The history of labor cost theory is very ancient. People have long ago concluded that any product requires some time and work long ago. And, the more labor and time the product creation takes, the more valuable it is, and the higher is its cost.
Classical political economy, starting from its founder, Adam Smith, has made the theory of labor cost its foundation. Ricardian socialists, in their development of labor’s notion as a source of wealth, concluded that workers do not receive the entire product of their work, as a part of said product gets expropriated by capitalists in the form of revenue.
Such ideas became popular both in the Old and the New Worlds, which resulted in emergence of various ‘fair exchange’ projects focused on elimination of the aforementioned ‘disadvantage’ of capitalism.
Generally, all those projects were built around such notions as elimination of loan interest, trade profit, or profit altogether; as well as denominating product cost in labor hours instead of money, and replacing gold money with labor quotations.
Robert Owen’s Fair Exchange
Robert Owen was an outstanding social reformer, and one of classical figures of socialism. He is considered one of the fathers of cooperative and trade union movements. In 1825, he purchased 30,000 acres in Indiana to organize an industrial commune named New Harmony. When it disbanded, Robert Owen negotiated with the Mexican government so that it literally handed him over the entire Texas in order to create not just a commune, but a nation state of a brand new kind.
Owen successfully introduced 10-hours working day at his New Lanark factory in Scotland and prohibited children under 10 years old to work. Back then, 14-16 hours long working days and child labor were a norm in Britain.
Owen also experimented with money. In 1832, he created National Equitable Labour Exchange in London. Manufacturers could bring their goods to Owen’s ‘exchange,’ where a clerk assessed its cost in work hours required for production. Aside from labor expenses, the assessment also considered material cost calculated at the rate of 6 pence for 1 hour of actual labor, as, according to Owen, average hourly salary rate was around 6 pence. For instance, if it took 2 hours to produce the goods, whereas it included 12-pence worth of materials, its overall cost was 4 hours of labor.
Having assessed the goods, the clerk took them to the warehouse in exchange for labor bonds handed over to the manufacturer. Those were quotations entitling the holder to have goods from the organization’s warehouse to the certain tune of working hours.
Initially, the enterprise was extremely successful with labor money being accepted at London stores and even at theaters and branch offices being opened across the country. However, the system’s disadvantages became too obvious as clerks’ assessments often were biased resulting in discontent and disagreements.
Eventually, speculators put a lid on the venture. They started bringing goods of old age and little demand to the exchanges. Having received labor bonds, they took fine goods from the warehouses and then sold them for real money. For that reason, warehouses became full of useless items, labor bonds devalued, and finally the enterprise was shut down all together in 1834.
Owen’s purpose was to eliminate money and intermediaries, who, according to him, produce nothing, and become richer at the expense of real manufacturers. Yet, as a matter of fact, Owen’s exchange took 8.5 per cent fee for its intermediary services. There were places where the fee was even payable with money.
Josiah Warren’s Time Store
A few years before Owen, in 1827, American individual anarchist, inventor and musician Josiah Warren created Time Store in Cincinnati, which lasted for three years. Time Store considered not only time required to manufacture a product, but also time for its shipping.
Moreover, it considered the time the consumer talked with the seller: the longer it took, the more expensive the goods became.
Buying goods at Time Store required labor bonds, i.e. obligations to work for a certain amount of time. The bonds were clearable by the debtor’s work and corn at the rate of 12 pounds of corn for 1 hour of work.
Those bods were personalized and were not transferable; aside from the debtor’s and the creditor’s names, the paper even read ‘NOT TRANSFERABLE.’
There are some specimens of later labor bonds issued by Warren. They also state the debt’s amount in labor hours for a specific occupation, however, it uses USD equivalent instead of corn, and there’s no debtor’s name on them.
The American anarchist was the first one to do such thing, and Robert Owen’s London experiment used Time Store’s experience.
Additionally, there was the New York Society for Endorsement of Communes, which popularized Owen’s ideas. In summer 1825, there were half a dozen of his works on sale in Cincinnati alone.
There’s little surprise it was Warren who attempted to create labor money. In 1825, he had a mash on Owen’s ideas, and even took part in the New Harmony project.
Pierre-Joseph Proudhon’s Exchange Bank
One of anarchism’s classics, Pierre-Joseph Proudhon also devised a system of labor money to get the production rid of ‘chains of gold’ and maintain fair exchange by eliminating non-labor profits (i.e. revenue and interest.)
Proudhon believed that gold makes mutual slaves out of people, so they should organize an exchange based on mutual costless credit, and using paper exchange means instead of precious metals.
The Bank of Exchange was a center piece in his project. It was created in Paris in early 1849 under the name of the People’s Bank. However, it lived for only two months having failed to conduct a single transaction. Still, the project is a forefather of mutual credit societies.
In Proudhon’s system, the exchange bank also received goods and exchanged them for some quotations entitling holders to purchase other goods from the bank’s warehouses. Additionally, the bank had to issue interest-free loans denominated in such quotations secured on commodity bills of exchange. Thus, similar to Owen’s system, Proudhon’s system risked to accumulate goods that can’t find any demand.
Even though Proudhon and his followers considered denominating the cost in work hours, the Bank of Exchange denominated it in Francs. The working money the bank issued was also denominated in national currency.
Time Cannot Be an Immediate Measure of Cost
Prior to measuring the cost of goods with working time instead of money, we have to answer two questions. First, does greater time consumption make a commodity more expensive? Evidently no, because in that case those having the lowest workforce productivity would have earned the most.
On the one hand, individual expenses of work that can be measured cannot be considered a basis for assessing a commodity’s value. On the other hand, socially required labor expenses cannot be calculated if the production is spontaneous and individual.
Second, how do we measure how many hours of simple labor (for instance, a courier’s) are equal to one hour of hard labor (for instance, a masseuse’s?) Direct collation of such notions is complex. The only way to understand it is to compare the prices for those two services.
Owen’s exchange used sixpence hourly rate; however, assessing any work at the same rate is about equalizing, which usually proves inefficient in market conditions. Owen’s equalizing communism in the New Harmony, where everyone was paid the same for different works, has failed.
Time Banks and Ithaca Hours: Old Principles for New Purposes
Modern time-based currencies either use the equalizing principle of ‘an hour of work for an hour of work,’ as in Time Banks, or peg a working hour to a certain amount of national currency, as in Ithaca hours.
Time banks are perfect for exchanging simple labor as services. When we exchange works of equal complexity, and material expenses for the service are negligible, the equalizing principle actually works. It also fits to some social projects focused on volunteering, charity, and gift economy, instead of equality of exchange.
As for Ithaca hours and similar currencies, they are more market-oriented than Time banks, however using a fixed exchange rate limits their functionality. Fluctuations of market price for one working hour from the fixed rate trouble the equality principle. Prices, being the main source of market information, have to be flexible to promptly reflect the changes in the market conditions.
LH-tokens: Pegging to the Market Cost of Work
In this context, Labor-Hour tokens presented in Chronobank’s whitepaper are something new. As opposed to their predecessors, those tokens don’t use any fixed rate of time/money; instead, they are pegged to average hourly rate of salary in a country, which is formed accordingly with market trends.
The issuer’s obligation value in LH case is denominated in national currency, not in some abstract labor hours as Own proposed, or in working hours of a certain occupation as in Warren’s project. Such projects are possible only when there are no differences between simple and hard work; workforce productivity is uniform; and labor cost is fixed. Those conditions are beyond contemporary markets.
Thus, Chronobank’s solution is more market-oriented than classical projects of labor money or contemporary additional time-based currencies.
As opposed to Owens and Proudhon’s systems, one can’t get LH tokens for downright offcast commodities for a non-market price. Those tokens may be cleared only with services of demanded professions at market prices. Those professions’ services are standardized enough to make backing of LH tokens predictable. Additionally, LH is considered cleared only when the job is accepted. Similar to Warren’s labor notes, labor backing of those tokens doesn’t entail expenses for warehousing.
It’s a matter of time to see whether those tokens find any demand. Still, it’s obvious that creators of contemporary time-based currencies are much more realistic about their projects than the great socialists and anarchists of the 19th century.
by Dmitri Bondar