Thursday, September 3, 2015

Trading: General Principles and Practices

While thinking about and researching the option of trading ammunition for other goods, I came to the conclusion that a lot of people don't know the basics of trade or barter. The concept is clear -- trading something you have for something that you don't have -- but the practice isn't as well defined to many folks.

Barter and trade have a few basic parts that need to be understood before attempting. These are things that were common knowledge for centuries, but have fallen out of use with the invention of money and “civilization”. Economics on a large scale involves politics which we don't cover here; but economics on a small scale, however, are fairly easy to understand.

Value, Worth, or Price?
Everything has a value to you, and often a different value to someone else. A rusty but functional table saw may be something you can repair and use, but to a person with no mechanical aptitude it is scrap metal. Imported Italian shoes may be something you'd be willing to save and sacrifice for, but to someone who works in the dirt and mud, they're a waste of money. Drastically different values can often be used to your advantage by finding something of value to you that the current owner has no desire to keep. The flip side is finding something of value to them that you own but have no use for.

What something is “worth” is whatever someone else is willing to give you for it. It's not going to matter how much time, effort or money you have invested in something; if the buyer is unwilling to meet your asking price, its worth less to him than it is to you. (Talk to any artist or crafter and they'll tell you about people wanting to pay Wal-Mart prices for hand-made goods.)

Generally, the buyer sets the “worth” of an object. Worth is a very time sensitive matter, since it is tightly tied to the law of supply and demand (see below). Gasoline prices tend to jump drastically at the first hint of a disaster, and I've seen some serious price-gouging on other items before, during, and after natural disasters. Try buying a sheet of plywood anywhere near the coast two days before a hurricane makes landfall! If you find any, the price will not be what it was two weeks prior, because it is now worth more to people.

Price is simply what the buyer and seller agree to exchange. Right now everything is priced in US dollars (actually Federal Reserve Notes, but that's politics), but after a financial crash, or if the money stored in the banks is otherwise inaccessible, the medium of exchange will sort itself out. For large items, gold may return as the standard. Silver and other metals (copper, brass, lead, steel, etc.) will have value as trade goods, but are easier to adulterate or counterfeit. Gold is fairly easy to test for purity, but the other metals require some knowledge of metallurgy or chemistry. Manufactured goods may become a standard, I've seen recommendations of using ammunition as a form of currency, with a 22LR being small change and larger cartridges being the “real” money. With 22LR not being (easily) reloadable, I actually think that it will be higher on the list of denominations if the production facilities shut down. Centerfire cartridges that can be reloaded will be more common (higher supply) as soon as the supply of 22LR starts to dwindle.

Chart by Dallas Epperson via Wikimedia Commons
Supply and Demand
I'm sure everyone has seen a graph like this one before. It illustrates a basic law of economics which states that as the supply of a thing increases, the price decreases.

In times of shortage, prices climb fast and high. The price of oil is a good example of supply and demand: if oil producing and exporting countries (that's what OPEC stands for) don't feel that they are getting enough money for their oil, they slow down production until the price rises. If the price gets high enough, it becomes profitable to extract oil from tar sands and shale, which tends to increase supply and drive the price back down. There is an entire class of people in this world who make their living from manipulating the supply and demand of goods (without providing any actual goods, but that's getting close to politics again), and there have been merchants as long as humans have been able to create a surplus of anything.

In a civilized society, you can go about your daily business with little to no fear of being robbed or killed for what you own. However, civilization tends to break down after a major crisis, such as the looting, stealing, robbery and other assorted crimes that tend to blossom after a hurricane (Katrina), earthquake (Haiti), government collapse (too many to choose from), or even something as transient as a power outage (NYC, 1977).

There are exceptional situations where most people maintain their “manners” and help each other out instead of merely taking what they want (NYC 9/11/2001, Fukishima 2011, any Midwest US tornado strike). For the purposes of prepping, let's assume that normal society has gone away for at least a while and that there are no normal law enforcement services. How do you trade and stay safe?

Trade between people takes place in four distinct manners; each has security issues to consider.
  • Buyer is mobile, seller is stationary
    This is the closest to what we see as “normal” life: traveling to a place to buy things. Beware of normalcy bias! Just because you're going to the same store you've shopped at before doesn't mean that everything will be the same. After a crisis, things may not be anywhere near normal and the seller may have to increase security measures to avoid being robbed. Buyers will have to do the same to avoid losing their purchases after they leave the store.

  • Seller is mobile, buyer is stationary
    Remember traveling salesman jokes? Salesmen used to travel to their customers, and this practice could come back after TEOTWAWKI. This system will only work when the seller trusts that the buyer won't kill him for what he's carrying. Absent that level of trust, the seller will just keep on moving and not stop where he feels at risk. Since the seller is likely to be outnumbered and on strange ground, he will have to trust the buyer, but since the seller is going to eventually leave, the buyer needs to trust that the goods are not defective.
  • Both buyer and seller are mobile
    Examples of this are meeting another traveler at a gathering, or while hunting/ patrolling/ gathering. Individuals can usually trade better than groups; any time you have a group of people, you're going to have a leader and at least one wanna-be leader, which increases the tension in any meeting. If you happen upon a fellow wanderer you'll likely have more in common than in difference, but trade with care since there are no witnesses. Temporary trading spots used to be a common way for travelers to exchange surplus for needs -- the trapper's rendezvous, the Medieval fair, and today's Farmer's Markets are all good examples. Security is normally provided by each seller/buyer, and the routes to and from them may be watched by “highway-men”.

  • Both buyer and seller are stationary
    This requires communications and a method of transport. Shipping farm products to a store in town is a good example: depending on the size and severity of the crisis, shipping a load of vegetables could be as simple as carting them in and dropping them off, or as complicated as negotiating through checkpoints (government or otherwise) and risking bandits.

Reputation and Trust
Long ago, a man's word was his bond. People actually cared about what they said and promised, because they knew that if they broke a vow or promise that word would get around about it and ruin their reputation. In a small community, or one that is cut off from larger groups, a person's reputation influences how they are treated in trade as much as any other social interaction. Start selling defective or damaged goods as perfect, and eventually nobody will want to trade with you. Fail to deliver something that has been paid for, and you may face more than just shunning. Many online sales sites have a feedback/reputation system for scoring buyers and sellers, but this is nothing but the sites reinventing the wheel, since humans have dealt with each other based on reputation for millennia.

I'm seeing a small shift back towards the concept of honor in certain segments of the population, but they tend to only consider their own “tribe” worthy of honor. Respect needs to be earned, but there should be a base level that we can give anyone who is not trying to harm us.

Keep in mind that some folks are born traders, so watch for that trait in any person you encounter: if they're with you it can help, but if they're on the other side of the sale, they can screw you.

Final Words
I'm not an economist, nor do I play one on TV. I'm a student of history and believe that knowing how things used to be done may come in handy if our modern system stops working for any of a host of reasons. If you want to learn more about how markets and systems work, there are free courses online. Use the resources we have available to get prepared for the possibility that they may not always be there.

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