The Impact of Money-Free Computer Assisted Barter Systems

1. The Impact of Money-Free Computer Assisted Barter Systems Article By: David L. Parnas Presented By: John D. Donath March 26, 2004

2. What are Computer Assisted Barter Systems (CABS)? • Enable people to trade goods and services without using money • Can help eliminate the ills of society associated with a monetary economy

3. What is Money? • Enables people to exchange goods and services without a double coincidence of needs. • A way to store wealth (not really)

4. Problems with Money • A person’s valuation of goods and services is subjective: (Buyer or Seller Surplus) • I would like to sell my car for $100, and a buyer is willing buy it for $150, one of us will be cheated • Exchanges that may take place with barter may not take place because of prices the market places on items. • Leads to idleness of resources (unemployment)

5. Problems with Money • Inflation (large money supply) • Money loses its value over time • Tight money supply • Prevents businesses from having the liquidity they need to manufacture and circulate goods

6. Problems with Money • Trade imbalance • People who produce more than they consume have the impression that they are getting richer • People who consume more than they produce have the impression that they are getting poorer • Neither of these is true (the opposite is in fact the case when measured in resources)

7. Problems with Money • Uses a Scalar value to represent a Vector • A person’s gain or loss from a deal should be measured in all the resources involved, not just one value (doing so causes a loss of information). • I worked for 5 hours and got paid $100.00 • I worked for 5 hours and got a turkey sandwich, soda, a night at the movies, and 10 gallons of gas

8. Using Barter • Eliminates the seller’s/buyer’s surplus • Eliminates inflation/tight money supply • Eliminates trade imbalance • A person knows exactly what (s)he is getting in return for sacrificed resources

9. Saving with Barter • Barter enables you to trade not just for immediate goods and services, but for future goods and services as well (similar to a futures contract) • No Inflation/loss of value • Eliminates risk of lending/borrowing in order to produce a good • People are forced to plan for savings by considering what they will need • Insurance will help reduce any risks associated with the unknown future

10. Foreign Trade • Eliminates the risk of trade deficits between countries • Eliminates the problem of concluding contracts between countries where multiple, fluctuating currencies are involved

11. Technical Issues • In 1985, Parnas, 10 students built a CABS system as part of a course. • Technology feasible to run on centralized or personal computers • (Internet makes this even easier)

12. Existing Barter Systems • Ebarter.ca • Recipco.com • Onecer.net • Barteryourservices.com

13. Has Barter been used? • Heavy inflationary periods • Germany early 1920’s • Hungary 1946 • Unstable times • No trust in government certifying money • People bought jewels and other stores of value • Rationing • Money not enough to meet demand for resource

14. Has Barter been used? • Recession (tight money supply) • People did not have liquidity necessary to pay for goods and services with money • 1935 Mosanto sold saccharine to China in return for Mackerel • Barter Theater in Virginia, performances for food

15. Has Barter been used? • International Trade • Avoid Currency Fluctuations • 2000 Thailand sold Rice to South Africa in return for Cattle • 1972 Pepsi for Vodka • Children • Baseball Cards • Toys

16. Turn theory into practice • All new technologies come with problems that need to be solved • Electrical theory • Generation (Power Plant) • Delivery (Power Grid) • Application (Light Bulb)

17. Turn theory into practice • Phase in CABS gradually • Enforcement of standards • Maintain pseudo-currencies to buy bags of market goods • Food certificates • Stationary certificates

18. Turn theory into practice • Insurance to reduce risk and enforce quality • Taxation for shared needs • People will view taxes not as a burden, but rather as their share of purchasing public goods and services

19. Effect of CABS • Reduce unemployment • Increase liquidity • Decrease hoarding of resources • Allow people to better plan for future • Insure that goods that are needed will be produced • Maintain relative values of goods

20. Effect of CABS • Wealth measured in resources, not money • Reduction of Poverty

21. Analysis • Parnas not the first to see illness of society due to wealth • Karl Marx advocated elimination of money through Communism

22. Communist Manifesto Violent overthrow of existing system Government enforcement of moneyless system Central planning of consumption All people have same wealth Bartering systems Gradual and peaceful development Phased in due to people’s desire for efficiency in business Rules of supply and demand set values of goods Differences still exist between people controlling more/less resources Marx vs. Parnas

23. Conclusions • Like any revolutionary idea, sounds good in theory • Human nature is to simplify matters to a bottom line • E-bay has been more successful than any of the online bartering systems • It is hard to eliminate a habit that has existed and controlled people for thousands of years

24. Conclusions • Article not technical, but like most of Parnas’s articles, pioneering with new ideas that have some impact on the Computer Industry • People should be encouraged to barter more • Tax incentives • Promotion through advertisements

25. References Parnas, David L., Impact of Money-Free Computer Assisted Barter Systems. Shore, John. Introduction to Impact of Money-Free Computer Assisted Barter Systems. Marx, Karl and Engels, Friedrich. The Communist Manifesto. www.eBarter.comHistory of Barter.