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CHIPs: An Alternative Money System

Let us now explore a specific proposal for a complementary currency we will call “CHIPs.” In many ways, everything we have discussed so far is necessary to fully understand this final topic.

So imagine we could start from scratch, and create a brand new kind of money that would:

  • Maintain a consistent value over time
  • Offer better value and convenience to consumers
  • Be more resistant to theft and unethical manipulation by business or government
  • Be compatible with sound and sustainable economic principles, including free will and choice

If so, we would come up with CHIPs–or at least something very much like it.

This nick-name was chosen for a few different reasons. First, it sounds like something that might be money–like a poker chip. You can probably imagine yourself saying something like: “that will cost you about 20 chips.”

For a deeper, symbolic meaning, you might think of “CHIP” as shorthand for “CHoice Is Precious.” We all like to be able to make choices. And having access to more than one kind of money gives us one more good option to select from.

In reality, the acronym originally came from “Credit Hour In Pool.” This should give you a hint about how it is designed to work.

Throughout history, people have spent a good deal of time thinking about money. Many have wondered what it really is, how it is created and how it is sometimes used in abusive or immoral ways.

Many of us are bothered by the way money seems to lose its value over time. And we wonder if it must always be so, or if this is only the case in our modern era of centralized fractional banking.

We should all carefully consider the arguments made by advocates of gold-backed money as well as the arguments for other types of monetary reform. And we should thoughtfully contemplate the benefits and possible problems associated with modern crypto currencies such as Bitcoin.

Having done so, one thing would be very clear: there are plenty of problems with the way we do money. We certainly should come up with a better way–particularly if we can think of one.

We need a kind of money that will reliably hold its value over time. It should neither inflate nor deflate. This means the money supply must be able to grow and shrink in an elastic way, so as to properly match the goods and services circulating in the economy at any given time.

Do we really want a single, government-sponsored monopoly holding the power to determine the correct amount of money? It would be better, and much more sustainable to employ natural economic feedback principles to automatically regulate the size of the money supply.

Most importantly, our new money system should be consistent with the principles of individual choice and personal freedom. If we cannot be free to manage our own lives and enjoy the fruits of our labors, what benefit is there in any new kind of economic system? It would only benefit those who rule over us, allowing them to control more and more of our lives.

A new monetary system would not be widely accepted unless it were truly worthy of our trust. It should not require the power of government to force people to use it. Rather, people would adopt it naturally–because they recognize it is in their best interest.

We may have to persuade our politicians that it is the right thing to do. Some have a natural tendency to side with their powerful partners in big business. And that is not often what is really best for the people.

We don’t need new laws to tell us what kind of new money we must use. However, we may need to remove a few antiquated laws that protect the existing money monopoly that make it difficult for newer, more competitive alternatives to be adopted.

We saw how telecommunications first had to be deregulated before we could benefit from the choices we have in cellular phones today. Similarly, it may be necessary to disrupt the existing money cartel in order to enjoy choice in the kinds of money we use.

How it Works

In order to understand how CHIPs would work, let us return to the very basics of what money is. We have already shown that in every case, except the direct exchange of one commodity for another, money represents credit, which is a debt or an obligation of some kind.

When we “borrow” from a bank, new money is created in the process. And we must promise to repay the debt. Similarly, when we present a credit card in a restaurant, we also create new money. This too, is a promise to pay later.

But how is that payment going to take place? Sure, we can just say it will be paid with other money. But where does that other money come from? Is it all just a big circular loop of promises?

This is why not: our promises must ultimately be repaid with human effort. We agree to work somewhere in a job where we can exchange our efforts for someone else’s money, meaning their credit. Then we have to give up some of that money to cover our own obligations such as a home mortgage or short-term credit card debt. As we do, debt is redeemed, and the money supply gradually shrinks back down.

In other words, the eventual value always comes from our labors. Our willingness to work is the ultimate backing behind the money we create. This labor is the commodity that backs our credit money. We are the true source of its value.

We may incur a debt in credit card money, and pay that off with some of our checkbook money. We might even pay off our checkbook money with someone else’s money. But ultimately the debt can only be extinguished by human production. Someone is going have to do some work.

This is a natural result of the economic reality we have already discussed. We live in an entropic world so it takes work to make the things we want and need. That work, human productivity, is the ultimate commodity. It will be both in supply, and in demand, as long as mankind walks the earth and continues to be hungry, tired or cold.

The idea for CHIPs is simple: Since all money is backed by work anyway, why not explicitly measure it that way? Let’s make each unit of money equal to a standardized measure of human work and then money, and its source of value, won’t have to be such a mystery anymore. We will all know exactly what it is and where it comes from.

Why we Need New Money

The Federal Reserve dollar is eventually going to fail. It has to–just like every other currency that lacks a sustainable foundation of value.

The dollar is built on the flawed premise that the money supply must always be expanding. This may be fine as long as the economy is also expanding at a comparable rate. Then people and businesses may choose to enter into the required new debt voluntarily.

But if they don’t, and we begin to use artificial means to force borrowing, then the real value underlying the money supply begins to deteriorate. This loss of value eventually leads to a loss in confidence. And when confidence is lost, the system can fail completely. Then it will have to be somehow re-modeled, re-valued, or otherwise re-crafted.

Having discovered the fatal flaw in a monetary system based on fractional reserve banking, doesn’t it make some sense to start planning ahead? Shouldn’t we be experimenting now with complementary currencies so we can begin to make a transition before we are forced to by economic catastrophe?

There are many advocates of monetary reform. Some suggest a reformed currency should be backed by gold–not labor. It is true that gold has been one of the most reliable measures of value throughout all human history. But a valuation based on work could be even better. After all, even gold could conceivably fall out of favor someday.

Today, scientists can create minute amounts of gold in a laboratory setting. Some people have suggested mining gold from the asteroid belt between Mars and Jupiter. In fact the core of the earth may contain more gold than we could ever imagine. Given the right technological breakthroughs, gold could become much more common than it is today. If that happens, even a gold-backed currency would not provide the stability we all want in our money.

But even if gold becomes as plentiful as the asphalt we use to pave our streets, people will always be interested in a good back massage, a haircut, or a manicure. We will enjoy eating a well prepared steak dinner and a bowl of ice cream for dessert. And we will need talented craftsmen to build and maintain our houses.

Even if the whole job is eventually done by robots, someone will need to design, build and service the robots. In any world we can conceive of, mankind will still need to serve each other in order to produce the things we want and need to keep ourselves fed, warm and comfortable while we wait. The law of entropy says this must be so.

In a world where the money is backed by gold, those who own the gold get to control the currency. When money is backed by time and effort, those who do the work will have the control. And this is why money should ultimately be based on, and measured according to, human labor.

Credit Hours

As mentioned, CHIP stands for Credit Hour In Pool. The idea of a Credit Hour means just that–one hour of credit. The word “credit” implies the debt or borrowing we know to be the basis of nearly all money.

CHIPs are similar to today’s money in that you borrow, or indenture yourself in order to create the money. But what you pay back is not other money–it is the commodity of work, and the unit of measure is the hour. When you borrow, or create a CHIP, you are agreeing to perform the equivalent of one hour of standardized work in order to redeem it.

The words “In Pool” explain how all the credit hours created form the total money supply. Just like Federal Reserve dollars, all CHIPs are based on a uniform standard of measure. So they can effectively be traded and exchanged for each other in a standardized way.

This is not so much different from today’s credit money in that it is also backed by your promise to work in order to pay it off. But the true difference is in how the money is measured, or valued.

For CHIPs, the unit of measurement is not some abstract unit like a dollar that can change its value at the whim of an unelected board of governors. Rather, it is linked directly to the commodity of human work. The holder of a CHIP is entitled to receive a standard hour of work whether it is redeemed today, next week, or in a year. Its value will never diminish.

Time is Money

This kind of money is sometimes referred to as a “time currency,” and CHIP is not the first proposal to suggest it. In fact, many different time currencies have been proposed and several have even been put into practice. One notable example is the system of “Ithaca Hours” created in Ithaca, New York by Paul Glover. Some of his ideas date back to a system developed in 1827 by Josiah Warren to test the labor theory of value, or the idea that all goods and services derive their ultimate value from the amount of work required to produce them.

Many of the basic ideas behind CHIP are not new. People have been proposing and experimenting with alternative monetary systems for a long time. But each one has suffered from one or more problems that prevented them from being adopted in a widespread way.

Perhaps the most notable flaw among some time-based currencies has been the notion that everyone’s work must be valued equally. In other words, an hour of cooking hamburgers is just as valuable as an hour of performing brain surgery. This idea is not supported by the laws of economics, nor by natural human behavior. So it should not be a part of any novel currency proposal we expect to gain widespread acceptance.

Likely, in the case of many time-based currencies, they were suggested not so much as a means of reforming the monetary system, but rather as an attempt to equalize pay across varying social strata. Introducing a new kind of money will be difficult enough anyway. Why also burden it with a political agenda–particularly a hopeless one which is entirely contrary to the laws of economics and nature.

In reality, some kinds of work are considered very valuable. And other work may not be so valuable. For example, you could work hard growing tasty peaches and apples people like, and want to eat. If so, they will probably be willing to trade some of their own time and effort for your fruit. But you might work just as hard producing Brussels sprouts or rutabaga which might not be as popular. If no one will buy them, your time would have been wasted, and of no value at all.

In economic terms, we call this being productive or unproductive. And because we are diverse and different, everyone works at a different level of productivity, or value. It doesn’t mean one person is any less significant as a human being than another. It just means we shouldn’t be forcing other people to trade labor with us at a rate any higher than what they are freely willing to.

Imagine a society where everyone is forced to earn exactly the same wage per hour. From one perspective, this might seem reasonable and fair. But in reality, you might prefer to trade your work for peaches rather than rutabaga. If an artificial regulatory requirement makes wages equal for the rutabaga farmer and the peach farmer, the result is, you will be eating a lot more rutabaga than you might have otherwise hoped.

In order to be adopted, money needs to be trusted. To be trusted, it should respect and support the natural laws of economics–not attempt to defy or overrule them. In order for a time-based money to be accepted, it will have to accommodate the reality that different types of work have different values.

Another common flaw in past time-based currencies is that their value has been to tied to another already-existing currency. For example, the Ithaca hour was suggested to be worth $10. This may have been based on the notion that labor ought to be worth about $10 per hour. And people were free to charge whatever they liked for their labor–even if it was more or less than the standard “one Ithaca hour per hour of work.”

But there is a problem with establishing a value linkage between a complementary time-based currency and an existing currency–particularly one that suffers from the built-in design flaw of perpetual inflationary expansion. The complementary currency then becomes subject to many of the same weaknesses as the existing currency. In other words, why go to the effort of implementing a new complementary currency if it is no better than the one we already have? Why would a merchant want to accept a type of payment that is no better than the standard money, and less widely accepted by other potential trading partners?

Why Money?

As we have discussed, money has three important purposes:

  • To facilitate exchange
  • To store value
  • To provide a standardized measure of value

Money is not very useful for facilitating trade unless it becomes widely accepted. It is only good for storing value if it is likely to still be in similar demand in the future. And it is only useful for measuring value if its own value remains relatively constant over time.

So what might be done to make a complementary currency that would be superior to our current fractional reserve currency in the way it addresses these objectives?

Let’s start with storing value: If a CHIP truly represents an “hour of work,” and it can reliably be redeemed for that hour of work, then it will have intrinsic value regardless of what might happen to the prices of various other commodities in the economy. For example, if new technologies emerged to make the production of corn more efficient, the price of corn would naturally begin to fall. If a person happened to be storing his wealth by maintaining a silo of corn, he would lose wealth, or purchasing power, as a result of the new, emerging technology.

But if he stored his wealth in human work credits, he could use those credits later to grow corn at the new and improved efficiencies. If a CHIP produces a bushel of corn in the present at today’s prices, it might produce two bushels of corn in the future when the price of corn might be half as much. So if you believe human labor will always be in demand, the idea of using it to store value certainly makes some sense.

Next, let’s look at the purpose of measuring value: When new technologies emerge making it easier to produce the commodities we want and need, we can say those commodities become less valuable. It is now easier to produce them so we can either produce the same amount in less time or we can work the same amount and produce more. Either way, the price of the commodity will begin to fall according to the laws of supply and demand.

So we probably shouldn’t link our new complementary currency to any kind of commodity that is likely to become dramatically more or less valuable over time whether as a result of technological advances or because of artificial market manipulations such as hoarding or a market monopoly. Human labor again serves a valuable function here. Each person needs to consume a certain amount of work-product, or energy in order to survive. And each person has a certain capacity to produce such things by his own labor.

So as the population grows and needs more commodities to survive, so does the work force. If the population shrinks, its needs will shrink in proportion to its ability to produce. In this way, human labor forms the ultimate in elastic currencies. It is automatically sized to fit the human population and does not need a wizard behind a curtain in some government sponsored monopoly to artificially manipulate its volume in the economy.

Finally, consider the purpose of facilitating trade. In order to accomplish this, the money must be widely acceptable to a broad range of potential trading partners. People will only accept it if they feel they can rely on it. And a fiat currency, or one which is not backed by anything, does not inspire much trust. Rather, its value will largely be a function of public perception rather than any actual productive power.

This is why the notion of time-based money is so important. It will always be redeemable for the most valuable of commodities, the ultimate source of all economic value: human work.


Returning to the idea that money is debt, you should be able to see how CHIPs are created. It is not that different from how fractional reserve dollars are created. Someone will choose to incur a debt, or an obligation to perform work in the future. In return for this private promise, he will receive Credits toward the future Hours worked, In a Pool of publicly recognized money.


If you are willing to make a big enough promise, you should even be able to generate enough credits to trade for the big things you need like a house or a car. Now you just have to follow through with your part of the deal: you are now obligated to work for months or years until you have fully redeemed the debt.

Some more observant readers may be feeling a little uncomfortable about now. After all, doesn’t this all sound a lot like indentured servitude? One of our objectives was to respect the principle of individual free will. We don’t want to just substitute one system of involuntary servitude for another. So are there ethical issues with CHIPs we still need to iron out before it can become our ideal complementary currency?

First, let us not dance around the issue, just because the language might make us uncomfortable. Yes, any credit agreement is an indenture. And since indentures are ultimately backed by labor, they must be repaid by work, or servitude.

Remember, loans taken out under our current banking system create indentured servitude too. The only difference is they are indexed to, or measured by, a currency whose value can be more easily manipulated. There is nothing inherently wrong with debt. It can clearly be a good thing or a bad thing.

There are no ethical problems when a competent adult enters into a credit agreement of his own free, and fully informed will. By incurring the debt, he will have immediate access to capital he would not have otherwise had. He can buy a home or a car to meet the needs of his family today, even though it may take him some years to perform the labor necessary to fully satisfy the debt.

The key to making an indenture ethical is to make it voluntary. It is involuntary servitude, of any kind, that should be avoided. When a person obligates himself to future work, he must only do so after he has made the conscious decision to pledge his productivity in the future in exchange for benefits he can enjoy in the present.

The opportunity for indenture is a blessing because it allows human beings to leverage the endowment they each receive as a condition of their birth–their ability to work, and to convert that work into the things they want and need to make their lives more comfortable.

Making Chips

CHIPs would be created in very much the same way your checkbook money is created today. For example, you might go into a CHIP bank and ask to take out a loan. Your CHIP banker would want to know something about your health, your job and the prospects for your earning potential in the future. Your banker would also require some kind of collateral such as a house or car to be pledged as security. This, you would potentially forfeit in the event you failed to honor your obligations under the promise.

Your CHIP bank would need to have a good reputation among a community of similar banks. Potential trading partners would need to rely on the fact that someone, somewhere had done the research necessary to make sure you, and all other CHIP borrowers, would honor their debts in the future. Everyone would need to trust your bank. And your bank would need to make sure you do the work you promised.

So you could expect to be signing a credit document defining exactly what your obligations are under the loan. This is where CHIP manages the problem of how different kinds of work will be valued. Is one person’s hour of work the same as every other person? Or is there a fair and reasonable way we can allow for natural differences?

For purposes of standardization, a CHIP would be indexed, or linked to one hour of basic, or unskilled work. This would mean one hour of work that could be performed by any person, absent an unusual disability or physical impairment. It would presume a basic ability for speech and reading comprehension in the prevailing language of the culture. It would also assume an understanding of basic arithmetic and counting.

A task worth one CHIP per hour should be simple enough to complete satisfactorily without any particular training other than what you might expect in a normal pre-employment orientation. Some examples might include stacking boxes, sweeping a floor, or carrying materials on a construction site.

Your CHIP loan agreement would specify that you owe the bank a certain number of hours of this basic, standardized work. But that does not mean you have to stack boxes or carry bricks. Rather you can pay it off in any number of other ways.

Most likely, you are capable of doing work that is more productive than just pushing a broom. If so, you are free to pursue employment anywhere you can find a job. You might even want to create your own job.

In that job, you might be paid in CHIPs, dollars, or some other form of money. If your wage is indexed to CHIPs, you will be able to earn more than one CHIP per hour. This is because one hour of your work is more valuable to your employer than is the hour of the teenager in the warehouse who is sweeping the floor. So it will take you less time than the number of hours you borrowed to pay back your CHIP loan.

If you get paid in dollars, you can certainly submit those to your CHIP bank as well. They will get processed at whatever the current market exchange rate is for CHIPs and dollars.

CHIPs will be great at retaining their value but chances are, the dollar will continue to lose its value. So likely, the dollar-to-CHIP exchange rate will vary over time. But that shouldn’t matter too much because, as the dollar loses value to inflation, your dollar-indexed wages should get cost-of-living increases and will go up over time.

If your pay is indexed in CHIPs, your wage would be a function of the kind of work you do and how effective you are at doing it. It would not be subject to fluctuations of outside market forces like inflation and tax policies. If you wanted to increase your pay rate, you would only need to acquire some new skills to qualify you to work in an area more in demand by other people–your ultimate trading partners.

Ideally your CHIP loan would be repaid at whatever multiple you are able to earn at your regular job. In this respect, it is pretty similar to a regular mortgage. The more you can earn, the less time it will take to satisfy your debt.

But there is one critical difference: with a CHIP loan, you can never be foreclosed just because you lose your job. Remember, what you owe the CHIP bank is work–not money. In particular, not the kind of centralized money that can fall into critically short supply due to a recession or monetary crisis.

Under the right kind of CHIP loan, if you can’t find a job, you might simply be able to give due notice to the bank and then show up ready to do your promised work. It would be the bank’s obligation to find something productive for you to do with that time.

True, you might only be earning the standardized base wage multiple of 1 CHIP per hour. But you would have the option of working off your obligation in this way as a last resort, or just until you could get yourself back into a more productive employment situation. Furthermore, it would be in the bank’s interest to put you in the most productive work they can find for you. The point is: as long as you are willing to work, there is no reason you have to lose your house or car.

Furthermore, your loan agreement could specify that you are only required to work part time, such as 20 hours a week fulfilling an incurred debt. This would be comparable to existing practices. For example, bank loans can be repaid slowly over time. And the level of monthly debt service should never be more than about half of your total wage earning potential. In other words, you need to still have other work time available to earn the other things you will need like food, fuel and recreation.

This repayment mechanism forms the basis of how a CHIP derives its core value. You can redeem each hour of CHIP indebtedness by performing whatever kind of work the CHIP bank has found for you.

This work might not be what you would have chosen, but at least you will have the opportunity to work and to keep yourself out of foreclosure. And as soon as you can find more productive employment, you can always go back to earning at the higher multiple.

If the CHIP bank fails to provide you with an employment option, you are under no further obligation and you still don’t lose your collateral. Only debtors who refuse to work would forfeit their property.

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