We address the disadvantages of barter as listed by the Russian Supply Chain Management Encyclopedia
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.
The following workmen are necessary to make the shears used to clip the wool to make the coat:
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 Effort 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.
In exchanging the produce of different sorts of labour, some allowance is commonly made for both hardship and ingenuity. It is adjusted by the higgling and bargaining of the market, according to a rough equality sufficient for carrying on the business of common life.Wealth of Nations Book 1, Chapter 5
But the colonies sell their own produce chiefly to purchase European goods. The more they pay for the European goods, the less they get for their own produce. The dearness of the European goods is the same thing with the cheapness of their own produce.Wealth of Nations Book 4, Chapter 7
Our system prices everything in the common grain of the country. So the coffee mug will be priced in rice, let's say 1 mug: 2 kg rice and 1 kg rice : $1. If the shirt is $8, then it is worth also 8 kgs of rice. The coffee mug seller will get the full shirt in exchange for the mug, but owe 6 kg of rice. In case the shirt seller does not want the 6 kg rice credit, he can ask for $6 from the mug seller.
The advantage of this is that the coffee mug seller was able to save $2 by giving his mug (something that he can supply easily) instead of money. This reduces his reliance on the expensive monetary system and shifts his reliance towards his own products and services. Grains, like metals, can be subdivided yet computed objectively.
Future contracts have the same dynamics as 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.
I can borrow your pen and give it back next week by signing a contract that reminds both of us.
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.
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.
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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