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Value-based economies

Most of the problems encountered in modern society can be attributed in some way to money. Poverty is a result of having too little or no money and the dangerous balance of power that leads to oppression is a result of too much money at the disposal of too few people. Money can be manipulated in ways which accumulate debts and its distribution is grossly uneven.

This is because money is a fictional token of value. The value is assigned to the token so that even the value is fictional because the tokens have no intrinsic value. But we have become so addicted to this concept that, even when we are looking for alternatives that will take the dangerous levels of power away from the banks, we look to alternative versions of exactly the same thing: local currencies. The heart of this idea is in the right place but the level of innovation does not go nearly far enough.

We must ask: what do we want our economic model to do for us? Forget, for the moment, the idea of a unit of exchange and look at the essential role of economic models. We want to ensure that every member of society is individually rewarded for their contribution to society. That's it. We want to ensure that the members of society have access to the benefits of society and that each individual earns the right to those benefits.

The unit of exchange was a good idea when it was introduced around 700BC... but surely we have moved on somewhat since then! Basically, money is simply an abstract version of the barter system. It is a very simple concept despite the complexities that now apply to economics that manipulate the ways in which transactions can be undertaken to such a degree that even the fictional face value of money is volatile.

The mistake, of course, is in assigning a fictional 'token' value to something that (a) has no intrinsic value and (b) can be freely exchanged. This applies equally to local currencies.

In 2009, Gordon Brown made a speech about what he referred to as a "value-based economy".  The speech itself was little more than hot air flatulating in spin and soundbites from a dying dinosaur. Nothing new was on offer. But the term "Value-Based Economy" struck a chord with me. What entities have true, intrinsic value? People, products and services. What I am proposing here is a complete departure from the idea of a unit of exchange. Instead, I propose fixed units of value linked directly to the services and products that society needs and the people who provide them. The main difference between this concept and the unit of exchange concept is that money is essentially a very simple (and primitive) concept that has become extremely complex in application. What I propose is complex (and more sophisticated) in essence and extremely simple in application.

All businesses must have a "bottom-line", which is the point at which the business breaks even with no losses or gains. Society, too, must establish a "bottom-line" but with a slightly different angle. Society's bottom line must be assured survival for everyone within the community. If we fall below that level (and we are currently WAY below that level), society is on a downward path to extinction. Above that level, society is in a state of growth. That bottom line is where society ticks over with neither loss nor gain and, as with any business, this level is not indefinitely sustainable but it must be our starting point.

So the bottom line is that the community provides adequate housing, adequate nutritious food, serviceable clothing, clean water, energy for heating, cooking and lighting and access to public transport, education and public health care for every family or single member of the community by default. No one has to earn this. This, of course, will require considerable manpower and resources and this must be assigned a value. Value is based on need, time and take up.

Because the 'need' element is assessed as essential, this is assigned the highest level of value. Because the take-up will be 100% of the community, this is also afforded the highest level of value. Each of the resources is also linked to a fixed value rated as essential. This calculates as a given figure. Every individual employed in the provision of these essential services will have a base value linked to their identity according to the level of skill required to perform their roles. This Base Value figure is then used to calculate the value of one hour of working in the provision of the service. Each hour worked earns a given number of Redeemable Value Points (RVPs) established by the base value of the individual.

RVPs can be 'spent' in return for other, non-essential services such as more exotic foods, more stylish clothing, nicer homes, entertainment and so on. However, for these to be of any value, these non-essential products and services must be available and this is where  entrepreneurial skills and innovation come into force. A good business idea is set out with an estimated percentage of the community likely to use the products or services. The value to the community is assessed and the idea is awarded a provisional base value. This figure identifies how many RVPs can be generated in order to procure the resources necessary to establish the business. A provisional base value is then assigned to each of the personnel according to the level of skill. After a year, the business is reviewed and given a fixed base value according to performance and this is reflected in the fixed base value of each of the personnel.

Businesses can grow and individuals are rewarded for their input. RVPs can be redeemed by 'purchasing' services or products and this is how it would work:

(A) wants to buy a computer from (B)'s computer store. The computers are supplied by (C) computer manufacturers. (A) chooses a computer priced at (X) TVPs. The price is the base value of the product and will always remain a fixed price. The store deducts (X) RVPs from (A)'s base value account. This does not affect the base value of (A) but simply reduces the number of available RVPs. The base value account is not a 'bank account' because there are no banks as such. (A) is his or her own bank in this respect. The appropriate number of RVPs is then added to the base value account of the store. When the store has its annual review, the number and value of transactions are calculated to provide a new base value for the business, which is then fixed for another year. The base value of each individual working in the store is then adjusted accordingly. When (B)'s computer store restocks from (C) computer suppliers, the value of the transactions are transferred to the supplier.

In this way, businesses grow according to their value to the community and personal wealth grows according to value to the community. This provides an incentive to every business and individual to provide as much value to the community as possible. However, the base value can never be transferred. RVPs are simply records linked directly to the businesses or individuals to which they apply. They cannot be loaned or borrowed (or stolen). One cannot gamble with them or trade with them as is done with international currencies. They have no intrinsic value and exist only as a record of earned entitlement to products and services.

This takes banks out of the equation. This takes taxation out of the equation. Value cannot be manipulated in the way that money is and value is not volatile but fixed.

With our current system, the price of a loaf of bread can vary from one day to the next according "market forces" but its value always remains constant. The value of a loaf of bread is the same now as it was in Biblical times. Value is reality whereas "price" is a fluctuating fiction. We cannot continue to be at the mercy of an economy based on a fluctuating fiction. it is unsustainable, to which the current economic crisis testifies.

It takes imagination to look at a heap of stones and see them as loaves of bread. It takes insanity to starve because we don't have enough stones!

This idea is just a basic possible alternative to illustrate that we can live in a moneyless society and still enjoy the prospect of reasonable wealth but without the fear of crushing poverty. Businesses can still enjoy growth but without the dangerous levels of corporate power currently exercised by companies that pollute and exploit with only the interests of their shareholders to consider. There may be many other workable alternatives and I don't doubt that others will have other ideas and better ideas. The only rule is that economies must be based on true value.

Why is gold valuable? Because it is scarce.
Does it matter that it is scarce? No
Why does it not matter that it is scarce? Because gold is too soft for most applications of metal and it is too heavy for practical use. Its use is limited to jewellery and, in small quantities, to technology.
So what is the value of gold to society? Minimal
So why is gold valuable?

In real terms, iron has far more value to society than gold because it has more essential uses. Glass is far more valuable to society than diamond because it has more essential uses and on it goes. The market value of minerals such as diamonds and gold are volatile because their value is fictional. Their real intrinsic value is minimal. So a currency based on something like the Gold Standard is also a fiction. We must base our economy on stable values that do not fluctuate with market forces

Tags: alternatives, economy

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Replies to This Discussion

Permalink Reply by Christopher Tidman on March 13, 2011 at 11:42am

I think that you are missing the cause of the problems we are experiencing.

We have a monetary system with a flaw.  Interest is a positive feedback loop that forces the system to grow continually.  Because all our real world is dependent on the monetary system everything we do has to show growth every year. If it doesn't grow it is an economic failure and goes bankrupt.  The problem with things that have to grow in order to survive is that eventually they reach limits imposed by their environments and they die.  We are reaching the limits of expansion and we are experiencing collapse.

Yes we need a new monetary system.  It will have to be interest free money so people will not want to own it.  Money will be owned by the Government (read people) - whatever form of Government, and it will be handy for bookkeeping.  Local currencies are fine, but unless the 'business as usual' people change their ways we will still have very rich people wasting and polluting all the resources that we need to survive on.

Permalink Reply by Ron Tocknell on March 13, 2011 at 12:55pm

A serious problem with the monetary system is that, accepting that the currency itself is only a token of value, it is either backed up by something that has an equally fictitious value such as gold or silver or it isn't backed up with anything. There is talk of backing the dollar with oil. Great! Fantastic! Let's get ourselves even more committed to oil consumption!

 

How about backing it with grain? It has to be backed with something of universal value. Food has that far more than oil. Let's say the dollar is established at the value of, for example, a pound of grain. Then the dollar now has a nutritional value. The nutritional value of grain is constant so the value of the dollar remains constant.

The beauty of backing it with grain is that, not only is grain of real measurable value, it can create its own interest. If you plant a pound of grain, you will get the pound of grain you started with plus a lot more. The power is taken away from the FedRez and is in the hands of farmers (for the first bloody time in history!!!). The government cannot print more money unless they have the grain to back it so they are dependent on the farmers to grow the currency.

I am using the word grain as a generic term for all food seed, not just cereal. All food seed is evaluated according to the nutritional value of the food it will grow so a dollar's worth of spinach seed will be a different weight to a dollar's worth of corn or wheat.

This will encourage local food production because it will boost local economy. Everyone can grow food and what seed is left over after meeting their own needs can be either stored for resowing or banked to convert it to cash.

Money is then returned to its formal role as a universal unit of exchange but it is effectively a token for something of real value that must exist.

Now this idea has just popped into my mind so I haven't thought it through in detail. But then, I don't really do thinking through in detail, as you may have noticed. I'd be interested in the views of others who may understand economics better than I.

Permalink Reply by Kenrick Chin on March 13, 2011 at 1:59pm

Hi Ron,

 

Your idea of money backed by grain has some merit and is being attempted.

 

http://campfire.theoildrum.com/node/5158

 

We have seen attempts to back paper money by various commodities such as gold, silver, oil, grain and even time.

 

How about money based on trust? We print our own money all the time and this is legal. Every time I write a cheque I create money.

 

From my website: www.steady-state.ca

You might not have thought of it this way, but we print our own paper money every time we write a cheque. Understanding this simple practice will give you some insight into how our economic system works.

Let us suppose that your friend John has a guitar that you would like to buy from him for $100. You say to him, "I don't have the cash on me right now, so will you take a cheque?" John looks at you and trusting that you will not rip him off, replies, "Sure thing, bro." Now, whether you actually have $100 in the bank is of no significance at this point. You have just written an I.O.U. on a piece of paper and John trusts you. He has confidence that you will honour your promise to pay.


Now if John endorses the back of the cheque with his signature, that piece of paper can now be traded to anyone else just as if it were real money. John exchanges the $100 cheque for a drum set. In fact, the same $100 cheque gets traded many times over and each recipient of the cheque accepts it on faith, with confidence that it is worth the $100 written on it. This can go on indefinitely and whether or not there is $100 sitting in the bank is not particularly relevant. The system functions entirely on trust, on consumer confidence.

Then one day, many years later, you sell your old computer for $100 and the buyer offers you a cheque for $100. You look at it in amazement and say, "Hey, this is the same cheque I wrote out to John ages ago. The son-of-a-gun never cashed it. I always wondered what became of him and my cheque. Look, it even has my signature on it." You willingly accept the cheque in exchange for your computer. Then you ponder what you should do with it. After no more than a few seconds you quickly realize that the piece of paper is worth nothing to you. You just rip up the cheque and toss the pieces in the dust bin.

In the same manner, government can pay its bills by printing its own money. When the government receives tax payments with the same money, its original I.O.U. is cancelled or redeemed and the paper money not longer has any value. The government can choose to destroy the paper money or it can reissue it as new I.O.U.

 

The bottom line is there is nothing sacred about money and does not need to be backed by any real commodity. In reality, money is a debt on future workers.

Permalink Reply by Christopher Tidman on March 13, 2011 at 2:33pm

Money could be backed by the quantity of drinking water that a country has relative to the population and the number of dollars in circulation.  Pretty hard to screw around with those numbers and they would have real meaning.  It would effectively be what you have to pay for a litre of drinking water which makes as much sense as relating it to the cost of an oz. of gold.

Relative value of money is controlled by the market.  The perceived value of anything can  be manipulated and whatever value material selected to 'back up' the money changes so money can not have any fixed value.  Don't bother even trying to solve that one.

What can be fixed is the removal of the interest bearing condition of the money.  The total amount of money in a country should be equal to the total value of the goods and services (value) of the country.  But since every dollar is owned by someone who expects to collect interest there has to be more dollars in circulation at the end of the year. We then print the extra so that people (bankers) can be paid the interest which reduces the money value of all the assets or we don't print it and let a bunch of people go bankrupt.

In the beginning the King minted coins and paid people to build a road.  Then he charged a toll to use the road and got his money back.  Nobody collected interest and it worked just fine thank you.  When more money was needed to make trades the King loaned money to his Lords and Ladies and the Lords and Ladies paid people for work and sold their produce to get the money back.  Look up 'Tally stick'. - This is your local community currency model.  It works.  What doesn't work is The Federal Reserve (a private company) printing money and loaning it to the Government at interest.  Lincoln's 'Greenback' was interest free money which is why he was killed.  Who controls the money supply controls everything.  When individuals are allowed to own money they can control things (capitalism) for their own good at the expense of everyone else. 

Without money your vote does not count because your Government does not control the money supply.

 

Permalink Reply by Christopher Tidman on March 13, 2011 at 3:07pm

I have just realized that-

Money is the same as credit when the interest factor is removed.  This means that people can be paid with credit which they spend the same as money.

Every citizen could be given a monthly credit (basic living allowance) and anyone who feels entitled should be able to exercise SDR (Special Drawing Rights).  We have to give more credit to the people who contribute more to our well being.

This could be implemented by any Government.  Very easy for the Canadian Government that owns the Central Bank and could issue credits to every Canadian without changing any legislation.  We each get issued a Bank of Canada credit card and we put interest free Canadian money into the economy. Citizens who chose to collect their monthly credits agree to have their credit draws public so that the system is not abused.

Thank you Ron.

Permalink Reply by Kenrick Chin on March 13, 2011 at 3:19pm
That is how the system is supposed to work. The Central Bank (with no political interference from the government) gives the money to the Government interest free. The Government uses it to pay for infrastructure and civic services while reducing the need to collect taxes on personal income. (It does put tax collectors, accountants and banks out of business.)
Permalink Reply by Kathryn Alexander on March 15, 2011 at 2:44pm

Ron, I love your thinking! Do you think that this could be implemented within a current "timebank" model? Are you familiar with that? Please contact me and let's talk.

Warmly,

Kathryn

Permalink Reply by Ron Tocknell on March 16, 2011 at 12:01pm

We've had a similar system where I live, called a "Letts scheme". That is putting in time to provide services which entitles you to certain services within your timebank account. Is this the scheme you mean?

 

I think this is a good thing to operate anyway regardless of the economy model in use. I'm not sure how it could be implemented as an overall replacement for our economy but, if workable, it would be good. What about those who are unable to put time in for whatever reason?

Permalink Reply by David Eggleton on July 14, 2011 at 10:20am
just bringing this into view
Permalink Reply by Christopher Tidman on April 16, 2012 at 6:02pm

Been a while since I was here. I see that I left with some things not too clear. I propose that the central bank not loan money to the Government. it loans money interest free to individuals. When entrpreneurs make a profit the money is deposited back into the bank where a small % is deducted for the repayment.

So the money gets loaned to individuals in avery transparnt manner - we are the managers of this thing and we control the formula for granting loans. We also set the % repayment which is deducted from the deposits. Everyone has a debit/credit card and most of us will be running up a debt until we find something that others will employ us to do.

Latest thought is a way to get this interest free money into the economy. I thought that if we had a virtual currency like an Ammero which could be converted into any other currency at an exchange rate equal to some kind of average value of the USD the Cnd dollar and the Mexican Perso, we could loan it to debtors forced into bankruptcies. The debtor would use this interest free money to pay off his debt and repay the Ammero bank as a % of his income. The creditor who obviously made a bad loan gets repaid the full amount owed but the Ammeros he gets as payment are non interest bearing. They can be spent but not loaned to others at interest.

Permalink Reply by Ron Tocknell on April 17, 2012 at 3:23am

It's a good alternative to what we have but then, the concept of money was a brilliant invention initially. Any new way of dealing with a monetary system is prone to the same corruption as the current system. The essence of the problem is the fact that we are using something of no intrinsic value to represent value. Try eating something that has no nutritional value but represents real food and see how long you can live on it. Do you see the point? If the value of a unit of exchange is decided rather than intrinsic, that value will always be unstable and fluctuating. Who decides the 'value'? What influences that decision?

Resource based economies are based on real value commodities such as food and raw materials, the value of which is inherent in the material according to the uses to which it can be put or the nutritional value it provides. These values cannot be manipulated by those with hidden agendas.

Permalink Reply by Kenrick Chin on April 17, 2012 at 6:23am

Charles Einsenstein's "Sacred Economics" makes a long but valuable read:

http://sacred-economics.com/

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