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Silver’s Role in a Barter Economy ~ Dr. Jeffrey Lewis

S&GS Note: We are asked frequently about the subject of using precious metals as barter currency... This week Dr. Jeffrey Lewis wrote the following article which does an excellent job of articulating some of the concepts of using precious metals as Barter currency.

Silver’s Role in a Barter Economy

" Make no mistake about it: silver is an investment for trying times. As one the most beautifully shiny metals, silver's true economic beauty shines through in a world ruined by rampant inflation and growing debt.

By Dr. Jeffrey Lewis

March 25, 2010

The Barter Economy

A barter economy is one of the most primitive economic models, wherein goods and services are traded, with each party believing it received the better end of the bargain. An example would be that of a plumber and an electrician. The plumber can fix pipes, install a toilet and improve the general condition of a variety of plumbing, but likely could not rewire the light switch. The electrician, on the other hand, can install wiring, fix blown fuses, and attach a generator to the main electrical system of a home. Luckily, the plumber needs some electrical work done and the electrical needs a new toilet installed, and each needs roughly the same value of labor. They strike the deal, work for each other and each leaves happy with the arrangement.

Where the Barter Economy Fails

In the example above, the plumber and the electrician needed roughly the same amount of labor performed, thus striking a deal that was a mutually beneficial trade. But what if the electrician needed a drain unplugged while the plumber wanted electrical wire installed throughout an entire pole barn? The electrician would need just a few minutes of labor, while the plumber would need several hours. It is certain that the electrician wouldn't be willing to trade hours for minutes, and even more unlikely he would want to accept the promise of more work from the plumber in the future. The promise, no matter how honest or genuine, pays no immediate benefits or any advantage for the cost of time.

The Barter Economy in History

The barter economy may have been a mainstay when people lived in caves and ate rats, but it's hardly liquid enough for the rapid changes of today's society. Despite being outdated and relatively unworkable in modern times, the barter economy always experienced a resurgence after a change in economic order. For example, after a natural disaster, the two people above may agree on a deal, needing the service done at any cost.

In perfectly peaceful and prosperous times, the above arrangement appears ridiculous. To work, the barter economy needs a middle man: a medium of exchange.

Precious Metals and Silver

A medium of exchange is paramount to the success of any economy. It allows the plumber who needs 15 hours of labor to strike a deal with the electrician who needs 15 minutes of labor without promises or guarantees. The plumber, for instance, may strike a deal with the electrician with the above specified amount of labor and offer an additional 16 ounces of silver to make up the differential. The electrician, knowing the value of silver on the marketplace, can use the metal to provide his family with other needs, and he would accept the deal, gaining employment, wealth, and capital.

An Example of History

Though the full example above is a bit of a simplistic stretch on the workings of the economy, the value of a medium of exchange is not overrated. Precious metals have more value in bad times than in good, and gold and silver always appear first as a proper medium of exchange.

You can't fake gold or silver, you can't dilute them, nor can you create more of them – thus making precious metals the perfect currency. In addition, since silver is relatively inexpensive compared to gold or platinum, it is easier to make change and conduct other functions of ordinary business.

Precious metals have been and will be important as an immediate of exchange in the future. There is no better time than now to secure that medium of exchange before the next inevitable economic depression arrives full-tilt.

Barter Resource: - this is a comprehensive listing of barter networks in the world.

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"...don’t shy away from silver. Gold always moves first in a precious metals bull market because it is seen more as money, yet silver posts better percentage returns nearly every time there is a sustained rally in gold.

- Greg McCoach

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