Value, Skill and Labour Exchange

A two-pronged contingency model for a sustainable microeconomy in Pakistans context.

Dr. Imran Chaudhry Saleena Karim

1|Page

Pakistan First Research Institute (PFRI) is an independent and non-partisan think tank with a mission to bring imperative, practical and implementable changes in Pakistan, by researching and providing solutions, encompassing wide range of important issues related to the national policies of Pakistan. PFRI is part of Pakistan First Group, registered with Securities and Exchange Commission of Pakistan, under the Companies Ordinance of 1984. Copyright Pakistan First Research Institute (PFRI). This ebook is licensed for your personal enjoyment only. This ebook may not be resold to other people, but can be shared for free. Thank you for respecting the hard work of the authors. Published by Pakistan First Research Institute (PFRI) at Smashwords. All Rights Reserved. First Published: January 2013 Any part of this publication can be used or cited with a clear reference to PFRI. www.pak1stanfirst.com

2|Page

Contents
Value, Skill and Labour Exchange..................................................................................................1 Contents...........................................................................................................................................3 About the authors.............................................................................................................................4 Scope................................................................................................................................................6 Background......................................................................................................................................7 Introduction......................................................................................................................................8 Alternative currency.....................................................................................................................8 Part I: Skill and labour exchange System of value exchange points............................................9 Overview....................................................................................................................................11 Key Features .............................................................................................................................12 Part II: Value exchange Commodity of exchange or Money.....................................................14 Bartering - Limitations ..............................................................................................................14 Money .......................................................................................................................................14 Brief Analysis of Pakistans Resources.....................................................................................14 The issue of shelf life.................................................................................................................15 Value standard...........................................................................................................................16 Known Issues.................................................................................................................................17 Negative Accounts - Exploitation..............................................................................................17 Positive Accounts Hoarding...................................................................................................18 Reluctance of Businesses...........................................................................................................19 Education...................................................................................................................................20 Discussion......................................................................................................................................21 Conclusion.....................................................................................................................................22

3|Page

About the authors

Dr. Imran Chaudhry is a medical doctor and heads Pakistan First Research Institute. Dr.
Chaudhry holds a faculty appointment at the University of Alberta, and is a fellow with the Royal College of Physicians and Surgeons of Canada and College of American Pathologists.

Saleena Karim is a non-partisan writer, researcher, and editor, with a degree (BSC Hons) in
Human Biology. She is also the founder of the Jinnah Archive, and consultant at Pakistan First Research Institute. Karim has authored two critically acclaimed books on Pakistans founding history, Secular Jinnah (2005) and Secular Jinnah & Pakistan (2010). The latter title is a detailed treatise on Jinnahs political life as well as the ongoing debate over the historical significance of the Pakistan movement, containing original research and utilising primary sources. At present Karim is writing a paper on her Cohesive Ethics Theorem, a concept with connections to the philosophy of Dr. Muhammad Iqbal.

4|Page

I shall watch with keenness the work of your Research Organisation in evolving banking practices compatible with Islamic ideals of social and economic life. The economic system of the West has created almost insoluble problems for humanity and to many of us it appears that only a miracle can save it from disaster that is now facing the world. It has failed to do justice between man and man and to eradicate friction from the international field. On the contrary, it was largely responsible for the two world wars in the last half century, The Western world, in spite of its advantages of mechanization and industrial efficiency is today in a worse mess than ever before in history. The adoption of Western economic theory and practice will not help us in achieving our goal of creating a happy and contented people. We must work our destiny in our own way and present to the world an economic system based on the true Islamic concept of equality of manhood and social justice. We will thereby be fulfilling our mission as Muslims and giving to humanity the message of peace, which alone can save it and secure the welfare, happiness and prosperity of mankind. May the State Bank of Pakistan prosper and fulfill the high ideals, which have been set as its goal.1 QUAID-E-AZAM M.A. JINNAH

Inauguration ceremony of The State Bank of Pakistan, Karachi, July 01, 1948.

5|Page

Scope
This paper presents a two-pronged approach for developing a microeconomic model nurturing community collaboration. It can act as an ethically suitable contingency measure in propelling the micro-economical affairs in times of national or global financial crisis, for example large scale natural disasters, regional or global economic collapse and wars when either the existing economic system collapses or it is not viable anymore. This model Value, Skill and Labour Exchange (VSLE) - can be best implemented in small communities, villages and towns enabling them to endure in an economic emergency. It is essential that these smaller communities be firmly established on the foundations of faith and Ehsan, which lie at the core of our dogmatic framework, without which the success of these proposals may be in question. This paper deals with two important aspects; 1) equal exchange of effort i.e., encompassing labour and skills and 2) equal exchange of value e.g., in trade. For the former, we have devised a system of value exchange points and for the latter, a standard value exchange commodity, and acting as a form of currency. Our system is based loosely on known alternative economies. Although it is primarily a points-based system, our proposed model is adapted especially for our target community, and it also contains some original concepts in order to prevent some of difficulties that have arisen in previous systems of this type. It is not the purpose of this paper to review international money market or complex and advanced economic concepts in any detail. Indeed, such complex economical dynamics are not a concern in crisis situations, where survival and back-up strategies kick in.

6|Page

Background
Historically, gold and silver coins have been considered a standard in economy. Recently, paper currencies have been the backbone of economy. We however can potentially face a situation in which it might be necessary to adopt an alternate currency or equivalent contingency plan to sustain a community in periods of recession. There are numerous reports of rising inflation and receding global economy, some predicting its imminent collapse. Pakistan, having based its economy on the western model of fiat currency contrary to the advice of its founder is consequently trapped in the same global economic crisis, as any other economy. In this context, an astute observer can readily appreciate emergence of a new cashless economic system, based on an intangible form of currency i.e., electronic form of money. In fact, for all practical purposes, we have already transitioned to this system with paper money becoming a symbolic remnant only. Countries and governments around the world, including the US government, have already printed and injected excessive paper money not backed by gold into their economies an unprecedented amount of paper, in fact. Despite that, banks are unable to issue cash to anyone beyond a certain limit. Today, money appears merely as huge numerical figures in our bank accounts and almost all the transactions take place through a huge network of financial institutions issuing debit and credit cards. The system is now being further refined into technologies such as mint-chip, resembling cell phone SIM cards 2 and gradual phasing out of hard currencies. 3,4 The situation in Pakistan is somewhat different. While the system of electronic money may very well find its way into major cities, smaller cities, town and villages, especially the remote areas of Pakistan, will be likely left without viable form of currency for their use. Lacking technology and banking institutions, energy and electricity shortages, lack of education and mental preparedness etc, are some among many other factors making electronic money a non-workable option in smaller towns and villages. In this paper, we propose two a pronged solution for this situation, if or when it arises. Firstly, we devised a mechanism of fair exchange of skills and labour, without the need of having an intermediary currency. Secondly, we have suggested an approach to develop a standard commodity of exchange to be used as money, when needed. The spirit and theme of this twopronged approach additionally creates internal coherence, endurance and strengthening within the communities and maintains the social fabric.

On the cusp of the post-penny age, the Royal Canadian Mint is preparing to launch a digital alternative to all coinage and small bank notes dubbed "MintChip" which it hails as the natural next step in the "evolution of currency." See Boswell, Randy, Mint promotes digital-chip currency for penniless future, Postmedia News (as reproduced at Canada.com) April 5, 2012. http:// www.canada.com/technology/Mint+promotes+digital+chip+currency+penniless+future/6418545/story.html Last retrieved 29 December 2012 3 Evans, Pete, The pennys days are numbered, CBC News online, March 29, 2012. http://www.cbc.ca/news/business/story/2012/03/29/federalbudget-flaherty-penny-cent.html Last retrieved 29 December 2012 4 Canadian Mint rolls out last penny, CBC News online, May 3, 2012. http://www.cbc.ca/news/canada/manitoba/story/2012/05/03/mb-last-penny-mint.html Last retrieved 29 December 2012

7|Page

Introduction
The basic functional unit of an economy is its currency or money, which in the context of labour market, functions as compensation for time and effort spent in a particular job at an agreed rate. In other words money is basically an incentive that keeps people working, which in turn keeps the economy running. Stagnation occurring in recession is due to lack of circulation of money. In recession, jobs decrease as employers cannot pay their employees and people cannot spend because they cannot earn. This starts a vicious circle. Yet the demand for goods and services especially vital goods and services such as food, water, power, healthcare, etc. is not reduced. These are needed as much as ever. In short, stagnation means that there is a lack of incentive to keep the economy moving. In such a situation the social fabric is eroded, leading to an increase in crime and, in the long term, an increasing risk of civil unrest. There are three functions of money or currency; to act as a) measure of value, b) store of value and c) a medium of exchange. We need money - a vehicle - in transactions. For a transaction to be fair, it has to represent an equal exchange, whether be in value or effort. In paying wages or trading, we need a medium to act as a vehicle, by which compensation can be awarded or commensurate value could be exchanged in the form of the perceived value of that medium. Therefore, in proposing a fair alternative system for a sustainable microeconomy, we must address two important aspects; the exchange of effort (dealing with labour and skills) and the exchange of value (dealing with goods and trade), both of which must be an equal exchange.

Alternative currency
Money circulation is vital in keeping an economy moving. When there is a deficit of money in circulation, an alternative currency can help to make it up. An alternative currency is one that can operate locally. It can exist within a whole town, within a syndicate of individuals or businesses. Unlike bartering, in which the success of a transaction relies on two parties not only possessing commodities of comparable perceived value but also on their mutual willingness to accept these commodities in exchange, the alternate currency is constructed based on a standard commodity of exchange, independent of the aforementioned limitations. Our two-pronged approach has been divided into; I. Skills and labour exchange, which usually operates under an agreed points system. II. Value exchange, which necessitates creating a standard medium of exchange a commodity of exchange for that matter which would act as a form of currency unit or money. The two trading parties can therefore pay in one of two ways. Either they pay with value points, through a system accountant or they pay by trading or offering a particular commodity as a form of currency.

8|Page

Part I: Skill and labour exchange System of value exchange points

This involves the exchange of skills and services (including labour) between local individuals and/or businesses, similar to existing localized trading systems such as LETS5. It utilizes a points system in the place of national currency. Unlike most economic models, the unique focus of this system is collective interest and not personal interest. The reason lies in the way that the system is managed (as we will show in this section). The principal aim is to get the local economy moving in the absence of a currency, and without creating more debt. In practice, this is done by maintaining an overall system-level zero balance, meaning that for every point spent, an equal number is earned. In devising our own system of points,6 we have considered three factors: Time Physical effort Skill

The latter two may be further stratified into three levels. In so doing, we have attached a degree of measure by assigning a rate (or value) per unit of time, so the points can be effectively treated as currency bills for translating different activities into uniform quantifiable units of exchange. One point for example, can be considered conceptually, like a rupee. In a nutshell, the points are a means to a system of balanced productivity. Time in any case is a flat measure of the amount of time spent in accomplishing a task. Physical effort is broken down into three levels (minimal, moderate, high): A minimal level of effort means a task needing minimal physical energy or is sedentary in nature. A moderate level of effort would mean a task that requires some physical exertion. A high level effort would mean a task requiring moderate to hard labor, or needs more than one person for completion.

Skill is similarly classified by the level of sophistication:

LETS (Local Exchange Trading System) is the best known example of a localized trading points system, and is designed explicitly to run alongside existing economies. Originating in Canada in the 1980s, LETS has become known worldwide and today there are LETS communities operating on every continent except Antarctica. See an overview at http://www.youtube.com/ watch?v=Ei_OQAoGlUY Last retrieved 11 December 2012. (Deliver! Season 1, Episode 6. Venus TV, UK, 5 December 2009) 6 For an example of a similar system designed to accurately measure workload (but within the context of assessing workload in the medical profession) see Maung, Raymond, Canadian Association of Pathologists Guidelines for Measurement of Pathologist Workload Canadian Journal of Pathology Vol. 2 Issue 1, Spring 2010. http://www.andrewjohnpublishing.com/images/Pathology_Vol2.Issue1Spring2010.pdf Last retrieved 01 January 2013

9|Page

A minimal level of sophistication means a task requiring no technical skill or specific training and anybody can easily do it. These activities could include washing, cleaning, watchman duty, shop keeping, driving etc. A moderate level of sophistication means a task needing a level of definite technical skill. These would includes electrician, medical lab technician etc. A high level of sophistication means a task requiring high levels of skill and or technical training. This would include a wide variety of skills including doctor, engineer, computer professional and IT personnel etc.

Factors
Time Physical effort (labor)

Stratification levels
Minimal Moderate High Minimal Moderate High

Points
(rate of accrual) 1 / 15 minutes 1 / 15 minutes 2 / 15 minutes 4 / 15 minutes 1 / 15 minutes 2 / 15 minutes 4 / 15 minutes

Level of sophistication

Examples: A doctor attends x number of patients in 4 hours, earns 96 points. - 4 x 60 = 240 min - 240/15 = 16 - 16 x 1 = 16 (time) - 16 x 1 = 16 (minimal physical effort) - 16 x 4 = 64 (high level of sophistication) - Total = 16 + 16 + 64 = 96 A plumber correcting a sink in 1 hour would earn 12 points. - 1 x 60 = 60 min - 60/15 = 4 - 4 x 1 = 4 (time) - 4 x 1 = 4 (minimal physical effort) - 4 x 1 = 4 (minimal sophistication) - Total = 4 + 4 + 4 = 12 Our system should ideally involve the entire community. Local businesses are set up by individuals from the same community, and are set up expressly to provided specialist (and sometimes vital) services and goods that the entire community needs, e.g. vehicle repair, fuel, etc. Therefore community support of local business is only an extension of community spirit.

10 | P a g e

Overview
Accounting and record keeping In a VSLE community, there has to be a system accountant, keeping a central record of all transactions happening and a system of notification slips, to be signed by two trading parties. Any costs associated with running the system may be covered by asking new members to pay joining fees into a system account, or by some other form of fundraising. Trading Members of the VSLE syndicate, such as local businesses and individuals, list the services and skills they have to offer on a services and skills directory. This system directory is either made available online or on paper. Members then contact each other to arrange a trade. In this regard, the system is no different to the usual daily life routine. The skills and services offered can literally be anything and everything, including even household jobs such as cooking, cleaning or repairs. Community members can pay either by points or agree to substitute points with a commodity acting as a local alternative currency (the latter will be reviewed in Part II: Value Exchange). This has the added advantage of making it easier to pay off what is owed for services or items, unlike in regular economies in which the only accepted form of payment is the national currency. If an exchange commodity is used instead of points, the rate (units of commodity) is decided between the trading parties before services are offered and paid accordingly, both parties creating a record of completed transaction, such as paper documentation and signed by both parties. We will further discuss the merits of commodity exchange in Part II. Here is a scenario. The system is implemented and the first transaction takes place as follows. A person B decides to buy a bag of potatoes from another member A using the exchange points. The price listed is 5 points/bag. The person B agrees to 5 points/bag or negotiates 4 points/bag. Lets say, the buying person B negotiates 4 points/bag, he signs one notification slip for the administration and both of them also record it in their own record as well. The notification slip is dropped in the transaction slip drop-box or handed over to the system accountant directly. This signed slip authorizes the administration to record the transaction. Person B does not owe anything to person A from whom he bought potatoes but to the system or community 4 points worth of commitment of some sort. In other words, his account is debited 4 points (he has spent 4 points from his account, account balance = -4, a negative account). Person B has to assist the community to the best of his ability equal to the value of 4 points, for example repair a car engine or cut grass. If in doing so his contribution is higher than needed to honour the debt and becomes 7 points, a notification slip is signed by his trading party and dropped in the drop-box. The system or community now owes him 3 points worth of commitment (means now he has a credit worth 3 points, account balance = 3, a positive account). The person A who sold a bag of potatoes to person B now has a commitment worth 4 points from the community (positive account, worth 4 points). He can get himself treated or buy 11 | P a g e

medicines instead. In doing so, if he spends 10 points, his account balance becomes -6, a negative account. Since the focus of the system is collective interest and not personal interest, the debt is always to the VSLE system or community, and never to individuals. Even this debt differs from regular debt, because it is far easier to pay off (as already mentioned, debtors can choose between paying by points or commodity exchange). Indeed, depending on the circumstances, it need not even be paid off by the individual who has incurred it (see Known Issues section). All transactions and trading of points are immediately signed by two trading parties and reported to the administration by acceptable means, using the transaction slip drop-box or directly, which are then logged and recorded by a system accountant. If an exchange commodity is involved instead of points, the rate (units of commodity) is decided between the trading parties before services are offered and paid accordingly, both parties creating a record of completed transaction, such as a paper documenting and signed by both parties. Success ultimately depends on the community members themselves, who must possess a proper understanding and spirit of this system. The administration or the managing individuals must prepare the means to effectively impart this knowledge to its members, prior to establishing the VSLE community. This will be reviewed in detail in the Known Issues section.

Key Features
Since the VSLE system is a closed system (for every point spent a point is earned), and it charges no interest on any of its accounts, the combined sum of all accounts on the system at any given time is always zero. The key features can be summed up as follows: 7

The VSLE system is focused on collective interest rather than individual interest. It is not a business per se; it is a non-profit enterprise. It is localized or regional in scope. It is controlled by the community based on supply and demand. Value is assigned to either a commodity or an effort/skill to meet needs on a small scale. Transactions are not between two individuals but between an individual and the community system. Points cannot be spent outside of a town or region, thus, they circulate only locally and continually benefit the local economy. It functions entirely on the basis of mutual cooperation and so can be understood as moral viewpoint banking 7 It charges no interest on any of its accounts, whether a given account is running a negative or positive balance Effort is rewarded rather than specific skills, leaving no one unemployable Since they represent only a measure of time, effort and skill, the points are created when (and only when) someone does some work.

Moral viewpoint banking is a useful label for banks and financial institutions whose members share a clearly defined moral philosophy. See Lynch, James J. (1994) Banking and Finance: Managing the Moral Dimension Cambridge: Woodhead Publishing, p.100.

12 | P a g e

It is actually possible for an individual to spend before he earns, and no one can be bankrupted for a shortage of points. This means that those who are materially less well-off can begin to benefit from the system immediately, instead of having to earn before they can spend. The combined sum of all account balances at any given time is always zero. Owing to these characteristics of the VSLE, whereby its currency is created solely as a direct and precise measure of workload, and is never in short supply, its economy is both interest-free and inflation-free.

13 | P a g e

Part II: Value exchange Commodity of exchange or Money

Situations may arise in which people either cannot or do not wish to exchange points and so the situation necessitates a tangible exchange of value. This may be especially applicable to smaller Pakistani communities in light of what we have already stated regarding their lack of technological and/or psychological preparedness in dealing with intangible electronic money.

Bartering - Limitations
Other than using points, bartering is also a form of alternative currency, predating money itself, and which involves the direct exchange of various physical goods. Bartering and points systems are often seen working together in alternative economy. The major problem with bartering however is that both parties have to agree on the items of exchange, but more often than not one party does not have what the other needs. For example, if one person (A) has apples, and wants glasses, he needs to find a person (B) who not only has the glasses, but who will accept the apples in return. In addition, not all physical items are deemed to have equal value. Bartering is therefore ineffective as one or both trading parties may not be interested in the items being offered for exchange. Yet we still need a tangible form of trade to supplement the points system. In this paper we have attempted to devise a standard exchange commodity, which can be recognized as a currency or money in a community, depending upon local circumstances.

Money
For something to act as money (or currency), it must act as a store of value, a measure of value and a medium of exchange. It must have a reasonable shelf life and be a commodity of regular consumption, freely and abundantly available, not short in supply. A logical conclusion is that the value is then located inside that commodity. Stated in another way, the thing or commodity used for money must possess intrinsic value. This immediately draws a distinction between what can and cannot be used as money (see appendix I).

Brief Analysis of Pakistans Resources

Pakistan is an agricultural country, with almost half its workforce involved in agriculture. Pakistan is the 7th largest wheat producer, accounting for 2.73% of the world's wheat production. Wheat accounts for 37.1% of the country's total crop area, 65% of land used for food grain and 70% of the production. The contribution of wheat in the value-added in agriculture stands at 12.5% and its share in the GDP is 3.1%. 8 For the first time, Pakistan entered wheat export market with the shipment of 35,000 tons to Iraq in 2001. In 2000, wheat had to be imported from Australia and USA; it has built up a surplus stockpile of 2 million tons following a bumper crop
8

Shahzad, Syed Saleem, Pakistan cuts into Indian wheat markets, Asia Times Online. June 19, 2001. http://www.atimes.com/ind-pak/CF19Df01.html Last retrieved 8 December 2012

14 | P a g e

in 2000.9 Trade sources estimate that Pakistan exported 1.5 million tons in 2010/11 and around 800,000 tons in 2011/12. Wheat exports in 2012/13 are forecasted at 300,000 tons mainly to Afghanistan.10 Pakistan is the worlds 5th largest rice exporter. It expected of a good production in 2011, the potential exportable surplus for 2012 forecasted at about 3 million tons of rice.11 Rice cultivation accounts for 10% of total cultivated area, value addition 5.5% in agriculture and share in Pakistan GDP of 1.6%. Pakistans 2011/12 rice production is estimated at 6.5 million tons, 30% higher than the 2010/11 flood affected production level of 5.0 million tons. In 2012/13 production is forecast at 6.8 million tons. Estimate of Pakistans rice exports in 2010/11 is increased 28% to 3.2 million tons. 2011/12 rice exports are estimated at 3.7 million tons, 3% higher than last years export estimate. Rice exports in 2012/13 are projected at 4.0 million tons.12 Pakistan is host to worlds 2nd largest salt reserves, the Khewera Salt Mine, in the province of Punjab. The estimates of salt reserves vary according to various sources (82-600 million tons). 13, 14 The annual output has been estimated to be 385,000 tons reported in 2003. Pakistan is the 7th largest sugar producer, 8th largest consumer and 6th largest cane sugar producer.15 The annual cane production varies between 45-65 million tons, depending on the availability of water and rain. The sugar industry can mill approximately 70 million tons.

The issue of shelf life

Shelf life is less of an issue with sugar and salt. It assumes more importance in the case of grain crops. In Pakistan, the average shelf life of grains such as wheat and rice is 6-12 months. Effective methods exist for prolonged storage for grains and it is possible to successfully store grains such as whole grain wheat for more than 20 years under well-controlled conditions

Ibid. GAIN Report. Grain and Feed Annual 2012. USDA Foreign Agricultural Service. Pakistans wheat production in marketing year 2012/13 (May/April) is estimated at 23.0 million tons, down five percent relative to previous years record harvest of 24.2 million tons. Last year, the Government of Pakistan procured 6.4 million tons of wheat from the local production, but has yet to announce a procurement target for this years harvest. Trade sources estimate that Pakistan exported 1.5 million tons in 2010/11 and around 800,000 tons in 2011/12. Wheat exports in 2012/13 are forecasted at 300,000 tons mainly to Afghanistan. (Shortened summary. http://www.thebioenergysite.com/reports/?category=39&id=679 Last retrieved 8 December 2012) 11 Pakistan expects good rice production: FAO, December 27, 2011, Dawn online. http://dawn.com/2011/12/27/pakistanexpects-good-rice-production-fao/ Last retrieved 8 December 2012 12 GAIN Report. Grain and Feed Annual 2012. USDA Foreign Agricultural Service. (shortened summary) 13 Natural Resources of Humid Tropical Asia (Natural Resources Research) (1st ed.). UNESCO. April 1974. p. 101. Retrieved 14 May 2012. 14 Whitmore, Frank C. and Williams, Mary Ellen (1982). Resources for the Twenty-First Century. Washington D.C: U.S. Geological Survey. p. 175.OCLC 623259129. Retrieved 7 April 2012 15 ISO Sugar Year Book, 2011, data 2010. Pakistan Sugar Mills Association, Islamabad. http://www.psmacentre.com/statistics.php?stid=2&type=international&status=1&page=1 Last retrieved 8 December 2012
10

15 | P a g e

without appreciable damage.16, 17, 18 The Canadian Grain Commission and US Department of Agriculture (USDA) guidelines (and others) are available for storage recommendations.19

Value standard
Based on the above review, wheat, rice, sugar and salt, fulfill the criteria for an exchange commodity. Once a suitable commodity has been identified, we need to develop a standard against which we can ascertain the closest to the true value to meet the micro-economic needs of smaller communities. To develop this standard, we have to devise a unit of commodity against a standard weight of gold (e.g. an ounce or another weight) or for that matter silver. One such standard recently developed is called Open Mithqal Standard (OMS), by individuals in Malaysia and South Africa.20 Using barley as a commodity, they devised the following standard: The Dinar is the Mithqal and the Mithqal is 72 Grains of Barley. This means, 72 grains of barley can be used instead of a dinar, where 1 Dinar = 4.44 grams (1/7th Troy Ounce) of 9999 (24ct) Gold. Note that in this standard the weight of a dinar is used instead of using the unit ounce. A similar approach may be applied to silver instead of gold. Hugo Salinas Price, of Mexican Civic Association Pro Silver, has extensively discussed the issue of using silver coins as monetized tender.21 He has suggested calculating prices in terms of the weight of silver. Market prices should be determined by supply and demand, without human manipulation. Supply and demand being constant, the market price is automatically established.22 In a particular locality with particular geography, natural factors such as climate, population size, cultivation, imports, exports, natural disasters, wars etc., determine the perceived value of goods or wages against which a standard quantity of the exchange commodity would be exchanged, since that commodity would be used as money at that particular time. Therefore it is not the value of the exchange commodity (wheat, rice etc) that would determine price.

16

Newman, Chris Grain storage: Maintaining grain quality Farmnote April 2008. Department of Agriculture, Govt. of Western Australia. http://www.agric.wa.gov.au/objtwr/imported_assets/content/fcp/fn_maintainquality.pdf Last retrieved 8 December 2012
17

Payne, T.S. (2002) Harvest and storage management of wheat. FAO Corporate Document Repository. http://www.fao.org/docrep/006/y4011e/y4011e0u.htm Last retrieved 8 December 2012 18 Whitesides, Ralph E. Home Storage of Wheat. http://extension.usu.edu/files/publications/publication/FN-371.pdf Last retrieved 8 December 2012 19 See Canadian Grain Commission: www.grainscanada.gc.ca and US Department of Agriculture: www.usda.gov/ 20 http://isnet.za.net/blogs/mogamat-abrahams-blog/open-mithqal-standard/ Last retrieved 8 December 2012. OMS was developed primarily by Ahmed Adjie, Abbas Firman, Hayan Waruk (from Islamic Mint Nusantra IMN in Indonesia) in collaboration with Prof Tariq Khan, Hajj Abdurahmaan Phillips and Mogamat Abrahams in South Africa, Circa July 2010. 21 See video of Hugo Salinas-Prices speech at The Cheviot Sound Money Conference. A Discussion of Previous Metals as Money Guildhall, London. January 27, 2011. http://www.cheviot.co.uk/media/events/sound-money-conference Last retrieved 8 December 2012 22 Consider the following: In a free market, supply and demand being constant, lets say for example, one dinar can buy us 0.5 kg of wheat. If the supply decreases or the demand increases, 0.25 kg will be available against which a dinar will be traded. If the supply increases or the demand decreases, there will the surplus wheat in the market and now it could be that 0.65 kg wheat could be traded for a dinar.

16 | P a g e

Known Issues
The points system works on the assumption that everybody will act fairly and so work equally hard. In reality this does not always happen.

Negative Accounts - Exploitation

The fact that LETS allows negative accounts, whilst contributing to its strength, is also a weakness. The idea that points are automatically created only when someone works is meant to help those who are materially less well off and cant afford the services they need, so that (unlike traditional economy models) they can spend before they work. But this is open to exploitation. An individual may choose to spend more and do either less work or none at all i.e. constantly take from the system and give nothing in return. This problem is less likely to occur in smaller communities, in which all members know each other and so there is more community pressure for all to do their part. But in larger communities, or in those communities where there is a lack of feedback available on individual accounts, system exploitation is more likely to occur. Strategies to offset negative accounts Place a limit on the number of negative transactions, especially the habitual ones, while of course keeping in mind individual circumstances. Similarly, there might be a limit placed on the holding itself (e.g. an account cannot go below -100 points). Again, this limit might vary on a case by case basis. Beyond this limit, an excessive account holder cannot spend again until he/she works off the debt or pays it off with the commodity of exchange. Set up a good monitoring system and develop effective communication with all members. This would improve transparency and allow for the effective highlighting of negative accounts. The simplest and most effective solution would be to list negative accountholders on the system directory itself. Web-based systems in particular can greatly reduce system exploitation as they can instantly reveal individual account balances and can also provide a medium for other members to leave feedback. Software can be developed specifically for this purpose, and indeed have already been developed for other similar schemes.23 Obviously this monitoring system serves not only as a warning tool but also as a deterrent, since potential abusers of the system will find fewer traders who will be willing to trade with them. This will oblige them to weigh the outcome of their behaviour and the system will self regulate itself.

23

See for example http://www.localexchange.org.uk/new/ Last retrieved 6 December 2012.

17 | P a g e

Positive Accounts Hoarding

These are high earners who fail to spend the surplus points in their accounts, and so end up with a positive balance. This is a problem for the simple reason that this amounts to hoarding (unintentional though it may be). In keeping with the spirit of this system of sharing, Ehsan and the principle of giving away whatever is more than our needs, the following strategies can be applied to encourage individual members to think in terms of long-term prosperity, as opposed to normal economy which compels people to focus on short-term gains. Strategies to offset positive accounts Set a limit on the maximum number points on an account beyond which surplus points will go to a community fund (further described below). Demurrage: A fee, or negative interest, for holding onto money for a long period of time, and thus encourages hoarders to spend so as to avoid the fee. Put it another way, once a positive account reaches a certain limit, the number of points automatically shrink with time,24 thereby compelling the accountholder to put them to good use instead. To be effective in practice however, demurrage fees must account of the size of the imbalance and how much a given individual has traded over time. We do not favour this particular approach, since it means points are wasted instead of being put to good use, but have included it for informations sake. A more acceptable and reasonable alternative is to forge a useful expenditure of unspent points that are held in accounts beyond a certain amount of time. For example, if after 3 months an account consistently contains 500 unspent points, the holder would contribute the surplus points towards another community activity such as teaching children, planting trees, volunteering, etc. This would require a community fund for the purpose (see next item). Community fund: We have already mentioned that it is possible for some individuals to wilfully take more from the system than give to it, and thus build up excessively negative accounts. But what of people who are not unwilling, but rather unable to work, such as elderly or disabled people? A community fund can to help meet the needs of these vulnerable and needy members. Members can donate to the fund or surplus funds can be taken from the systems admin account (which is responsible for collecting joining and renewal fees). Positive-negative offsetting: It is our opinion that the needs of disadvantaged people could also be met another way by positive-negative offsetting. People with excessively positive accounts could pay those with negative accounts to provide goods and services for disadvantaged people. This in our view is the best solution, as it simultaneously deals with the problem of both negative accounts and positive accounts, and in addition it avoids the stigma that always comes with the concept of charity (fundraising). Instead, this offsetting will be viewed in its true light a community

24

The German economist Silvio Gesell (1862-1930) conceived of demurrage based on the idea that all money - whatever its form - should conform to nature and rot, because this is the only way to make it a fair and equal exchange against other items that also naturally decay. Since money would no longer be a long-term store of value, hoarding it would also become both impossible and unnecessary.

18 | P a g e

service that is designed to prevent stagnation by ensuring justice. Those with negative accounts will have the opportunity to work and make up for what they have already spent, and any excess points accruing in positive accounts will be put to good use instead of being hoarded (or unnecessarily wasted through the negative interest concept).

Reluctance of Businesses
Getting local businesses to participate in the scheme is essential for the system to function in the longer term. Yet a major problem observed in other localized trading schemes has been the reluctance of businesses to become involved. According to some observers, this is because businesses (and indeed individuals) cant use alternative currencies (whether they are points or commodity) to pay existing debts to the bank or to pay tax or other bills,25 and in addition no existing alternative currencies are redeemable against the national currency (although attempts are being made to introduce such redeemable currencies).26 We have already shown that the key to the VSLE is its focus on collective interest rather than personal interest, and we are of the opinion that this is another major factor behind the reluctance of businesses to become involved in similar schemes to date. Business is after all focused on profit personal interest. As such, it is a product of the capitalistic mindset and so is essentially incompatible with the basic principles of our VSLE system. It may be argued that local businesses in fact depend on local custom, but as such the idea of altruism is essentially an antithesis of the concept of profit (notwithstanding the invisible hand argument in economic theory, which at any rate is disputed). Solutions for business Authors of similar points schemes have suggested that local businesses are more likely to participate if points are valued at par with the national currency27, 28 (e.g. one point = one rupee), because it would be easier to assign value to different goods and services; and it would also help out members of the community who couldnt otherwise pay for some items using solely cash. Encouraging trades that are part-cash and part VSLE currency (either points or commodity exchange) will facilitate the acceptance and usage of the VSLE currencies by the entire community, individual and business alike. In practice however, many communities have wilfully chosen to set their own standard rates, in line with the community-based nature of their schemes.29 This is perhaps unsurprising, given that this is consistent with a system designed to benefit the collective interest. In the long term however, the only way to encourage business involvement may be to rethink what business itself means, in light of this collective-interest model of economy.
25 26

http://www.economist.com/blogs/freeexchange/2012/08/monetary-history Last retrieved 7 December 2012

See http://prosperityuk.com/2002/04/creating-a-local-currency-the-example-of-salt-spring-island-vancouver/ Last retrieved 7 December 2012. Here the idea is to generate a profit on the alternative currency by exchanging it locally with Canadian dollars and then placing those dollars into a reserve fund where it accumulates interest the usual way. However this conflicts with our ethics and preferences for a non-profit venture that eliminates interest. 27 http://www.letslinkuk.net/practice/currency-values.htm Last retrieved 6 December 2012 28 http://www.utopie.it/documenti/documenti_esd/A_Cooperative_Option.pdf Last retrieved 5 December 2012 29 http://www.letslinkuk.net/practice/currency-values.htm Last retrieved 6 December 2012

19 | P a g e

Education
A common factor in all the above issues positive and negative accounts, as well as reluctance of businesses is the mindset of the participants. To maximise success, it is necessary to develop means of educating and encouraging members to think intelligently respecting their obligations within the system, and in preventing abuses that might dampen the spirit of cooperation and fair play. Community members should learn to see the system not as a set of stringent rules but rather a code of conduct by which they can reap the benefits of a sustainable microeconomic community. The key lies in effective monitoring and tracking mechanism, and good administration. The VSLE community members must be acutely aware of their responsibility to support one another, and that this includes the support of local businesses. If the entire community is properly committed to the scheme, then local businesses can be buffered against the ill effects of competition coming from big business monopoly. In turn, local businesses should understand that their support of schemes such as the VSLE system is beneficial not only for themselves, but for the entire community. Of course this would only be possible if the VSLE system itself was part of a programme to change the fundamental structure and psychology of a society, and not simply a temporary measure to get through a recession, as has been happening with bartering and alternative economy models to date.

20 | P a g e

Discussion
As an independent country, we must rely on our own available resources, develop our own sustaining momentum and force and be able to function independently on our own. We should develop solutions from our own resources with minimal help from others, using our own indigenous potential. Hopefully our overview has shown that this system is really focused not on supply and demand, but on fairly assigning value and meeting needs. This is because it is designed in view of the collective interest rather than individual interest. Again, the debt is always to the VSLE system or community and never to individuals. A central issue is how to assign a reasonable exchange value to these points. In other words, how do these points fairly represent a system of rewarding different skills and services in a reasonably acceptable manner, accounting for different amounts of time, level of skill and degree of effort involved in various tasks? For example, an hours worth of gardening is deemed to have less value than medical surgery. As such, these differences in perceived value are entirely subjective. This is why we have wilfully chosen to make time equally valuable for all activates involved. In other localized trading systems in operation throughout the world (e.g. LETS), members prefer to work for an equal rate of pay (points) irrespective of skill involved, and, as one LETS site states, many schemes are either constituted on this basis or suggest a standard rate to be used when members wish to trade on an equal basis.30 However we have attempted to provide variant rates to account for various levels of skill and physical effort. It is our view that this makes the system fairer and more effective, as it rewards everybody according to the services they perform, and reduces the potential exploitation of harder workers. The nature of our proposed model - and indeed its aims, and its subjects (i.e. the people for whom it is being introduced) - demands that it be kept simple. The VSLE is specifically designed as a localised economy model. Therefore the exact details of stratification will be very much dependent on local factors. It is left up to individual communities to decide how they wish to stratify their skills and assign rates of pay. Since VSLE is not intended to be a national model, in practice the individual communities will necessarily decide their own rates and minor stratification details. So for these reasons, we have not provided a detailed and complex stratification system and instead provide the reference 31 for further reading on an already established more complex system, as an example. By simply accounting for physical effort and skill in the present paper, we have already laid down the essential formula and introduced the most important elements of stratification.

30 31

http://www.letslinkuk.net/home/theory.htm Last retrieved 5 December 2012 Raymond 2010, op. cit.

21 | P a g e

Conclusion
It is our view that the Value Skill & Labour Exchange (VSLE) system is ideal for Pakistani village communities, where everyone knows everyone else, and where unemployment is often a serious problem. Since the points system rewards time and effort rather than specific skills, even jobs traditionally assigned no value such as cooking, cleaning etc. can become part of the economy. This means that womens work is also assigned real value. This has key significance in rural communities. A lack of local opportunities often drives men out of villages to seek work, whether in other parts of the country or abroad. Even though money comes in, this still leaves women to support themselves for long periods. This system allows women to also help support their households without fundamentally having to add to change their existing family dynamic, i.e. by using their everyday skills without also having to seek additional work. We also believe that the VSLE system is an effective combination of a localized trading points scheme and alternative currency that makes transactions easier. It is ideal for small and rural communities and moreover is compatible with their cultural customs and lifestyle. As with any system, there is potential for abuse, but we are of the opinion that the safeguards outlined in this paper serve to inhibit such abuses. We have offered our own accurate method of classifying work by skill and effort in order to make pay rates within the VSLE scheme as fair as possible, and have also presented a new concept, positive-negative offsetting. In addition we have also suggested a proactive educational program for nurturing the willing cooperation of all parties involved in the scheme.

22 | P a g e

Appendix I.

23 | P a g e

Appendix II.

24 | P a g e