Of Labor Notes and Time Stories
The utopian communities in 19th century America provide some fascinating lessons as to how and why human beings come together to form a society. The communities organized around divergent principles from religious purity to socialistic zeal...and ideals of radical individualism. (The echoes of libertarian ones can be felt today in structured efforts like the Free State Project in New Hampshire to less official ones like Doug Casey's libertarian oasis in Argentina.) Generally speaking, the communities shared similar problems -- e.g. how do you deal with"the other" in your midst? -- and many of them evolved similar solutions. The value of examining these solutions is often independent of whether or not they 'succeeded'; just as in life, sometimes you learn the most from your mistakes.
One way in which communities tried to forge an economic network was through issuing private currency; Josiah Warren's experiment with Labor Notes and a Time Store is a prime example. I was reminded of it today while reading an article in MSN's Money entitled "Struggling towns printing their own cash." It opened,
Last year, two Detroit tavern owners were sitting at the bar, sampling their beverages and bemoaning the local economy -- no one in the city had cash, and when they did, they spent it in the suburbs. Then the pair hit on a solution: Print their own money. It is, after all, perfectly legal for anyone to issue currency, as long as it doesn't look too much like a U.S. dollar. Thus was born the Detroit cheer, a local scrip accepted by a handful of city businesses, including a pizzeria, an electrician and a doggy day care center....
The western Massachusetts berkshare is accepted by an estimated 400 businesses and has circulated to the tune of $2.5 million -- not bad for a region with 20,000 residents. The hours currency, issued in Ithaca, N.Y., is so entrenched that the local transit system is planning to accept it. Still, University of Southern Maine sociologist Ed Collum says his study of 82 local currencies revealed a disheartening 20% survival rate. Collum favors an increasingly popular twist on local currencies: the time bank, which has residents swapping labor hours rather than cash. This newer solution lets the unemployed participate without spending money.
I've always been fond of Warren's Labor Notes even though I believe the economic principles they reflect are fundamentally flawed. It is similar to the positive predisposition I have toward Mennonite communities or other peaceful ways of organizing that buck the trend and express a different worldview. Warren is a particularly interesting figure in the history of utopian movements because he was intimately involved with several communities. He was both a radical individualist and a communitarian to his core; he spent most of his life trying to integrate those two ideals.
Warren confronted the problem of how to achieve the social advantages of community without sacrificing individual rights and choice. His quest for a just society had started in February 1826 when he became one of the original settlers of the famous Owenite community of New Harmony. Other experimental communities had followed through which Warren had observed how social theories operated when they were put to the test of functioning in the real world.
When Warren began publication of The Peaceful Revolutionist (1833) -- the first Individualist-Anarchist periodical to appear in America -- it called for a voluntary society that was based on individual autonomy and that operated in accord with the labor theory of value. The latter sounds odds to the ears of modern libertarians but the labor theory of value was commonly accepted economic theory among the 19th century crowd. The specific expression was called"Cost the Limit of Price"; this was a version of the labor theory of value, which Warren believed was a necessary prerequisite to ensure an equitable reward for labor to the laborer.
For better or worse, Warren adopted the economic doctrine of cooperation that was expressed through the formula of “labor for labor.” But Warren realized that just having each man claim his own labor and its products would not lead to an advanced society. There had to be a medium of exchange: that is, society needed some form of currency that would enable it to rise above the level of brute barter or the need of each person to provide for his own needs. Warren believed that part of the answer lay making labor the basis of a circulating currency that he called “labor notes.”
In using cost as the limit of price, Warren was specifically objecting to the use of value as a standard of measurement. If subjective value were the limit of price, he believed that a good would rise to whatever level the seller was able to charge. Price would be determined by the desperation of the buyer. For example, a loaf of bread might cost ten thousand dollars to a starving man, or a bottle of medicine might cost twenty thousand to a mother who needed it for her child. To Warren, this seemed unjust. Thus, instead of subjective measure setting the price, Warren wanted cost to be the objective measure and the limit. For a loaf of bread, a baker should charge only what it had cost him to make, including such costs as the labor expended, the “rent” of his oven and other tools, taxes, etc. Cumulatively, these factors constituted the entire cost of the bread, which was its price. To Warren, this made price into an objective, scientific matter.
And, as always, Warren sought to test his theory in a real community.
On May 18, 1827, in Cincinnati, Warren opened what he called a Time Store. The libertarian historian James J. Martin has dubbed it “the first scientific experiment in cooperative economy in modern history.” Warren’s store worked on the basis of exchanging staple commodities, such as flour, priced at his own cost for the labor notes of customers. Upon opening his Time Store, with three hundred dollars worth of staple goods within, Warren posted a bill for public view, stating what each good had cost him and adding a 7 percent fee for overhead expenses such as shipping. This posted bill constituted the cost of the goods. In exchange, Warren received a labor note from the pur-chaser, which represented an equitable amount of the purchaser’s time. One of the advantages of the system was that people were far less inclined to bargain at length over prices because they were paying for the shopkeeper’s time. Warren explained the process: “A clock was in plain sight to measure the time of the tender in delivering the goods which was considered one-half of the labor, and purchasing, etc. the other half.”
The exchange was more sophisticated than a mere hour for hour basis, however. Warren exchanged what he called “equivalent labor.” He wrote, “I have placed emphasis on the idea of equivalent labor, because it appears that we must discriminate between different kinds of labor, some being more disagreeable, more repugnant, requiring a more COSTLY draft upon our ease or health than others. The idea of cost extends to and em-braces this difference.” Interestingly, this led Warren to the conclusion that the most disagreeable work, such as cleaning sewers, should be among the highest paid in society. Of course, factors such as “repugnance” were subjective matters—embodying the same subjectivity that Warren objected to in value as the measure of price. This meant that each individual must set the price for his own labor because each person is best able to estimate his own costs.
Warren uses the example of coat making. Two coat makers with different levels of skill and working habits would probably set entirely different prices for a new coat. A fast working coat maker who produced a mediocre product might charge twenty hours of labor for a new garment. A slower coat maker who produced an exceptional garment might charge forty hours.
Warren also seems to have considered the problem of opportunity costs regarding interest: namely, if someone loans out money to another, he is thereby foregoing other investment opportunities for that same capital. “If you sacrifice twenty dollars (to which you are equitably entitled) in lending me a hundred, then . . . twenty dollars, or twenty per cent together with pay for your labor would be your proper compensation.”
Despite such problems, Warren believed that labor notes—and Cost the Limit of Price in general—would guarantee both equitable reward for the laborer and a harmonious society. “Costs being the limit of price, everyone becomes interested to reduce cost,—to lighten each other’s burdens! Then, every man’s hand acts with instead of against every man, and HUMAN INTERESTS ARE HARMONIZED!”
Warren closed the Time Store after three years, convinced (along with many others) that “labor for labor” and Cost the Limit of Price had proven to be a viable economic arrangement.
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Bo Zimmerman - 2/24/2010
It seems the problem with this pricing system is that it would create scarcity of high demand goods, as prices would be unable to rise to meet it. The scarcity then becomes self-perpetuating, as the low (practically non-existant) margins discourage new suppliers from entering the market. Lastly, the problem of the subjective value of labor is entirely neglected -- ask yourself, is an hour of <favorite artist here> singing really worth as much as an hour of him or her ditch digging?