Love’s labor lost?

(Props to Mr. Shakespeare for a sick title)

“The love of money is the root of all evil.” (1 Timothy 6:10)

moneyIn the modern world, the money of most nations is based on bank credit. This is sometimes called “fiat money”, (often understood in a derogatory sense) but I don’t think that term does justice to the problems with modern money. It really just means a currency without an intrinsic value. The more fundamental problem with the modern systems of money based on bank credit is that the money is created on the fly, de novo (in other words, out of thin air), whenever a special kind of bank (usually called a central bank or reserve bank) issues credit. In most cases such debt must be repaid with interest which is a bit like the game of musical chairs–there are never enough chairs (money supply) to cover all the outstanding debts if the music were to stop.  That may be madness, and some suggest that such credit-based money is the true root of all evil–or at least an important source of the world’s current social and economic woes. I think the evils and their supposed impacts on civilization may be exaggerated a bit.

Before I go on let me borrow some basic definitions from Wikipedia:

“Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts… The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally in the past, a standard of deferred payment. Any item or verifiable record that fulfills these functions can be considered money.” http://en.wikipedia.org/wiki/Money

“Commodity money is money whose value comes from a commodity of which it is made. Commodity money consists of objects that have value in themselves as well as value in their use as money.” http://en.wikipedia.org/wiki/Commodity_money

“In commodity money, intrinsic value can be partially or entirely due to the desirable features of the object as a medium of exchange and a store of value. Examples of such features include divisibility; easily and securely storable and transportable; scarcity; and difficulty to counterfeit. When objects come to be used as a medium of exchange they lower the high transaction costs associated with barter and other in-kind transactions.” http://en.wikipedia.org/wiki/Intrinsic_value_%28numismatics%29

Some think that using a currency with some intrinsic value and a finite supply, like gold or silver, will solve the money problem. I am skeptical, so I am trying to make sense of the confusing subject of  money and alternative currency.

“Plastic” money (credit and debit cards and the like) and their processing systems just move “bits” of information around from one computer and customer account to another. They have the same effect as writing debit and credit entries in a bank ledger. That kind of money is called a unit of account. It is generally associated with a technology of some kind like ledger books, computers, marks on clay tablets, strings of beads, coins, paper “coupons” or “notes,” etc. Some of these tokens may have uses or qualities other than as units of account and so may be thought to have “intrinsic value.” Intrinsic value may be completely unrelated to the monetary value as a unit of account.  One form of value slightly different from intrinsic value is perceived value based on trust, acceptance, custom, etc.

One of the most popular alternative currencies is bitcoin, but I have been reluctant to fully embrace it for reasons that were not really clear to me until I discovered the following quote from Adam Smith:

“Labour was the first price, the original purchase-money that was paid for all things. It was not by gold or by silver, but by labour, that all wealth of the world was originally purchased.”

                       ~Adam Smith

I think this might be the key for a new kind of money that can take any physical form but is “backed” (given its nominal value, face value, or par value) by units of labor, not by bank credit or on any supply of precious material. (Curiously, one might say that the alternative currency bitcoin is based on machine labor, i.e. mining.)

As long as the value of money is ultimately based on (backed by) labor, I think it may be safer to use whatever currency, token, or proxy is most convenient for a particular kind of transaction. The caveat is that currencies, whether they have intrinsic value or not, are not neutral or inert. Each kind of currency has built-in attributes that may affect the equity of transactions, especially if these attributes are not obvious to all parties.

Bank-issued, credit-based money; gold, silver, or other precious materials; barter exchange systems, etc.– all have their intrinsic “issues”. Credit-based fiat money may be well-suited to a cashless  digital world, but the same absence of intrinsic value may appeal to unscrupulous financial engineers who find it ideal for obscuring risk in and price information in complex derivative products. In the brave new world of proprietary currency we may also see a new generation of “weaponized” currencies entering the intellectual property arms race:

“Apple … requires all apps sold for their platform to go through Apple’s centralized payment system, which generates considerable revenue as they take a 30% cut of all revenues. Some developers tried to bypass this restriction by sending their users to make in-app purchases elsewhere, but Apple eventually banned the practice. And Facebook, with its new Facebook Credits system, is seeking to do the same. Replacing the choice of competing virtual currencies with a mandate to use their own, they intend to extract the same 30% tax that Apple does from all revenues made within their ecosystem. (How Bitcoin may undo the Apple/Facebook 30% sales tax, blog.p2pfoundation.net)

I am no currency expert and I’ll not try to survey the pros and cons of various real and imaginary forms of currency. I am simply suggesting that any currency we use might have more legitimacy and stability if it were ultimately based on (backed by) labor.

Many will object that labor is a poor value standard because the value of labor varies according to the qualities of labor (abundance, expertise, fitness for a given purpose, etc.). But to argue that the value of one person’s labor or time differs from another’s is to claim that the value of different people’s lives varies.

Oh, really?

The products or results of one person’s labor may be more valuable than the products of another persons labor, but we need not (in fact I believe we must not) conflate the value of the product or service with the value of the labor or the person– despite the tempting convenience and simplicity of so doing. Many things go into the value of a good or service besides the cost of labor. My proposal is only that the value of a unit of human labor should be universal and that this value might become the ultimate standard behind the value of any basic unit of currency. Might that make it easier to keep track of risk and value even if financial engineers converted labor into other units or bundled time into derivatives?

(I’ll leave it to others to debate the relative values of a man-hour, a woman-hour (grin), an ox-hour, a machine-hour, etc.)

Seriously, though, I am still struggling to analyze the implications of Adam Smith’s statement.  One nagging idea is to separate the time that is devoted to work from the value of the creative or productive results. A unit of human time (person-hour, person-minute, etc.) would have the same universal value for any person participating in the system. There shouldn’t be any need to assign any another form of value (dollars, for example) to the basic time units. They posses their own intrinsic value–your minutes are worth the same as mine.

In our usual way of thinking we say that different people’s time (and by extension, their lives) have different economic values depending on their relative productivity; but also, at the same time, we want to believe that everyone’s life has a non-economic moral or social value. We also want to say that each human being’s moral value is equal . There seems to be a constant state of contradiction and tension between “apples and oranges”, between economic, social and moral value systems. An unproductive bum may also be a social liability and yet s/he may be “just as precious in the eyes of God” as a hard-working, family-raising pillar of the community.

It may seem intuitive to simply make a distinction between the monetary value and the moral value of a person’s time, labor, life, etc.;  but doing so may in fact, if my hypothesis is correct,  be a slippery slope towards evil, because it introduces an element of hypocrisy and cognitive dissonance.

Labor’s love lost?

Instead of monetizing labor, maybe we should be labor-tizing money.

Poor Richard

Addendum

I caution that my labor-value hypothesis is still fraught with hard questions. In the comments to this post I have a dialogue with a relatively hard-core money abolitionist who argues that a commons-based economy can operate without currency. My preference would be a hybrid economy that uses money along with other ways of controlling fair and sustainable access to the commons. No matter what accounting technology or theory we consider, I don’t foresee a fair economy free of score-keeping any more than a science free of measurements. Nature works without money, but it works largely without all other abstractions, including language, too. I don’t see a human society reaching its potential without money or language.

I’m inclined to think that many (if not all) the ills we blame on the money system are reflections of human nature.  That is why I’m not a complete fan of “gift economies” or other philosophically-based money reforms such as the “sacred economics”  of Charles Eisenstein. I like some of the ecological concepts and social sentiments of  those programs, but I’m skeptical of the practicality and scalability of the proposed solutions for a large, complex, modern society. I don’t think they fully account for deeply embedded human biases that are legacies of evolution. If  the ills we blame on the money system are reflections of human nature acting in specific ways under specific environmental conditions, we might reform money or create a new system only to find the old problems creeping back in. We see this in things like land reform programs where land is redistributed more fairly only for concentration of ownership to gradually return, perhaps because of a lack of education, including economic literacy, in the general population. I don’t think Eisenstein and other gift economy proponents adequately address this potential “rubber band effect” that may result from intransigent cognitive and cultural biases, especially when we try to change ONE thing, like money, without understanding and changing enough of the related cognitive, social, and economic variables at the same time.

I may end up siding with those who argue that a currency is better off backed by nothing at all but confidence or trust. Its really all about digital accounting, anyway, and we have that down already (ATM’s, debit cards, and online banking). The part that is screwed up is that a bunch of old white dudes called “Reserve Bankers” have an exclusive (and in the US, unconstitutional) franchise to post unlimited digital money into their own accounts, without it accounting for anything real they traded or sold. Then they lend that made-up money to you and I or the government at interest!

I don’t hold with arguments that money or banking per se are evil. Both can be benevolent if used the right way. A non-profit community savings & loan bank or a credit union protects and rewards the savings of the community and finances the community’s local self-development with the community’s own savings. Borrowers pay a little more interest than savers receive. The small spread between the loan interest rate and the savings interest rate pays for the overhead costs of the credit union or non-profit bank.  If you ask me, that’s all good.

But two things never seem to mix without becoming pathological: banking and the profit motive. When banking is operated for profit, the incentives always seem to get twisted around and the system gets gamed.

A minimum basic income as a human right?

The standard value of a life would need to be computed by some algorithm and that would be fraught with issues, but however it was computed, it would be a floor, not a ceiling, to the subjective values that others might place on a given life for whatever reasons. My proposal may really be a back-door way to argue for a basic minimum income as a human right.

Unfortunately, I don’t think my proposal does anything to solve the problem of some people being worth more dead than alive….

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9 Responses to “Love’s labor lost?”

  1. n8chz Says:

    If the love of money is the root of all evil, what is the abhorrence of money?

    I’m sympathetic to the Money Free crowd, in spite of their unfortunate Zeitgeist tendencies. I long ago came to the conclusion that money is not a storehouse of value (or of labor) but a method for keeping score. I aspire not so much to abolish it as obviate it. I’ll settle for a Money Optional society.

  2. Poor Richard Says:

    n8chz, thanks for your comment. The abhorrence of money is sour grapes :). I agree that money is basically a score-keeping device. The problem is that different money/currency systems all have intrinsic qualities that affect the score, especially when we aren’t looking. The money-free crowd is naive, since one or more score-keeping systems will inevitably arise, whether explicit or implicit, for almost any conceivable form of trade; and those ad hoc systems may be less fair than whatever system people are trying to get away from. As I suggested above, various score-keeping systems may be more or less appropriate to different kinds of transactions, One system may work better within the local economy of a small rural village or town, and another may be better for interstate or international trade. I also favor currency diversity and choice in a well-regulated money marketplace that requires a full comparative disclosure of the intrinsic characteristics of each currency. As long as such a regulated marketplace is available to all, then the local use of unregulated, idiosyncratic currencies is less likely to cause any great harm, and so that should also be permitted. And I favor ongoing experimentation with new currencies in the hope that some will emerge that are more economically or socially neutral (i.e., fair and stable) for various kinds of transactions.

    PR

  3. johnturmel Says:

    PR: I think we should have a monetary system ultimately based on labor, not on bank credit or on any precious material.

    Jct: Right you are. That’s going to the underground currency of the 99%. And labor is measured in Time. So the LETS time-trading barter software expanded to a global UNILETS is the solution with a Volunteer Hour at labor as our new base purchase-money.

    That sounds like the kind of thing I’m grasping at, John. Thanks for the suggestion.

    PR

  4. Karl Says:

    > The abhorrence of money is sour grapes.

    No, it’s recognition that money is a primitive information technology that is inherently problematic. It facilitates corruption and mystical thinking (i.e. “just throw money at the problem”). It’s an unnecessary and silly abstraction of value which results in tragic consequences.

    > But to argue that the value of one person’s labor or time differs from another’s is to claim that the value of different people’s lives varies.

    Yes, all men are *not* created equal. All men are *not* educated equally nor do they help their fellows equally. Any sane and compassionate political economy must be OK with that. The problem is that you insist on forcing a judgment of value where none is necessary. To value labor equally for all is nothing but the lie of convenience you claim you want to avoid.

    > I agree that money is basically a score-keeping device.

    But it’s not just that. It’s a control mechanism which grants permission to access resources. Past performance is not a guarantee of future success in any endeavor. New projects should be judged on the merits of their designs, not that a person starting one has accumulated some high score. The score is highly abstract and an unreliable indicator.

    > The money-free crowd is naive, since one or more score-keeping systems will inevitably arise, whether explicit or implicit, for almost any conceivable form of trade.

    Why are you restricting the solution set to market-based organization? If your only tool is a hammer…

    What happens in an open commons with peer production is not a market. Production is done for use, not accumulation. All technical information is open and freely available for further development by anyone. The labor, designs, processes and products need only stand for themselves. There is nothing gained by reducing them to a single number, and as we see in practice, much is lost.

    • Poor Richard Says:

      Karl,

      Thought-provoking comments!

      [The abhorrence of money is] recognition that money is a primitive information technology that is inherently problematic. It facilitates corruption and mystical thinking (i.e. “just throw money at the problem”). It’s an unnecessary and silly abstraction of value which results in tragic consequences.

      Existing money systems are primitive and problematic, which is why I advocate R&D in better forms and for better disclosure of the problems inherent in existing forms. I agree that some of the common problems include promoting corruption and distorted thinking. Some of this comes from obfuscation (deliberate or incidental), excessive abstraction, etc. A clear example is manipulative “financial engineering” as in the case of “derivatives”. This can radically distort realistic “pricing”, risk, etc. I agree that consequences can be tragic.

      However, part of my hypothesis is that some types of financial abstraction have so much utility or convenience that they will inevitably resurface no matter how often you try to eliminate them. So a better money system would try to eliminate the bugs in other systems while conserving the features that people want for legitimate purposes.

      Yes, all men are *not* created equal. All men are *not* educated equally nor do they help their fellows equally. Any sane and compassionate political economy must be OK with that.

      I’m ok with that, too. I tried to suggest that the inequalities that matter for economic purposes are only those differences that are transferred into the products of a person’s labor and that should not reflect on the value of the person or even on the fundamental value of a person’s time.

      The problem is that you insist on forcing a judgment of value where none is necessary.

      Because of my lack of expertise its possible that you might have a point there, but I’m not convinced. Can you explain why no “judgement of value” is ever necessary? That seems very counter-intuitive to me.

      To value labor equally for all is nothing but the lie of convenience you claim you want to avoid.

      I can see why you might think so, but I don’t agree. Assumptions and biases embedded in the core of our language and culture make it anything but simple or convenient to disentangle the value of human time and the value of what is produced in that time. I am still grappling with the idea myself. The statement by Adam Smith germinated the idea, but it is obviously still in gestation. It may prove to be a false start, but you haven’t convinced me.

      But it’s not just [a score-keeping device]. It’s a control mechanism which grants permission to access resources.

      I don’t see a big distinction. Doesn’t one usually imply the other?

      Past performance is not a guarantee of future success in any endeavor. New projects should be judged on the merits of their designs, not that a person starting one has accumulated some high score. The score is highly abstract and an unreliable indicator.

      Sorry, I don’t see how this applies to anything I wrote. Please explain if you wish.

      Why are you restricting the solution set to market-based organization?

      I didn’t consciously mean to. I’m trying to address the widest possible audience, so I’m open to discussing systems that can not be modeled in a market framework, if such systems exist.

      What happens in an open commons with peer production is not a market. Production is done for use, not accumulation. All technical information is open and freely available for further development by anyone. The labor, designs, processes and products need only stand for themselves. There is nothing gained by reducing them to a single number, and as we see in practice, much is lost.

      I have a personal bias in favor of p2p and open commons theory and practice, but I’m also a systems analyst accustomed to converting one kind of model, symbol, language, etc. into another. Can you explain why p2p and commons theory can’t be modeled as special kinds of markets?

      When you say that things need only stand for themselves, can’t that include time? That would seem to support my position. But more generally, I would argue that particular proxies have utility or dis-utility depending on many different factors. This is true of any technology (we agree that money is a technology), even if technology is never neutral. Reducing a particular thing to a single number might have high utility and little downside under the right circumstances. In other circumstances it might contribute to tragic results.

      So far, your arguments would seem to apply only if you controlled a whole lot of variables (specific p2p and open commons design parameters, for example) across the whole social and economic domain you wish to include in your analysis. You might defend your case for a very special community model, but in my post I intentionally alluded to a diversity of scale and scope: local, regional, international, rural, urban, etc. Any idea of imposing a single p2p/commons model on the whole world is just too improbable. I want to be as neutral and agnostic toward diversity of culture, custom, etc. as possible. In order to promote a particular, narrow point of universality (a universal value for human time) I have proposed the relatively controversial (and inconvenient to explain and defend, as our discussion proves) device of disentangling time from productivity. Existing and future methods for valuing productivity should be able to coexist in parallel with my proposal, minimizing the difficulty of implementing the universal time value in any given context.

      I share your sentiments about sustainable, p2p, commons-based, communal values. I also want to maximize utility (the greatest good for the greatest number sort of thing). Everything else equal, I prefer things standing for themselves, without the use of proxies and abstractions, when and where that is workable and agreeable for those involved. I prefer direct production for direct use with as little impact on nature and people as practical. But the word “practical” may have almost as many definitions as there are people.

      PR

      ps If I want to acquire a tractor from the nearest available manufacturer (perhaps in another city), how much of my stored grain do I need to send them? If I need to send too much, I won’t have enough left for winter. I don’t think I’m the only person who doesn’t want to conduct all his/her affairs without any fungible proxies.

      • Karl Says:

        > Can you explain why no “judgement of value” is ever necessary?

        We make decisions based on constraints. My point is that the constraints should be real and not artificial. Placing a singular, monetary measurement on things is artificial hokum. The non-human parts of nature don’t require money (i.e flowers don’t grow for dollars and bees don’t pollinate for bitcoins), and neither do we. It’s an historical artifact that we have to deal with but we can do much better at managing our affairs.

        Problems of judging fairly what labor is worth are created only when we insist that the labor be converted to “social credit” so that a system of tit for tat transactions can be maintained. A blind transnational system of this sort discards important relational information and so social problems can never be solved holistically and effectively.

        > Reducing a particular thing to a single number might have high utility and little downside under the right circumstances.

        There are no right circumstances to practice deception. Anyone who engages in this is begging for problems. The first commenter on this post mentioned the Zeitgeist Movement. Their agenda, which seems entirely reasonable to me, boils down to applying the methods of science to political economy. This means trying to accurately model the world, and not accepting representations which are known to be inaccurate.

        > some types of financial abstraction have so much utility or convenience that they will inevitably resurface no matter how often you try to eliminate them.

        My take is that most of the “utility” of a blind transactional system is in how it allows the unscrupulous to screw over the ignorant.

        > Can you explain why p2p and commons theory can’t be modeled as special kinds of markets?

        Why aren’t you trying to model markets as a special kind of commons? Ha ha ha. The concepts themselves are abstractions, and there is an element of reflexivity here, so it makes discussing them difficult.

        Here’s one way I distinguish the two concepts. A market is a space where exchange happens and each party must give up something. A commons is a goal in and of itself. Parties can take from the commons without giving, but other parties must be maintaining it. So markets are about direct economic linkages which demand an accounting and commons are spaces for indirect ones. The indirection is necessary and the market system does not allow it, so the money abstraction gets created. In a commons a holistic accounting can done by tracking outcomes rather than making sure all the steps used are all “equal”.

        > In order to promote a particular, narrow point of universality (a universal value for human time) I have proposed the relatively controversial (and inconvenient to explain and defend, as our discussion proves) device of disentangling time from productivity.

        I’m not sure what you’re saying here. It’s not possible to do production outside of time, so why are you trying to “disentangle” from it? This sort of reductionism (if that’s what you’re doing) is what I’m advocating against.

        • Poor Richard Says:

          Karl, I’m sympathetic with your line of argument but it also seems a little dogmatic or ideological. My thoughts about about a labor-based currency are very preliminary and may lead nowhere. I’m trying to tease out some things I don’t see clearly yet, but which I seem to have some nagging thoughts and feelings about.

          For example, I’m not comfortable with the assumption that a lawyer’s time is worth more than a janitor’s, or that some people may be more valuable than others, or that some lives may be more valuable than others. I understand that the value of goods and services produced by labor may be valued very differently, and that people have different expertise, intelligence, etc. I don’t have a problem with that part.

          This has two other dimensions: how we see/judge/value ourselves and how others do.

          How we are paid or rewarded for our time is tangled up in all this.

          I am not really interested in discussing moneyless economic models. I don’t think they will solve the problem. People are still going to do some amount of cost-benefit (give-get) accounting even if unconsciously. And most people still want to trade and travel in the outside world even if they live on a self-sufficient farm. This isn’t theory–I’ve been around.

          I don’t have much background in alternative currency issues, but I’ve lived in four communities that involved various kinds of commons, visited many others, and read about many more. I know that conflicts about rules, fairness, etc. are common when responsibilities and resources are shared. Sometimes abundance reduces conflicts and scarcity increases them, and sometimes the opposite. Every group of people and every situation is different.

          Do the Zeitgeist people have a working community? I’ve seen some videos and read some stuff about them and I was pretty skeptical about what they call (I think) a resource-based economy. I lived at Turtle Mountain Preserve which operates on a fairly primitive physical and economic level, in some regards (not all) the way people lived in the 17th century.

          We make decisions based on constraints. My point is that the constraints should be real and not artificial. Placing a singular, monetary measurement on things is artificial hokum. The non-human parts of nature don’t require money (i.e flowers don’t grow for dollars and bees don’t pollinate for bitcoins), and neither do we. It’s an historical artifact that we have to deal with but we can do much better at managing our affairs.

          Real vs artificial constraints is pretty vague. I think we’d need to use some examples to better define the distinctions. I use a lot of artificial and abstract things, like words for example, and find them very useful even though they aren’t neutral.

          Human minds, lives, relationships, etc. are much more complicated than flowers and we use lots of artificial and abstract tools. Many of our interactions involve abstractions. Abstraction is not equivalent to deception. We can combine them, but they can also exist independently.

          Thanks for the chat. PR

      • Karl Says:

        I typed “blind transnational system” above where I meant to say “transactional”.

  5. mrobertwardenjr Says:

    Thanks for including my blog post on this topic, Richard. It is a bit late for me to join this discussion, but you, I and others have been through this argument that money is unneeded before. Ideally, everybody could just ask a machine to produce whatever they need, as in Star Trek, but that isn’t our reality. Either way, with or without money, fairness is an issue. Of course, when I speak of “money,” I am speaking in the broadest sense of markers used to make certain claims on resources.

    I think there is an analogy to money in ecosystems, which would be nutrients. These can be stored, recycled, created, or wasted, and when a plant or animal wants to grow (which is biologically programmed), it makes a claim on certain nutrients in its vicinity by ingesting them. However, living creatures grow only to reasonable sizes, within the context of the ecosystem, rather than turning into global corporate monsters, which is what the financial system we humans have created, allows to happen.


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