Barter, Trade, or Commerce?
Part 1 of 2
 

Understanding the differences among barter, trade, and commerce can often help a person understand money, currency, and taxation. Before we begin, let’s provide some definitions.

Barter

The exchange of goods and productive services for other goods and productive services, without the use of money.[1]

A contract by which the parties exchange goods for goods. To complete the contract the goods must be delivered, for without a delivery, the right of property is not changed.
 
This contract differs from a sale in this, that barter is always of goods for goods, whereas a sale is an exchange of goods for money. In the former there never is a price fixed, in the latter a price is indispensable. All the differences which may be pointed out between these two contracts, are comprised in this; it is its necessary consequence. When the contract is an exchange of goods on one side, and on the other side the consideration is partly goods and partly money, the contract is not a barter, but a sale.[2]
 

Exchange

To barter, to swap. To part with, give or transfer for an equivalent. To transfer goods or services for something of equal value. Act of giving or taking one thing for another.[3]
 
This word has several significations. Exchange is a negotiation by which one person transfers to another funds which he has in a certain place, either at a price agreed upon, or which is fixed by commercial usage. This transfer is made by means of an instrument which represents such funds, and is well known by the name of a bill of exchange.
 
Barter, or the transfer of goods and chattels for other goods and chattels, is also known by the name of exchange, though the term barter is more commonly used.[4]
 

Sale

A contract between two parties, called respectively, the “seller” (or vendor) and the “buyer” (or purchaser), by which the former, in consideration of the payment or promise of payment of a certain price of money, transfer to the latter the title and possession of property.[5]

An agreement by which one of the contracting parties, called the seller, gives a thing and passes the title to it, in exchange for a certain price in current money, to the other party, who is called the buyer or purchaser, who, on his part, agrees to pay such price.

This contract differs from a barter or exchange in this, that in the latter the price or consideration, instead of being paid in money, is paid in goods or merchandise, susceptible of a valuation. It differs from accord and satisfaction, because in that contract, the thing is given for the purpose of quieting a claim, and not for a price. An onerous gift, when the burden it imposes is the payment of a sum of money, is, when accepted, in the nature of a sale. When partition is made between two or more joint owners of a chattel, it would seem, the contract is in the nature of a barter.
 
To constitute a valid sale there must be, 1. Proper parties. 2. A thing which is the object of the contract. 3. A price agreed upon; and, 4. The consent of the contracting parties, and the performance of certain acts required to complete the contract. These will be separately considered.[6]
 

Trade

The act of the business of buying or selling for money; traffic; barter. Purchase and sale of goods and services between businesses, states or nations.[7]
 
In its most extensive signification this word includes all sorts of dealings by way of Bale or exchange.[8]
 

Commerce

The exchange of goods, productions, or property of any kind; the buying selling, and exchanging of articles. The transportation of persons and property by land, water, and air.[9]
 
The exchange of commodities for commodities; considered in a legal point of view, it consists in the various agreements which have for their object to facilitate the exchange of the products of the earth or industry of man, with an intent to realize a profit. In a narrower sense, commerce signifies any reciprocal agreements between two persons, by which one delivers to the other a thing, which the latter accepts, and for which he pays a consideration; if the consideration be money, it is called a sale; if any other thing than money, it is called exchange or barter. Congress have power by the constitution to regulate commerce with foreign nations and among the several states, and with the Indian tribes. The sense in which the word commerce is used in the constitution seems not only to include traffic, but intercourse and navigation.[10]
 

Barter involves the immediate exchange of real property for real property, wealth for wealth, goods or services for goods or services; the value of which is determined strictly by the participants, and the exchange itself acts as a severance to any possible future claims on the wealth of the aggregate society. Property exchanged in barter generally is not offered to the public, nor is the intent to exchange for a profit, nor to sell, nor to participate in any taxable, regulated, or commercial activity.

Trade can include either the exchange of real property or currency. Trade generally does not include the general public, but can certainly do so. However, the intent of trade is to sometimes create a profit, sometimes not; but never seeks to participate in any taxable, regulated, or commercial activity. In trade, the time domain can be short or long. In general, intent greatly controls whether an action is one of trade.

Commerce typically involves an exchange of real property for currency. However, commerce could also involve only real property. When real property is involved, intent and the time domain are what place the transaction into commerce. When currency is used, and the currency has no tangible or intrinsic value (fiat), the media can be used only in the time domain and is strictly a claim against future real property (goods or services). A transaction also can become one of commerce when the transaction is available to the general public, or the time domain clearly establishes equitable interest in property. If currency is used, and the currency also has a commodity value, the transaction could still be one of trade and not commerce—if the recipient of the currency intends the currency to act as a commodity and not a claim on the aggregate wealth of the society. However, a person must then inspect the time domain to see if equitable interest in the currency was created.
 

Regardless of whether a person participates in barter, trade, or commerce, that person must understand that at the fundamental level, property (and associated title) is always being exchanged. Five elements help determine how to properly categorize the three types of exchanges:

1. The property being exchanged: tangible or intangible?

2. The intent of the exchange. Was the intent to purely exchange property, to sell and make a profit; was the public involved in the offering?

3. The time domain. Was the time domain a relevant part of the exchange? Does the time domain create equitable interest in property?

4. Is currency used? If so, does the currency have an intrinsic value or fiat only? Anything can be used as a medium of exchange, but the substance must be defined to determine the nature of the currency.

5. Records. Were records required to verify the exchange?

Assume a person exchanges a horse for two pigs. What type of an exchange was this?

Most people readily grasp the fundamentals of barter. In barter, currency is not used, that is, the commonly accepted medium of exchange used in that community is not used in the exchange.

Certainly in the example the properties being exchanged are tangible—a horse and two pigs. By our own definition we see that currency is not being used. If the two parties made the exchange immediately, that is, within the same day; and the two parties had no intention of making a profit or to sell the property, then the exchange qualifies as barter. Goods were exchanged for goods.

Goods need not always be exchanged. Services can be exchanged. As long as the intent remains restricted to a simple exchange, is not available to the general public, there is no intent to sell or make a profit, and the time domain remains negligible, the exchange is barter.

Let’s change the situation slightly. Let’s suppose the intent of either party was to sell property, but instead of receiving currency, decided to accept other tangible property for the exchange. The intent of at least one party changes, that is, the intent is to sell and to make a profit. Because the intent is to sell, the direct property received now becomes a medium of exchange, that is, money. Common currency is not used, but the received property nonetheless becomes a medium of exchange. The exchange no longer qualifies as barter but as trade.

What happens if one of the parties did not immediately receive property in the exchange? What if the second person received the horse, but did not for several days give the first person the two pigs? The time domain has been introduced and the first person now has equitable interest in the two pigs not yet received. Because the intent of the first party was to sell and make a profit, and because the time domain has been introduced thus creating equitable interest, the potential now exists that the first person must seek remedy to receive the property of the two pigs. Suddenly the exchange becomes one of commerce.

Let’s again change the circumstances. The first person wants to sell the horse, thus establishing intent to make a profit. The person decides to sell for currency and will not accept other real property in return. Let’s assume the currency used has an intrinsic value as well as a currency exchange value. For familiarity sake, we’ll use gold coins. Gold has both an intrinsic value as a commodity as well as an exchange value as currency.

When the first person accepts the gold coin in return for the horse, and because the intent was to sell, the exchange can no longer be one of barter. Goods are no longer being exchanged for other goods. Also, because the person accepted the gold coin as currency, the first person did not immediately receive property in exchange for the horse. The person, at his or her pleasure, will later exchange that gold coin for other real property. Thus, because property has not been immediately received, the time domain has been introduced, and once again equitable interest plays a role. However, unlike the previous example, the equitable interest is not against a single person’s property, but again the total wealth of the society. Thus, by introducing into the exchange the element of time, equitable interest, and intent to sell, the exchange is properly classified as commerce.

What if the person selling the horse did not see the gold coin as currency, but as a commodity? What if the intent of the first person was indeed to sell the horse, but the intent changed to the exchange of real property instead of currency? No longer can the transaction be considered commerce, but one of trade. Property has been readily and immediately exchanged, wealth for wealth, no equitable interest has been created, thus the exchange cannot be commerce but trade.

What if the first person’s intent was not to sell but to simply exchange one type of property—the horse—for another type of property—the gold coin as a commodity? The intent has changed again, and because the intent was the simple exchange of property, the exchange is properly classified as barter.

What if the first person’s intent was not to sell but to simply exchange one type of property—the horse—for another type of property—the gold coin as currency? The intent has changed again, currency creates equitable interest, but there was no intent to sell and make a profit. Thus the exchange is one of trade although money is used.

Let’s substitute the gold coin with a fiat currency. For familiarity sake, we’ll use Federal Reserve Notes (FRNs). FRNs are irredeemable in any kind of commodity money. Paper has no tangible value and serves merely as a medium of exchange. In such cases, the paper can never be considered to have intrinsic value, or a commodity value. The paper serves only as a claim check to obtain in the future other real property.

Like the gold coin, when the first person decides to exchange the horse and decides to accept FRNs in that exchange, the exchange can never be considered barter. Barter is eliminated from consideration because real property was not exchanged for real property. Something tangible was exchanged for something intangible. Also, because the time domain has been introduced, equitable interest is created in the total wealth of the aggregate. Lastly, the intent of the first person was to sell and make a profit; thus the exchange cannot be barter.

What about trade? The intent was to sell, but the exchange was tangible property for intangible, thus creating equitable interest. The FRNs have no intrinsic value and can never be considered real property, but only a claim on the wealth of the aggregate. Therefore, the exchange is likely one of commerce.
 

1 Black’s Law Dictionary, Sixth Edition — “Barter”
2 Bouvier’s Revised Sixth Edition, 1856 — “Barter”
3 Black’s Law Dictionary, Sixth Edition — “Exchange”
4 Bouvier’s Revised Sixth Edition, 1856 — “Exchange”
5 Black’s Law Dictionary, Sixth Edition — “Sale”
6 Bouvier’s Revised Sixth Edition, 1856 — “Sale”
7 Black’s Law Dictionary, Sixth Edition — “Trade”
8 Bouvier’s Revised Sixth Edition, 1856 — “Trade”
9 Black’s Law Dictionary, Sixth Edition — “Commerce”
10 Bouvier’s Revised Sixth Edition, 1856 — “Commerce”