number of notes held. In a society that loves government action, notes would likely trade like dollars. In a society that doesn't, they'd be just another low-value commodity.

It's an interesting thought. I'd like to know yours.

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