The Breakdown | Explaining Southern California's economy

Invest with James: It's barter time!

After Halloween, James (left) has discovered the value of a barter economy. Lucia (right) looks on in awe.
After Halloween, James (left) has discovered the value of a barter economy. Lucia (right) looks on in awe.
Matthew DeBord

Welcome to the second installment of "Invest with James," in which we learn about money, personal finance, and investing through the budding example of my almost-six-year-old son, James, who loves money and all that is associated with it.

Yesterday was Halloween, a day that is like Christmas, the Fourth of July, Thanksgiving, and Rio Carnival all rolled into one for my children. My daughter, Lucia, plans for Halloween in an elaborate, multi-phased way, months in advance, that culminates in the Big Night. 

James had been more of a bystander. But this year, he discovered that there's something of value in Halloween. And that something is called "candy."

Of course, he knew about the candy. But this year, rather than just eat it, he recognized it for the first time as a medium of exchange and an opportunity to create a market. Yes, this was the first year that he sat down with his sister to trade the sugary haul.

Ultimately, James sees this an opportunity to obtain more of what he wants and less of what he doesn't want. For example, he wants more sour gummi worms and fewer Heath bars. In order to achieve this goal, he will use his prodigious powers of negotiation to wear down his sister.

Lucia, however, is no fool. She knows what she likes, as well, and won't just let James unload Snickers bars on her all day long. So James has to do some work.

He's a quick study, however. He's already started to bend the trick-or-treating process to his advantage, negotiating with people at their houses in order to obtain more of the candy he likes. By next year, I expect him to have ingrained the post-trick-or-treating barter gambit, so that he negotiates for more of what he knows his sister will want. This way, he'll create a surplus that he can trade. Because he knows that his window is finite. We don't allow the kids to keep their Halloween candy around indefinitely. He'll want to maximize his share of the candy he likes.

There's a lot of sour gummi worms out there and James thinks they should all be his.

So as much as James enjoys the implications of money, he also understands the value of tradable assets in a barter arrangement.

And so can you!

Bartering is an exercise that's gaining more respect as the slow recovery from the Great Recession drags on. This comes from Harvard Law School:

Bartering doesn’t need to be limited to one time swaps of goods and services between virtual strangers. In more complex, ongoing negotiations, including those between long-term business partners, bartering is a smart way to avoid getting bogged down in price haggling. Just as you might create value in a negotiation by discussing delivery options and payment plans, you can expand the pie by adding new goods and services to the discussion.

Bartering requires more effort than simply buying stuff with money. However, it's a good arrow to have in your quiver. James has certainly learned this. And he get to eat the results of his labor!

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