Barter Town

When Herb Miller was growing up in Elk Grove in the 1960s, he had an uncle who roamed the world mining for hard rocks and precious metals: gemstones, gold, platinum. To save his cash income, he would barter for mining equipment. “It taught me at a young age,” says Miller, “you don’t have to pay cash for things.”

For more than 30 years, Miller, now an Auburn-based jeweler and watchmaker, has used barter as a core part of his business and income model. He began by trading jewelry for needed dental work, moved to larger-scale trades around advertising and other necessary business projects, and eventually expanded his barter networks to incorporate a large part of his personal expenditures, too. In an average year, he calculates, he now does $25,000 to $50,000 of barter business.

“Some people do it just to go out to dinner,” Miller explains. “But if you’re using it the right way, it does enhance your business and gives you a bigger customer base. Any time the economy is like this, more and more people will barter. Because they’re sitting on inventory; people aren’t buying.”

During these economic dog days, millions of Americans have begun bartering their goods, their services, their time. Earlier this year, The New York Times reported that more than 200,000 barter-related ads were being placed on Craigslist every day, a 100 percent jump since 2008.

In the same way Russians began to use barter to secure produce they could no longer afford in the wake of the Soviet Union’s demise and Argentines flocked to hundreds of newly created barter clubs following that country’s fiscal collapse in 2001, so in recent years Americans have increasingly looked to barter.

In Sacramento and across the country, there are now barter clubs, online trading sites, barter zines. In short, a complex barter infrastructure now exists to facilitate trade amongst people and companies short on cash but still needing and wanting to access markets. That infrastructure existed prior to the economic implosion of recent years, but the great collapse has dramatically fueled its expansion.

While barter used to be seen as somehow countercultural, a rejection of the great impersonal forces of market capitalism, these days, in the same way pot has become mainstream, so has barter. It’s no longer a symbol of anything countercultural; instead, increasingly, it’s a part of the regular business landscape, a way for businesses large and small to find ways to dispose of excess inventory or to take advantage of excess time. The Internal Revenue Service considers barter revenues to be taxable—there is a special form, the 1099-B, which businesses must fill in to declare their barter income—and barter business purchases to be deductible. Barter bank accounts are now considered a part of a person’s estate, transferable on death to the estate’s heirs.

At this point, virtually anything that can be sold can also be bartered.

Sacramentans Clif and Amy Edwards are living proof.

Clif runs a graphic-design business, working on magazine covers, restaurant menus and local billboards; his wife does astrology readings for parents looking for help in understanding their children’s behavior. Both are members of a local barter club.

“There’s two reasons to barter,” explains Clif. “One is for the [material] gains, and the other is for an ideology.” Barterers, he says, tend to be looking for community, wanting their business transactions to build that community rather than simply add to bank balances. They tend to be looking for camaraderie in trade.

While many businesses have seen barter soar during the recession, for Clif, the downtimes haven’t resulted in more barter—after all, he says, graphic design is a front-line business, particularly sensitive to upticks and to downturns in the economy. During the good times, businesses advertise more, splurge on new logos and so on. During the down times, they hold off—and that’s true to a degree whether they’re paying cash or simply bartering for services. But, absent barter, it’s likely things would have been even worse for him.

Now, though, Clif is starting to get more optimistic: There are signs the economy’s coming back to life. “It feels like everything’s flowing again. The ice block has gone.” He’s getting more cash clients, and he’s also getting more requests to barter. “Suddenly, the barter picked up,” he says. “So I do think the barter is going by the same rules.” Businesses putting out feelers regarding increased spending might still be reluctant in the short term to part with carefully saved cash; but, as the economic deep freeze starts to thaw, Clif has found them slightly more willing to trade services and product for his expertise.

Barter exists at three levels: On the lowest level, there are one-on-one exchanges between individuals. These are the easiest to understand; they are simply handshake deals, backed by no central institution, usually without any kind of legal contract having been signed, for a direct exchange of services in lieu of cash. You want to eat at my restaurant, but you don’t have cash? Fine, I’ll exchange two hours of baby-sitting for the meal—that sort of thing. These days, people can go online to barter services on Craigslist. Items up for barter on Craigslist in the Sacramento region include Grateful Dead posters, a dog run, construction, electrical and paint work, computer repairs, even car alarms.

Then, there are mom-and-pop barter exchanges. These clubs charge relatively low membership fees and per-transaction commissions, and link a few hundred small local businesses into an exchange system with the owner serving as a sort of Federal Reserve chairman, issuing rules and regulations, printing scrip and stepping in to mediate disputes.

In the Sacramento region The Barter Club, run out of Auburn by 55-year-old Jay Ross, has more than 300 members. Its members include construction companies, nail salons, plumbers, dentists, deli owners, chiropractors, lawyers and many others. Ross thinks that, with a bit more promotional effort, his club could one day link about 1,000 businesses; in his wilder dreams, he fantasizes about 5,000.

“I see the economy being pretty slow for a while,” says Ross, who has seen businesses flock to his club during the recession. “The next five years will be slow growth. And bartering should be looked at by a lot of businesses. I look at it as a win-win situation. The people struggling a little more, or new at the business—everybody needs stuff.”

Finally, there are large national exchanges, like ITEX, which are publicly traded companies doing tens of millions of dollars a year in business. ITEX, which counts a Sacramento office among its 90-plus U.S., Canadian and Panamanian bureaus, does business with big corporations, charges initial membership fees in excess of $1,000 in large metropolitan areas such as New York and Los Angeles, and in secondary markets like Sacramento allows members in for free and then charges monthly dues and commissions per trade charged to both the buyer and the seller. It permits members to trade not only with other ITEX subscribers but, in a noncash equivalent of a free trade zone, also with an array of other barter banks. On ITEX’s exchanges, one might be able to barter airplanes, real estate, trucks, boats and other high-end purchases. For these high-end transactions, the company sets up a barter equivalent of escrow accounts, to ensure that one party doesn’t get burned by the other. Lawyers get involved. Occasionally, there are even lawsuits around trades gone bad.

Sitting in his small ground-floor office on Chippendale Drive in North Highlands, 63-year-old ITEX broker Fred Hammer explains the allure. Hammer, who spends one-and-a-half hours explaining the barter process to prospective clients when they first sign up with him, somehow looks like a salesman, his thin black hair brushed back, a gray mustache adorning his upper lip, attired in black slacks and a red-and-white-striped shirt. But he’s a salesman not of produce but of a concept, the cashless transaction. Hammer’s files are full of charts, explaining revenue streams, detailing profit margins, marginal costs, brokers fees and so on. “Barter is kind of what people do when the money system isn’t working.” He stops and laughs uneasily, contemplating a business that involves up to $6 million per year in ITEX-mediated barter transactions in the greater Sacramento region. “There’s never a perfect economy for everybody, so there’s always room to barter.”

ITEX members are issued barter “checkbooks,” which have ITEX’s logo in place of that of a bank, and a box for noncash dollar transactions instead of regular dollar transactions. Members in good standing accumulate credit, allowing them to purchase through the barter system with no funds down, almost as if they are using a credit card. With the larger transactions, members can bring in company reps to act as middlemen.

For Jay Ross, noncash trade has become a passion, a way of life.

Ross, who used to be a real-estate broker, owns The Barter Club, a rental cabin in Tahoe and an Auburn-based limo company that drives clients to downtown Sacramento, Reno, San Francisco and wine country. Some people get off on power, or wealth; Ross gets his rush from negotiating the mix-and-match deals of barter.

“I’ve liked trading all my life,” he says with gusto. “Started off at swap meets when I was 13, 14, 15.” As with Miller, Ross’ first barter transaction involved his kids getting dental work done. They got their teeth fixed, and the dentist got to stay gratis for several days at Ross’s Lake Tahoe cabin.

Fifty-five years old, curly haired, fast-talking, with a gravelly, basso voice, full of kinetic energy, Ross looks and sounds like an old-time Broadway producer, or a sports agent; a convincer, a schmoozer, a maker of deals. And, to a degree, he is. When he was a kid, his favorite game was Monopoly. These days, it’s barter.

In the early 1990s, after word got around amongst Ross’ friends that he had traded a weekend in his cabin for dental work, people started coming up to him and asking him to arrange barter deals on their behalf. “I was trying to be a broker,” he remembers. “My sister said, ‘Why don’t you start a trade club?’ I was bored with real estate, was looking for a new challenge. So I started The Barter Club, in 1994.” Early members included that sister, who was a well-established Sacramento attorney; his mother, a seller of pet birds; a few other family members; and a friend of his who taught karate. From those small beginnings, a club of several hundred members emerged.

These days, new members start with $500 of barter credit in their accounts; like credit-card users, over time, their credit increases. They sign a membership agreement, giving the club the right to sue if they do not provide the services in lieu of cash that they owe (the club has only had to exercise this legal option three times in its history, although Ross has kicked many more members out for nonpayment of dues, inflating their prices or simply for being “shysters”), and they have the right to issue barter gift cards—essentially serially numbered scrip—that they can give to friends or trade on the barter exchange. There are $30 barter cards for a local Subway sandwich store, $25 for spending on frozen yogurt. When they enter into deals worth more than $100, they can divide the transaction equally between cash and trade.

Jay and his wife Judy live in a huge house atop the hills west of Auburn. Their daughter’s family lives in the older house next door, the driveway strewn with children’s toys, bikes and the like. On sunny days, they can see for miles. On windy days, the exposed compound gets battered by swirling gusts and sheets of rain.

Inside the Rosses’ chaletlike residence, even during a storm, there’s an air of comfortable calm. The Direct TV, attached to a wall above the living-room fireplace, pipes smooth jazz to a surround-sound speaker system; there’s a patchouli smell and lots of candles resting in large glass holders; the curtains are a lush purple, as are the walls; there’s an abundance of good wine carefully shelved near a kitchen with state-of-the-art chrome appliances. The dining room is dominated by a heavy wood antique table, atop which sits an open laptop. And next to the driveway outside, a layered water fountain bubbles down the hill.

The Rosses, in short, are living a lifestyle of more than considerable affluence. And yet much of it has been facilitated not by traditional wealth, by cash accumulation and stock-market investments, but by a savvy use of barter. The waterfall, for example, was partially paid for by barter, as were tens of thousands of dollars of the interior design costs accrued when they built their home. Many of the restaurants the Rosses frequent charge them in kind. When they need dental work, they visit a dentist who is keyed into the local barter scene. When they need cash, they raise it by charging commissions on the barter trades their club facilitates. It has become, for the Rosses, something pretty close to a virtuous circle.

“Judy and I have gone twice to Hawaii on barter. I’ve gotten two cars and sold two motorcycles. It’s a good way to move stuff. I sell half for barter, half for cash when I sell a vehicle.”

Ross is, in short, the king of local barter in Sacramento and the foothills. He has found a way to spin cash out of non-ash transactions, and to use noncash transactions to gain entree to a lifestyle he could not otherwise afford.

Years ago, when Ross first got intrigued by the phenomenon, barter was a small-scale affair, a sort of escapist statement of intent.

Think barter, and one might have made associations with communes, hippies, back-to-the-landers looking to escape the confines of a cash-based system. The hard-scrabble hippie homesteads outside of Nevada City, say, rather than the mansion-atop-a-hill lived in by the Rosses. One would have thought informal, perhaps haphazard. A quaint, but inefficient, substitute for the huge markets, value guarantors, and power flows occurring under the authority of the state. After all, what is money, fundamentally, but a printed expression of the state’s power to enforce value transfers between people for purchase of goods, services, labor, security and so on? The stronger the state, and the more effective the markets within that state’s domain, the less the need for barter. As modernity progresses, so barter becomes increasingly obsolete …

Or, maybe, not.

After all, no matter the sophistication of the marketplace, at the end of the day, some inventory in some businesses will remain unsold. Let’s say you’re a sandwich seller; if you’ve done a day’s business for cash, are getting ready to close up and throw away your leftover sandwiches, and someone comes along and offers to trade you a sandwich for a bottle of beer—if you feel like drinking that beer, you’ve got pretty much nothing to lose by agreeing to a noncash trade, even if the dollar value of the beer is technically less than the dollar value of the sandwich.

It’s simply a nice way to get something for your excess produce, for produce that would otherwise end up in a Dumpster. The marginal costs of the transaction are small, the benefits relatively high.

In a down economy, the idea of whittling down surplus inventory or time or finding some other way to render idled assets useful again through such transactions is increasingly appealing. Herb Miller has traded custom-made jewelry for timeshare vacations, airfares, even a Caribbean cruise. Mainly, he does the barter-related jewelry work after hours, so it’s all essentially bonus income. Over the past five years, as the economy first wobbled then tanked, the number of individuals or businesses willing to barter with him has grown by around 30 percent.

“If you weren’t bartering, that’s how much business you’d be losing,” says Ross. “Everybody is struggling right now. A lot of people closed last year. I’m still in business.” He estimates that his club has picked up five new members a month over the past couple of years as a result of the economic downturn.

And that’s the thing. The long recession and general economic malaise has left huge numbers of skilled, motivated, creative businesspeople strapped for cash and looking for outside-the-box ways of either keeping up their lifestyles, keeping open their businesses or making ends meet in the aftermath of their business going under. Unwilling to sit back passively and watch their careers and lifestyles evaporate, they have, in increasing numbers, been turning to barter to plug the holes in their budgets. Ross mentions a nail-salon owner who joined the club as a way to access Christmas presents for her kids that she didn’t have the money to buy.

Of course, one still needs cash to pay utility bills, the mortgage, payroll for employees and so on. SMUD simply won’t take barter, one practitioner explains tartly. But, on the margins, if you don’t have spare cash after your fixed expenses have been met, there are plenty of ways to work the barter system to your advantage.

For Herb Miller, barter has long been about more than just the traded goods; it’s also been about the rush of a good trade, the fun in navigating a complex world of mix-and-match of desires.

Miller’s best ever barter transaction? Ten years ago, when money was tight, he traded an antique platinum bracelet that he’d been unable to sell for cash for a trip to Disney World with his 8-year-old son Cameron. They flew first class and stayed in a five-star resort. The only cash Miller had to pony up was for food, the car rental and the actual tickets to Disney World.

With millions of American individuals and companies now bartering to supplement their lifestyles and their market clout, there’s a good likelihood barter will remain a vibrant part of the economic landscape over the years ahead.

“We would expect [barter] to improve as the economy improves,” Fred Hammer enthuses. “We’re seeing pretty good growth overall in the system right now. New members coming into the system and an expansion in the size of the transactions.”

After all, businesses, once drawn into a trading system that is both fun and effective, will likely keep barter a part of their company model during the good times as well as the bad.