88 llideaki}(udoBrown, L.R. (2001) Eco-economy. London: Earthscan.
Daly, H. (1974) 'The economics of steady state', American Economic Review 15-21
May.
Daly, H. (1996) Beyond Growth. Boston: Beacon Press.
Foster, J.B. (1994) The Vulnerable Planet. New York: Monthly Review Press.
Foster, J.B. (2000) Marx's Ecology: Materialism and Nature. New York: Monthly
Review Press.
Georgescu-Roegen, N. (1971) The Entropy Law and Economic Process. Cambridge: Harvard University Press.
Gren, I.-M., Forke, c., Turner, R.K. and Bateman, I. (1994) 'Primary and 'second
values of wetland ecosystems', Environmental and Resource Economics 4: 55-74.
Immler, H. (1985) Natur in der Okonomischen Theorie. Opladen: Westdeutscher
Verlag.
Kudo, Hideaki (1997) First Critique of Political Economy and Naturalism. Economic Study Series of Chiba University, no.1 (in Japanese).
Martinez-Alier, J. (1987) Ecological Economics. Oxford: Blackwell.
Martinez-Alier, J., Munda, G. and O'Neill, J. (1998) 'Weak comparability of values
as a foundation for ecological economics', Ecological Economics 26: 277-86.
Mayumi, Kozo (2001) The Origins of Ecological Economics: The Bioeconomics ofGeorgescu-Roegen. London: Routledge.
MEGA Series 2 (1975) Karl Marx/Friedrich Engels, Gesamtausgabe, Erste
Abteilung, Werke-Artikel-Entwlirfe, II1:1. Berlin: Dietz Verlag.
MEW (1962) Karl Marx-Friedrich Engels Werke, 23. Berlin: Dietz Verlag.
MEW (1968) Karl Marx-Friedrich Engels Werke, Ergiinzungband, Erster Teil.
Berlin: Dietz Verlag.
Miyamoto, Kennichi (1989) Environmental Economics. Tokyo: Iwanamishoten (inJapanese).
Murota, Takeshi (2001) The Ecology of Material Cycle. Tokyo: Koyoshyobo (inJapanese).
Norgaard, R. (1989) 'The case for methodological pluralism', Ecological Economics 1: 37-57.
Pillet, G. and Murota, T. (1987) Environmental Economics. Geneva: Roland Leimgruber.
Schmidt, A. (1962) Der Begriff der Natur in der Lehre von Marx. Frankfurt:
Europaische Verlagsanstalt.
Schumacher, E.F. (1973) Small is Beautiful. London: Blond & Briggs.
Tamanoi, Yoshiro (1974) 'Toward the economics in a broad sense on metabolism',
KEIZAI-Seminar, November (in Japanese).
Turner, R.K. and Pearce, D.W. (1993) 'Sustainable economic development: economic and ethical principles', in E.B. Barbier (ed.) Economics and Ecology.
London: Chapman and Hall.
Weizsaecker, E.U. von (1992) Erdpolitik: Olologische Realpolotik an der Sohwellezum lahrhundert der Umwelt, 3rd edn. Darmstadt: Wissenschaftiche Buchgesellschaft.
Worster, D. (1989) Nature's Economy: A History of Ecological Ideas. Cambridge:
Cambridge University Press.

7

The theory of labour money
Implications of Marx's critique forthe Local Exchange Trading System(LETS)
Makoto Nishibe

Introduction
In this chapter I will examine Marx's cnt1qu~ of the theory of labourmoney, and present his own vision of communism. Based on the results
thus obtained, I will then evaluate the significance of the Local Exchange
Trading System (LETS). Proudhon, Owen and Ricardian socialists, incommon, claim that labour money should be introduced in order tocorrect the unfairness of capitalism and to establish their ideal societies.
They argue that labour is the true measure of value, which they define as
the labour necessary to produce products. This presumes that the labour
theory of value holds valid constantly over time, not only in the long run
but also in the short run. All of them view the market as static in stationary equilibrium, and regard money merely as the medium of exchange.
Marx criticises the theory of labour money because it ignores disequilibrating or dynamic factors intrinsic to the market economy where anarchical commodity production prevails, and where value is only revealed aposteriori as a social average of oscillating market prices determined by
the relation between demand and supply.
Marx visualises communist society, on the one hand, as an associationof free individuals, as Proudhon does, and, on the other hand, as a cooperative society with common ownership of the means of production, as
Owen and Ricardian socialists do. I think that it is possible and desirable
to synthesise these visions into one: an associative and co-operative
market economy consisting of free individuals and freely formed organisations, using some form of 'alternative money'. LETS would be an alternative form of money constituting such an economy, immune to Marx's
critique of labour money. It is individually created and multilaterally
settled as credits or debit of account. Associative money with zero interest
helps non-profit organisations to propagate more easily than in a capitalist
economy, and its zero-sum principle prevents the self-expansion of capital.
Thus LETS has the immanent potential to transform a capitalist market
economy gradually into an associational one.

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Marx's critique of the theory of labour money
Marx began his critique of the theory of labour money in The Poverty ofPhilosophy, in which he attacks Pierre-Joseph Proudhon's concept 'constitutive value' or 'synthetic value', the cornerstone of Proudhon's work
generally known in English as The Philosophy of Poverty (Proudhon
1888). Proudhon explains that value in use (utility) and value in exchange(scarcity) mutually contradict each other if we need a great variety of
products and must therefore produce them by means of labour. If liberty
for producers and consumers is granted, the price of merchandise will
always fluctuate and stagnation will develop; equilibrium in the market
will be destroyed. On the other hand, Proudhon sees communism as an
attempt ideally to realise equality, but eventually to violate individual
liberty. He argues that justice is a necessary condition of fraternity if
labour has to be done in an associative society in order for people to live,
and that justice will be imperfect without a fair measure of value. He thenintroduces the concept of 'constitutive value', which registers absolutevalue conceived in terms of the proportionality of products.
Marx criticises Proudhon for his unaccountable neglect of an important
predecessor, Ricardo, who had explained a concept equivalent to Proudhon's 'constituted value', but in more precise terms as the relative labour
time needed to produce a product. However, regardless of any outward
similarity in their doctrines, when considering their implications, there is a
big difference between Proudhon and Ricardo (Marx 1976: 120-44). While
Ricardo's theory of value is descriptive in the sense that it explains thelaws prevailing in the existing capitalist economy, Proudhon's concept of'constituted value' presents instead a set of normative criteria for judging
the fairness of exchanges in society. Marx concludes that Ricardo is rightbecause the equality of labour is already realised, for example, in an automated workshop where simple labour, reducible from compound labour,
has already become the measure of value.
Marx also demonstrates the erroneous character of Proudhon's thesis.
The value of what is produced is only shown as a gravitating point throughthe fluctuation of market prices caused by incessant changes of supply anddemand. Later on, in Chapter 10 of Capital, volume three (Marx 1998:
171-98), Marx explained more accurately that this relationship should be
realised not between value and market prices, but between prices of production and market prices. Proudhon inverts the order of cause and effect,
and argues that value itself could assure the balance of supply and demandin the market. As far as the industrial stage of capitalist economy is concerned, the law of proportion (or equilibrium in the market) cannot be
continuously maintained, but rather disproportion prevails in most cases,
because of the anarchic character of production in a capitalist economy.
There is also another reason why the proportional relation is not stable.
Value tends to decrease as labour productivity increases in some cases.

Implications of the theory of labour money

91

The continual diminution of value caused by inventions brings about therealisation of minimum labour time as value through competition among
capitalists, and the formation of monopoly or dominance of particular
products with the lowest price owing to new inventions. The reduction ofvalue is countervailing to a tendency towards proportional relations.
Furthermore, Proudhon's application of the concept 'constituted value'
to an ideal society was neither new, nor unique. Marx knew that many
Ricardian socialists in England, such as Hodgskin, Thompson, Edmonds
and Bray, had already re-interpreted Ricardo's economic theory as 'theright to the whole produce of labour' and by the 1830s had applied ittheoretically and practically to an egalitarian co-operative society in theform of 'labour money' or a 'labour-chip'. Anton Menger later characterised the basic claim against capitalism made by Ricardian socialists as
the legal expression of a property right to the products of labour held by
their producers. In fact, there is some divergence of opinion, and theirclaim is not necessarily on the level of the 'legal' but rather that of the'social', in the sense that many of them seek to realise this claim by changing society, rather than law. However, as this expression is convenient forindicating the common feature of their claim, we will continue to use it inthis chapter. Marx recognised that Proudhon's idea was only a modified
repetition of the one developed by Ricardian socialists, in particular, Bray.
Marx, in Capital, volume one, attacks Proudhon for seeing the juridical
relations of the commodity economy as expressing an ideal, 'justice eterneUe (eternal justice)', and, in order to realise it fully, for seeking toreform the production of commodities (Marx 1996: 68, 84). Although thiscriticism is true, we should not regard Proudhon's anarchism as mere petit
bourgeois ideology and simply reject it, but should rather appreciate thepositive sides of his thought: the primacy of freedom and individual
independence. His problem is not that he seeks to realise liberty andjustice in exchange, but that he assumes that he can realise justice withlabour money. He surely denied such collective authority as the state orparliament, and insisted instead that such institutions should be replacedby associations of independent producers. However, his blueprint for 'The
Exchange Bank' presented subsequently is incompatible with this anarchism or 'mutualism'.
In 1849, Proudhon applied his principle of credit gratuit (free credit),according to which individuals or banks should provide credit withextremely low, or no, interest. He proposed to establish The ExchangeBank as an institution for circulation and credit in order to correct
inequalities in exchange. According to his plan, workers would become
members, without holding shares, of a commercial union called The
National Exchange Bank, so that they could mutually exchange theirproducts, both as producers and consumers, at equitable prices calculatedon the basis of labour time and cost of production. The National ExchangeBank was supposed to determine the prices of products, to be in charge of

92

Makoto Nishibebuying and selling the products of its members, and to issue four kinds ofvouchers used in the trade of products. However, Proudhon's proposal
was defeated in the assembly, and was not put into practice. In the end, it
had not been tested by its success or failure, but the basic idea was thesame as Owen's Labour Exchanges.
Proudhon had argued that, while all products in a modern society are
the fruits of 'collective force' born of workers' co-operation and the division of labour, capitalists then deprive workers of this force and appropriate the products gratis. This is theft, which is by definition unjust.
Proudhon attacked private ownership of property from this perspective.
At the same time, he regards private property as ultimately ensuring individual liberty against the authoritative or coercive power of the state. In
this respect it sounds as if his claim is self-contradicting, but this is not so.
Rather, he recognised both sides, good and bad, of property. On the other
hand, he criticised the National Workshops proposed by communists suchas Louis Blanc, insisting that they would ultimately form state monopolies,
and so threaten individual liberty. His anarchism directed against capitalism or state authoritarianism was not itself problematic, but there wasrather a fundamental flaw in his theorising that equitable exchange could
be immediately achieved by applying the concept of 'constitutive value',assuming that money is just a 'representative symbol of labour', and thatthe abolition of the 'sovereignty' of money would be sufficient in itself to
produce an ideal society.
There is another essential problem. Despite Proudhon's denial ofcollective authority, The Exchange Bank as an equitable price fixer would
really turn out to be a planner and practitioner of production. As a regulator it would need to command people to exchange their products according to the labour time necessary to produce them. Marx criticises John
Gray's ideas on labour money for problems with a national central bank,and thereafter he attacks Proudhon as follows:

John Gray was the first to set forth the theory that labour-time is the
direct measure of money in a systematic way. He proposes that anational central bank should ascertain through its branches thelabour-time expended in the production of various commodities. In
exchange for the commodity, the producer would receive an official
certificate of its value, i.e., a receipt for as much labour-time as his
commodity contains, and this bank-note of one labour week, one
labour day, one labour hour, etc., would serve at the same time as anorder to the bank to hand over an equivalent in any of the other commodities stored in its warehouses ... Although Gray merely wants 'toreform' the money evolved by commodity exchange, he is compelledby the intrinsic logic of the subject-matter to repudiate one conditionof bourgeois production after another. Thus he turns capital into
national capital, and land into national property and if his bank is

Implications of the theory of labour money 93
examined carefully it will be seen that it not only receives commodities with one hand and issues certificates for labour suppliedwith the other, but that it directs production itself ... But it was left to
M. Proudhon and his school to declare seriously that the degradationof money and the exaltation of commodities was the essence of socialism and thereby to reduce socialism to an elementary misunderstanding of the inevitable correlation existing between commodities andmoney.
(Marx 1987: 320-3)This would consequently lead to collective economic planning, which
would deny market freedom and repress individual liberty. Hence, Proudhon's proposal would necessarily fall into self-contradiction. It is worth
noting that Proudhon regarded money as an indispensable medium for theexchange of products, but we should not ourselves necessarily endorse his
centralised institutional structure, because it inevitably requires authoritative power.
Marx thus clarified the problems in Proudhon's conception of value andmoney, as well as in his plan for labour money, arising out of his misunderstanding of political economy. Nonetheless, Marx never denied the idealof an association of free individuals expressed in Proudhon's anarchicalpolitical philosophy. His evaluation of Proudhon varies, depending on thefield of study that he was engaged in.

Robert Owen and the Ricardian socialists'
After considering Proudhon's idea of labour money, we now turn to Ricardian socialists. Above all, we cannot ignore the experiment of labour notesin which Robert Owen and many Ricardian socialists, such as John Gray,
William Thompson and John Francis Bray, also participated. At present,
this is also regarded as the origin of modem local currencies. After the
failure of a co-operative village in New Harmony, in the United States,
Owen returned to England and played a leading part in the process
through which the workers' co-operative societies of the National Equitable Labour Exchange were established in London in September 1832.
Thereafter, similar systems were set up in Sheffield, Leeds and many othertowns in England. 'Labour notes' were to be issued by the Exchanges andimprinted with the labour time expended on products. Workers
would receive them in exchange for their products, whereby they could
purchase other products of the same value. A labour note of 6d wasregarded as equivalent to one hour of labour, and a fee of 8.33 per cent
was charged on each transaction in order to cover operational costs. The
experiment sought to promote equitable exchanges of products based on
Ricardo's labor theory of value. Owen and others believed that if theseLabour Exchanges diffused throughout the nation, and if this occurred in

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Makoto Nishibe

conjunction with the development of co-operative movements, a peacefultransformation of capitalism into communism would take place.
More than ten years before, Owen had insisted in his Report to theCounty of Lanark of a Plan for relieving Public Distress that a natural
measure of value should be labour, not gold or silver, nor the notes of
the Bank of England, and, that if labour money were introduced in, cooperative villages, the demand for labour would be stabilised, which would
then reduce unemployment and poverty, and workers would receive an'equitable reward' for their labour. In this respect, Bray is theoretically
clearer than Owen. He writes:
From the very nature of labour and exchange, strict justice not-only
requires that all exchangers should be mutually, but that they should
likewise be equally, benefited. Men have only two things which theycan exchange with each other, namely, labour, and the produce oflabour.
(Bray 1839: 48)
Similarly, Ricardian socialists such as Hodgskin, Thompson, Bray andGray, in line with the theory of value in Ricardo's Principles of Political
Economy and Taxation, insisted that the whole produce of labour should
be given to producers, because labourers create all the value of anythingthat is produced. This movement aimed at realising such an ideal, but it
terminated in only two years because of intrinsic problems. One problem
concerned the computation of the value of products by measuring averagelabour time. It required a proper appraisal of values in heterogeneous
labour in various jobs and industries as well as in complex forms of labour
related to skills and proficiency, but it was not successfully done, whichcaused inequality among producers. As a result, the Labour Exchange
could not adjust the supply of, and the demand for, necessary goods. The
other problem is that speculation spread, which made its operation difficult to sustain. The experiment in labour notes clearly demonstrated thefundamental defects in the direct use of labour time as the standard ofvalue for equitable exchange.
It is true that Marx's theory of surplus value owed much theoretically tothem, yet he repeated his criticisms against 'the right to the whole produceof labour', and to labour money as its application, in his successive criticalstudies on political economy: Grundrisse, Contribution to Critique of Political Economy, Manuscripts of Capital and Capital as published. Marx, forinstance, rebutted the argument concerning bank reform proposed by
Alfred Darimon, a Proudhonist, which was also advocated by Ricardiansocialists:
The replacement of metal money (and of paper or fiat money denominated in metal money) by labour money denominated in labour time

Implications of the theory of labour money 95
would therefore equate the real value (exchange value) of commodities with their nominal value, price, money value. Equation of realvalue and nominal value, of value and price. But such is by no means
the case. The value of commodities as determined by labour time is
only their average value . .. Market value equates itself with real value
by means of its constant oscillations, never by means of an equation
with real value as if the latter were a third party, but rather by meansof constant non-equation of itself (as Hegel would say, not by way of
abstract identity, but by constant negation of the negation, i.e. of itself
as negation of real value) ... The time-chit, representing averagelabour time, would never correspond to or be convertible into actual
labour time; i.e. the amount of labour time objectified in a commodity
would never command a quantity of labour time equal to itself, andvice versa, but would command, rather, either more or less, just as atpresent every oscillation of market values expresses itself in a rise or
fall of the gold or silver prices of commodities ... The difference
between price and value, between the commodity measured by thelabour time whose product it is, and the product of the labour timeagainst which it is exchanged, this difference calls for a third commodity to act as a measure in which the real exchange value of commodities is expressed. Because price is not equal to value, therefore
the value-determining element - labour time - cannot be the elementin which prices are expressed, because labour time would then haveto express itself simultaneously as the determining and the nondetermining element, as the equivalent and non-equivalent of itself
Because labour time as the measure of value exists only as an ideal, itcannot serve as the matter of price-comparisons.
(Marx 1986: 74-7)
In Marx's writings before Capital there are still confusing usages of concepts like value and price, but the point in Marx's argument is clear. Ricardian socialists believe that the labour embodied in products is in itself
equal to social labour, or, to put it in Marx's terminology, 'nominal value,
price, or money value' is always equal to 'real value' (exchange value) ofcommodities. However, this is not sustainable, because real value is only
shown as an average of fluctuating nominal values or prices deriving fromeach transaction to buy and sell using money in the market. In short,'labour time as the measure of value exists only as an ideal' of the ceaselessly moving real. Ricardian socialists had overlooked the necessity ofmoney as a detour for ensuring social acceptance, and had postulated that
ideal, social labour should become directly real, that is, money.
During his preparation for Capital Marx came to recognise that this istrue not only for Ricardian socialists, but also for Ricardo himself, andthat the fundamental defect in conventional political economy lay in theabsence of an analysis of money as a general form of value, or an analysis

96

Makoto Nishibeof the inevitable asymmetry between commodities and money in a market
economy. He did this in 'the theory of the form of value' in Capital. It isnoteworthy that the critique of labour money gave rise to dichotomous
concepts in Marx's Capital, in distinction from Ricardo's Principles, suchas substance of value and form of value, value and price of production,and the price of production and market price. This needs to be pursued
further in relation to the genesis of Marx's economic theory. If labourmoney were to express socially necessary labour time directly, it would be
more than 'money', defined as direct exchangeability with commodities,
because it would require not only an equilibrium of demand and supply
but also a universal homogeneity and intensity of labour. However, this is
not the function of money, but of competition, which would presumably
establish such conditions in a capitalist market economy. That is why Marx
rejected the idea of labour money as a flawed and unreal fantasy.

Marx's two visions of communism
Labour money is defective as an economic theory, but it was truly one of
the major efforts in trying to develop a new co-operative society. In thisrespect, Marx evaluated Owen higher than Proudhon, even if they both
advocated an almost identical plan for labour money. While the former
tried to introduce it into co-operatives or co-operative societies in order tochange the 'competitive' character of the market economy, the latter only
did so in his contemporary market economy. Owen was more conscious ofits partial and limited qualities. He knew that if labour money were thesole endeavour, and if it were not connected with the co-operative movement it could not be successful. The difference between Owen and Proudhon 'is significant for our reconsideration of Marx's own view ofcommunism. Although he barely described a future ideal society at all, we
will find that there are two different visions of communism if we lookthrough his writings.
The first vision depicts communist society as an association or community of free individuals, similar to Proudhonian anarchism. Marx defines it
as: 'an association in which the free development of each is the condition
for the free development of all' (Marx 1976: 506); 'a community of free
individuals, carrying on their work with the means of production incommon, in which the labour-power of all the different individuals is consciously applied as the combined labour-power of the community' (Marx1996: 89); and 'a higher form of society, a society in which the full and freedevelopment of every individual forms the ruling principle' (Marx 1996:
588). The second quotation does not necessarily mean economic planning
together with the national ownership of the means of production. Rather
we should understand it as explaining the co-operative aspect of communism. By contrast, Proudhon writes: 'Free association, liberty - whose solefunction is to maintain equality in the means of production and equiva-

Implications of the theory of labour money

97

lence in exchanges - is the only possible, the only just, and the only true
form of society' (Proudhon 1898: 272).
The term 'free' has two meanings here. One is that individuals are 'free'
to form associations of their own free will based on spontaneous agreements, and the other meaning is that they are 'free' to develop their peculiar abilities to the full extent and in various directions without any social
hindrance. The second vision defines communism in terms of a cooperative society composed of production-consumption co-operatives
whose means of production are owned in common by the members. Thisvision has much in common with Owenite communism and Ricardiansocialism. While the first vision focuses on 'freedom' and 'association', thesecond focuses on 'co-operation' and 'common ownership'.
In volume three of Capital, Marx explains that once credit hasdeveloped, it not only progresses all the way to bank credit, but also helps
to create two different organisations for production - stock companies andco-operative factories. Marx writes:
In stock companies the function is divorced from capital ownership,hence also labour is entirely divorced from ownership of means of
production and surplus-labour. This result of the ultimate development of capitalist production is a necessary transitional phase towards
the re-conversion of capital into the property of producers, although
no longer as the private property of the individual producers,
but rather as the property of associated producers, as outright social
property.
(Marx 1998: 434)
The co-operative factories of the labourers themselves represent
within the old form the first sprouts of the new, although they naturally reproduce, and must reproduce, everywhere in their actualorganisation all the shortcomings of the prevailing system. But the
antithesis between capital and labour is overcome within them, if at
first only by way of making the associated labourers into their own
capitalist, i. e., by enabling them to use the means of production for theemployment of their own labour ... The capitalist stock companies, asmuch as the co-operative factories, should be considered as transitional forms from the capitalist mode of production to the associatedone, with the only distinction that the antagonism is resolved negatively in the one and positively in the other.
(Marx 1998: 438)
Marx contends that these are two different 'transitional forms' in the
movement from the capitalist mode of production to 'the associatedmode of production'. For him, stock companies and co-operative factories
are, respectively, negative and positive sublations (Aufheben) of a

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Makoto Nishibe

contradiction in the capitalist mode of production. Stock companies cantransform private ownership of the means of production by individual capitalists into common ownership by many shareholders, and thus make aseparation between ownership and administration of firms, which willchange capitalist economy from within. But stock companies bring about'private production without the control of private property', and so causeside effects such as monopolies, state interventions and financial aristocracy. This limitation of stock companies is a 'negative' factor for Marx, as
they abolish capital as private property only 'within the framework ofcapitalist production itself'. Contrarily, Marx evaluates co-operative factories 'positively' because they 'present within the old form the first sproutsof the new', even though they reproduce 'all the shortcomings of the prevailing system'. He appreciates this potentiality in the sense that it showsthat large-scale production can be conducted by 'co-operative labour'
without the existence of managers and capitalists. Nevertheless, he wascautious not to overrate the experiment of the co-operative movement.
For example, Marx writes:
But there was in store a still greater victory of the political economy oflabour over the political economy of property. We speak of the cooperative movement, especially the co-operative factories raised by
the unassisted efforts of a few bold 'hands'. The value of these greatsocial experiments cannot be overrated ... At the same time theexperience of the period from 1848 to 1864 has proved beyond doubt
that, however excellent in principle and however useful in practice, cooperative labour, if kept within the narrow circle of the casual efforts
of private workmen, will never be able to arrest the growth in geometrical progression of monopoly, to free the masses, nor even to perceptibly lighten the burden of their miseries.
(Marx 1985a: 11-12)
This is because he knew that if co-operative factories were scattered,they would never have the power to transform the capitalist economy, andthat if they must compete with monopolised big companies, they would
fail or degenerate into ordinary companies. Therefore, the co-operative
movement needs, as external circumstances for their development, a typeof market different from the present one, which, I believe, LETS cancreate. In order to examine Marx's evaluation of co-operative societies
further, we need to consider his Instructions for the Delegates of the Provisional General Council. Marx writes:(a) We acknowledge the co-operative movement as one of the transforming forces of the present society based upon class antagonism. Its
great merit is to practically_ show, that the present pauperising, anddespotic system of the subordination of labour to capital can be super-

Implications of the theory of labour money

99

seded by the republican and beneficent system of the association of freeand equal producers. (b) Restricted, however, to the dwarfish forms
into which individual wages slaves can elaborate it by their private
efforts, the co-operative system will never transform capitalist society.
To convert social production into one large and harmonious system offree and co-operative labour, general social changes are wanted,
changes of the general conditions ofsociety, never to be realised save by
the transfer of the organised forces of society, viz., the state power,
from capitalists and landlords to the producers themselves. (c) We
recommend to the working men to embark in co-operative production
rather than in co-operative stores. The latter touch but the surface ofthe present economical system, the former attacks its groundwork.
(Marx 1985b: 190)
Marx explains in the section 'co-operative labour' that the co-operative
movement is significant in so far as it is 'one of the transforming forces ofthe present society based upon class antagonism', since 'the republicanand beneficent system of the association of free and equal producers' cansupersede the subordination of labour to capital. His recommendation to
the workers is 'to embark in co-operative production rather than in cooperative stores', because the former has the potential to change thegroundwork of the capitalist system, transforming it into 'one large andharmonious system of free and co-operative labour', starting from thesphere of production. This corresponds to his second vision of communism. Although we admit that changes in the general conditions of society
must occur, the added condition that 'the organised forces of society,namely, the state power' could only fulfil the transformation is not agreeable. Marx's claims concerning the primacy of producers' co-operatives
and his concomitant requirement for a continuing state are deduced fromhis doctrine of historical materialism. But, as will be seen later, we should
abandon these basic assumptions: one-way causality from the powers of
production to the relations of production, as well as the primacy of production over circulation.
It is true that Marx sees that labour money is only valid in the firstphase of communism, i.e. 'co-operative society based on common ownership of the means of production', where associated labour is conducted.
Marx writes:
Owen's 'labour-money', for instance, is no more 'money' than a ticket
for the theatre. Owen pre-supposes directly associated labour, a formof production that is entirely inconsistent with the production of commodities. The certificate of labour is merely evidence of the part takenby the individual in the common labour, and of his right to a certain
portion of the common produce destined for consumption.
(Marx 1996: 104)

100 Makoto NishibeWithin the co-operative society based on common ownership of themeans of production, the producers do not exchange their products;
just as little does the labor employed on the products appear here as
the value of these products, as a material quality possessed by them,since now, in contrast to capitalist society, individual labour no longer
exists in an indirect fashion but directly as a component part of total
labour ... What we have to deal with here is a communist society, notas it has developed on its own foundations, but, on the contrary, just as
it emerges from capitalist society ... Accordingly, the individual producer receives back from society - after the deductions have been
made - exactly what he gives to it. What he has given to it is his individual quantum of labour ... The same amount of labour which he has
given to society in one form, he receives back in another.
(Marx 1989: 85-6)
In such a condition, individual labour is directly regarded as social labour,'as a component part of total labor'. Owen's labour notes are used for 'thecertificate of labour' which 'is merely evidence of the part taken by theindividual in the common labour, and of his right to a certain portion of
the common produce destined for consumption'. As it is not money but'the certificate of labour' - like 'a ticket for the theatre' - 'the producers
do not exchange their products'. Rather they redistribute their products
using these labour certificates after socially necessary deductions are
made. In short, a co-operative society is not a market economy, because it
has no market where value is determined as an average of continuously
fluctuating market prices. However, it is uncertain that Marx believed that
there would be no need for money in a co-operative society, and whether
there would also be no market between co-operative societies. We couldat least say that co-operative society is not the same as the planned economic society in terms of state power, because Marx also criticised theLassallean idea of a producers' co-operative society with state aid in his
Critique of the Gotha Programme.
As already stated, despite his repetitive warning that the reality of themarket should not be dismissed easily, Marx was clearly inclined to thesecond vision of communism. But, I think it fruitful not to take either ofthese positions, but to synthesise them into one that emphasises both
freedom and co-operation. Communist society must be non-capitalistic,
but I do not believe that it would be either a traditional society based onreciprocity in tribal communities with common ownership, or a constructivist society based on central planning with national ownership, but rather
one that would instead maintain the existence of money and the market. If
so, the synthesised vision could be depicted not as a 'co-operative society'(using 'certificates of labour') but as an 'associative market economy', inwhich, using 'alternative money', individuals could freely trade productson the basis of mutual trust and contracts, and in which individuals could

Implications of the theory of labour money

101

freely engage in various forms of organisation with common ownership:
stock companies, producers' and consumers' co-operatives, or non-profit
organisations.
However, this cannot be accomplished by means of labour money
resting on labour as a value standard. It is not money that creates markets,
but rather the certificate of labour. These certificates cannot take accountof the difference between skilled labour (complex labour) and unskilled
labour (simple labour), nor can they take into account the different qualities of output attained by individuals. If we simply ignore such differences
and, in principle, regard all kinds of labour as equal, such egalitarianism
would reduce the spontaneity and incentives of individuals, and indeed
restrain individuals' freedom to develop their different abilities and needs.
On the other hand, if we pursue a certain system of evaluation of various
kinds of labour, it would inevitably require an authoritative power todetermine the terms and conditions, and to put it into practice, which
would then threaten individual freedom. In any event, we conclude byabandoning Marx's first vision of communism. To escape from this knotty
problem, we need 'alternative money' that has the ability not only tocreate a market, but also to encourage co-operation more than competition.
When Marx, in The Poverty of Philosophy, criticises Bray's egalitarianidea of the individual exchange of equal labour, he bases his argument on
the relation of the form of exchange of products to the form of production.
Marx writes:
In general, the form of exchange of products corresponds to the formof production. Change the latter, and the former will change in consequence. Thus in the history of society we see that the mode of
exchanging products is regulated by the mode of producing them.
Individual exchange corresponds also to a definite mode of production
which itself corresponds to class antagonism. There is thus no individual exchange without the antagonism of classes.
(Marx 1976: 143-4)
Here Marx postulates that 'the mode of exchanging products is regulated by the mode of producing them'. This might be regarded as a variation in the formula of historical materialism. But we cannot take it for
granted, because, observing the upswing of electrical, informational andfinancial technologies like internet banking and electronic money in thepresent day, we need to recognise that these modern technologies are
related to the production process as well as to the circulation or exchangeof products. It thus follows not only that the mode of producing products
determines the mode of exchanging them, but also that the latter determines the former. The relationship concerned involves, not one-way, but
two-way causations; it is a relation of dual determination. By reconsidering

102 Makoto Nishibe
this, we could see a possibility that an institutional change in the mode of
exchange of products by means of some type of 'alternative money' could
result in a change in the mode of producing them.

The potential of LETS as associational money
What medium of exchange should be used in order to actualise an association of free and equal individuals? I believe that LETS is the most likely
form and has the most potential. LETS is a kind of local currency which
has spread since the 1980s and has reportedly reached more than 3,000
venues over the world. It was initiated in Canada in 1983, but its core idea
is much older. LETS has properties similar to those found both in 'money'
and 'credit'. It is 'money' in the sense that it can function, like conventional national currencies, as a means of circulation to mediate exchange,
as a measure of value to provide the standard for exchange, as a means of
payment to settle deferred payment, and as a means of hoarding to store
value. It is also 'credit' in the sense that it is a multilateral settlement
system through balancing accounts. But, on the other hand, it is not conventional money or credit, because it bears no interest and prevents
resources from draining out of communities as well as credit creation by
the banking system, hence it would not turn into 'money in perpetuum
mobile', i.e. capital. Hence LETS fulfils economic purposes such as
stimulation of depressed local economies, elimination of unemployment,
establishment of cyclic economy and prevention of capital accumulation.
However, LETS is not just an economic medium; it is also a social,
ethical and even cultural medium, whose purposes are to rebuild cooperative and mutual-aid human relationships, based on the idea of reciprocal exchange (Nishibe 2001a), to bring about trust in regions andcommunities, to share values and interests, and to encourage communication. Thus, in LETS, the economic, the social, the ethical and the cultural
are closely interrelated, which itself embodies the principle of a new economic society. LETS is a synthetic medium of 'intercourse' (Verkehr) ,expanding the meaning of freedom and rebuilding a domain for cooperation (Nishibe 2001b).
LETS is not intended to re-embed the alienated capitalist market
economy in society and to restore economically reciprocal relationships,
but is rather an 'alternative money', which creates an associative market
by forming society in terms of economic exchange. LETS is based on
Marx's critique of labour money and is designed to overcome the shortcomings he specified. Accordingly, its standard of value is not defined interms of labour time, but is rather a unit of account linked with a national
currency, depending on location. If, for example, a certain LETS is formedin Canada and its unit is called the 'green dollar', one green dollar isassumed to be equivalent to one Canadian dollar. Its purpose is not tofulfil egalitarianism in terms of labour as labour money was intended to

Implications of the theory of labour money103

do, but rather to coexist initially with national currencies and to function
as a 'supplementary' to them, and so gradually as 'alternative money' tocreate associative markets.
In LETS, participants:
1
2
3

start with zero accounts;
publicise their intentions to offer and to buy products and services
with specific terms of price and quantities;
make contracts and transactions on a peer-to-peer basis.

It adopts an accounting system that credits 'black' to a seller and debits'red' to a buyer on each transaction, so that the sum of all participants'
accounts constantly equal zero. Because of this 'associative counterbalance (zero-sum) principle', money exists only in the accounts with credit
as 'black' on the micro-level, but does not exist in the association as awhole, on the macro-level. Hence LETS is regarded as 'associative credit
system', since participants mutually provide 'credit' through the association that they belong to. Accordingly, participants can purchase products
and services whenever they want, even without prior possession of 'credit',because, if necessary, they can freely create 'debit' their accounts with nointerest. They only have to promise to return their 'debit' back to theassociation by making 'credit' on future sales of products and services. It isnoteworthy that they do not necessarily have to return gifts to the person
who originally offered them, but to third party. This means not only thatreciprocity is unnecessary, but also that reciprocal exchange is only an
ideal that each participant should refer to, because such a situation isrealised only when every account equals zero, but is unattainable inreality. The 'credit money' that is individually and spontaneously createdin LETS circulates within the association and gradually vanishes throughmultilateral cancellation among participants. Owing to such properties,
LETS can be 'money' or 'credit', but, at the same time, does not transform
itself into capital. It is true that competition among participants, though
not always in terms of profit, still exists, but its inherent properties
enhance co-operative ethics and mutual trust all the more. In his Critiqueof the Gotha Programme, Marx mentioned:aa higher phase of communist society ... after labour has become not
only a means of life but life's prime want; after the productive forces
have also increased with the all-around development of the individual,
and all the springs of co-operative wealth flow more abundantly.
(Marx 1989: 87)

104 Makoto NishibeConclusion
This 'higher phase' of society is conceivable as an association of both free
individuals and spontaneously formed associations without any control by
the state, where labour power as a commodity and the state as an authority structure are both abolished. The slogan 'from each according to his
ability, to each according to his needs!' can be realised by using -LETS,
albeit partially. Although many instances of LETS have so far been
formed by small groups of people in villages or towns, we should notpresume that it can work only in a small community whose inner humanrelationships are transparent and face-to-face. LETS is able to transformthe meaning of sociability and the intermediacy of the 'cash nexus' incapitalist market economies and to create a new view of money and themarket. It has the potential to make a capitalist market economy evolve
into an associative one.

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