The difference between LETS and Timebanking

In the world of alternative and complementary currencies, reinventing the wheel over and over again seems to be common place. Different people propose a design of such currencies under different names, but closer inspection reveals that those system are basically the same.

From a theoretical perspective we can distinguish three main types of alternative or complementary currencies:

  1. Alternative currencies backed by official currencies;
  2. Alternative currencies backed by non-monetary goods and services;
  3. Mutual credit systems.

Belgian economist Bernard Lietaer does not consider mutual credit systems as “real” currencies. But since these are usually included in this discourse, we will for the sake of convenience treat mutual credit as a type of complementary currency.

We have previously discussed mutual credit in more detail here, so we will not repeat that in this article.

Both LETS (local exchange trading system) and Timebanking are examples of mutual credit. The main principle of both systems is the same: one person provide goods or services to another, and receive positive credits for this while the other gets negative credits.

The key difference between LETS and Timebanking is in how goods and services are “priced” (i.e. how credits are assigned to goods and services). In LETS circles the usual practice is to value credits in nominal currency, i.e. one credit represents one dollar or one euro (or whatever currency) in value. In Timebanking prices are expressed in time, i.e. one credit represents a certain amount of time – for example one credits is one hour.

An example. If Alice offers Bob an hour of house cleaning service, she gets one credit. With this credit she can buy one hour of car maintenance from Carol.

Timebanks play an essential role in timebanking. They have two features. Participants have an account at the timebank, where their transactions are recorded. Further a timebank serves as a place where people can offer their goods or services or ask for certain goods or services.

There are several points of critique possible on timebanking. First of all, it is questionable whether time is actually the most suited measure of value.

Suppose that both Alice and Bob produce each ten units of a certain good, but Alice does so in one hour while it takes Bob two hours. Each unit is identical to another, hence consumers are indifferent whether they have a unit made by Alice or Bob. Nevertheless Alice’s units are cheaper than Bob’s. One could argue that this would stimulate producers to produce more efficiently.

Another example. Suppose that Alice owns a book which she offers for sale. How need she establish the price for this second-hand book?

One could argue that in the case of a first-hand book, the price could be determined by the amount of time the author need to write the book. But suppose that Bob has written an e-book in a hundred hours, everyone can after payment download this from his site. What would be the correct price for one download? Suppose that both Alice and Carol download Bob’s book for a hundred credits each, then Bob would “earn” two hundred hours whilst he only spend one hundred.

Another common criticism against time banking is that ignores qualitative differences between different types of services. In a simple timebanking system it does not matter if one provide one hour of hair cutting or one hour of medical services. Hence there would be the risk that there will not be enough medical practitioners to met demand.

Some timebanks attempt to solve this problem by allowing to discriminate between different types of service, hence medical practitioners can charge more credits for an hour of service. This could be justified by the fact that a doctor not only need to spend a certain amount of his time to treat a particular patient but also need to spend time in study.

The practical problem here, is how to settle these “investment cost” with the price of a particular service. It is at beforehand not known how much service a particular doctor will provide during his career.

Time is not the only thing in the world. Timebanking does not take scarce resources into account nor environmental costs.

The fundamental problem with Timebanking is that it seeks to assign value in an objective method, whilst value is a highly subjective matter. What is valuable for one, has no value for another.

Though Timebanking might be suited for some purpose, as is the case with mutual credit in general, it is highly questionable whether Timebanking would be an efficient or even sensible method of allocating goods and services at large.