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Question on inflation and the merits of a barter system?


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Old 07-01-2009, 08:47 AM
news news is offline
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Default Question on inflation and the merits of a barter system?

Say you borrow a dollar from a friend to buy a candy bar. If the value of the dollar increases the next day, so that you can buy two candy bars with one dollar, you could sell the candy bar for two dollars and pay your friend back the one dollar you owe him, because technically you only borrowed one dollar, right?Now what about the opposite? Remember in pre-WWII Germany how hyperinflation caused people to take their paychecks home in wheelbarrows, and a loaf of bread to cost over a million Deutsch Marks? Imagine a situation like that. If you borrowed 50 thousand dollars from a friend to buy a candy bar, but the next day everything went back to normal, and the candy bar was only worth one dollar, would you still owe your friend 50 thousand dollars, or would you owe him the price of a candy bar?Surely no one would expect you to pay them back enough money to buy a luxury vehicle when the loan in its time could barely buy a piece of food (ignoring the concept of interest). But then why is the opposite true? From what I remember from high school economics, the government encourages inflation because it makes it easier to pay off debts. That seems to me to be the only merit of inflation. You would think, though, that in a global economy, we would want to deflate so that we could turn what little money we have left into something of value.But then, both seem like methods of cheating your way out of paying what you owe. Wouldn't it be easier to say that four strawberries equals one apple, and we'll give you a new tank for every billion pounds of corn you export to us? I understand that paper currency holds each of those items to a certain value. However, when that value fluctuates from day to day, doesn't that defeat the purpose?1. i get that the point of money is liquidation, but then it just becomes another good you have to barter for. if i have a 100-year old piano that i want to sell so i have enough money to buy a new car, i have to find someone i can sell the piano to for a price i like so that i can get the money i need to take to the dealership to buy the car. to me, thats just as bad as trading apples for oranges so you can get mangoes. what say you?2. the hyperinflation example was just an exaggeration to prove a point. if you dont expect someone to pay you back the ridiculous sum of money when the value of the currency deflates, how can you expect someone to only pay you the dollar amount of a loan when the value of the currency inflates? shouldnt the price of a loan inflate too?
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Old 07-01-2009, 08:47 AM
Dollar Dollar is offline
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Default Question on inflation and the merits of a barter system?

Before advocating for a barter system, consider the three main functions that money serve:1. Medium of exchange - The person who has strawberries but wants apples may not find someone with apples who wants strawberries. The person with apples may want something else instead. They would both have to make a number of exchanges with others who want their products until they both get what they want. Society cannot achieve any kind of prosperity with such a system because everybody would be spending most of their time bartering instead of being engaged in productive work.2. Unit of account - Money provides a way to measure relative values of thousands or millions of goods and services. Without money, people would have to memorize thousands of exchange rates between various goods and services in order to know the value of their transactions. This would be far inferior to the present system with the price fluctuations that you mention.3. Store of value - Money allows people to make purchases over time as needed, not as soon as they get paid. It is perfectly liquid, meaning that it can be exchanged at any time for what is needed at that time, unlike in a barter system where you have to make a number of exchanges to get what you want. Again, this is not perfect because prices fluctuate, but is superior to a barter system.
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Old 07-01-2009, 08:47 AM
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Default Question on inflation and the merits of a barter system?

I can see you have never bartered.While the pre-WWII scenario is valid and interesting, it is not common in most industrial economies.How many times have you seen hyperinflation in your lifetime?Your teacher needs to get out of the classroom from time to time and talk to people doing REAL economic transactions. You need some real world experience before you begin judging everyone like your teacher.
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Old 07-01-2009, 08:47 AM
decade decade is offline
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Default Question on inflation and the merits of a barter system?

Economy is a bit more complicated than apples and strawberries. There are thousands of different goods, and if you have barter, you will end up spending too much time finding trade partners, i.e. people who have what you need and need what you have. Think about it -- you have your 8 hours of work time per week, and need 20 different food items, housing and entertainment. Barter would probably mean that you will at farm, get strawberries as wage, then try to barter them for bread, milk, meat, and trying to convince your landlord to accept them as rent payment. And keep in mind you will have 2 days to do that before strawberries go bad. Fun, huh?
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Old 11-26-2010, 04:40 PM
halongvietnam halongvietnam is offline
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I like shrimps but not this kind of food! I prefer it to be boiled!
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