Assessing a New Standard of Value
Economists have suggested many different proposals for a setting a standard of value for monetary systems. Aside from gold, which had been the traditional standard in most parts of the world previous to the Bretton Woods Conference in 1945, the two most frequent proposals have been a labor standard and a commodity standard-other than gold.
At first glance, from the local villagers’ point of view, a labor value standard would probably be the most appropriate option. Thus, in view of the fact that most villagers do manual labor, it would seem reasonable that one hour of work by one person should be equal to one hour’s work by another person. On closer examination, however, there are several differences, which is probably the reason past experiments using a labor standard did not succeed.
One difficulty immediately appears in the form of possible distrust of or judgment about the effort some workers are exerting. For example, one question that might come up is: “Why should he and I receive the same amount, when he only works half as hard?” Another is, “How do I know other people are working as hard as I?”
A second difficulty concerns differences in age and physical energy.
Assuming these difficulties can be overcome, yet another problem is the question of whether or not a labor standard can be expanded to include not only several villages but an entire region (or beyond), where differences in real or perceived labor values will grow in increasing proportion with distance. Regional expansion of a labor standard also may not be desired from the standpoint of purely local development. In the long run, however, it will be necessary to do so in order to keep development from reaching a certain level and then stagnating.
In other words, a currency should ideally have “foreign exchange” value—value beyond the local village—if an increasing diversification of industry and regional self-sufficiency are among the objectives. Put another way: What is the value of currency unless it can be exchanged for something not available in the local village? Otherwise, a simple barter exchange system, clumsy as it is, may be quite adequate.
What I am suggesting here is a step above barter. I propose the use of a simple, universally understood commodity such as wheat, which can be employed beyond the local village, and does not involve the difficulties of a labor standard.
It may be argued that a single commodity such as wheat also involves a number of problems. Among them are: fluctuation in price relative to other commodities; control of price by government or monopolies; differences in quality of food grains due to seasonal changes or local variations in growing; and packing, storing, etc. Clearly, as one moves from the purely local to the regional, and then to the world scene, an ideal monetary unit for a standard of value would consist of an increasing number of commodities, all of which could be averaged into a single unit of measure through a statistical indexing system. Many economists and statisticians have proposed such a system. Professor Irving Fisher of Yale University and Dr. Ralph Borsodi, for example, have developed an index for a world currency that would have a common value anywhere in the world. The unit itself consists of twenty to thirty common commodities, which by volume or weight are the most important in world production. They include agricultural commodities (primarily grains), metal (including precious metals gold and silver), and energy sources (oil, gas, coal, etc). Based on a theoretical analysis utilizing a computerized system over a forty-year historical period, such an index of commodities has been demonstrated to maintain a stable, noninflationary value when compared with national currencies.
Our ultimate objective will be to develop such a universal system using a commodity index of value. But for our purposes here, it is suggested that in order to initiate a local currency, a very simple commodity should be selected that has as much universal value as possible, and for this reason either wheat or rice seem the best choice. I suggest that of the two, wheat is preferable. Having said that, however, further research into this question may reveal a better choice. In the U.S., for instance, we are considering wood (lumber) as the single commodity.
In the future we can add one, two, or three common commodities. Such additions may be made and a simplified index developed as the need to expand the use of the currency increases from the village to the region and beyond. In other words, once the habit and understanding of how to deal with a commodity unit of exchange has been developed, it will be easier to add additional commodities to the unit so as to expand the range of acceptance and the exchange value.
When such a change takes place, local or community banks will probably need to exchange the old single-commodity currency with the new multiple-commodities currency. These banks will be set up for such purpose. A regional community bank, consisting of 199 or more villages, would be the actual issuer of the new currency. My assumption is that in India the Sarvodaya workers, who are the primary catalysts in the rural development areas, will create the regional banks.