CHIP (noun): A proposed unit for measuring value, designed to be independent of the volatility associated with traditional world currencies.
The CHIP was first suggested in my first book Got Choices as a complementary currency that could be implemented without the need of a central bank, a large corporation or a centralized regulatory authority. The acronym stands for “Credit Hour In Pool” to indicate that a CHIP is meant to be indexed to human productivity.
A CHIP is:
- Credit for the value produced by one continuously applied hour of adult human work;
- in such circumstance where there is neither a shortage nor a surplus of such willing labor available; and
- where the job can be reasonably understood with only minimal training and orientation; and
- without considering the added productivity due to the use of labor-saving capital equipment; and
- where the person performing the work has a normal, or average, functioning mind and body; and
- can communicate effectively as needed with others in his/her work; and
- can read and write effectively as needed with others in his/her work; and
- understands, and can effectively employ basic arithmetic and counting; and
- otherwise, possesses no unusual strengths, weaknesses, developed skills, talents or abilities relevant to the work.
One concern I often hear is: “That’s so complicated–how can anyone know what that is really worth?” My usual reply is: “Where is the definition for a Dollar? Any definition would be better than no definition.”
The MyCHIPs Papers go into great detail on this topic but to summarize: the value of an unbacked currency can be based purely on market demand, but this introduces a degree of volatility. More stability can be achieved by backing a currency with a commodity such as gold. But even gold can be monopolized, allowing powerful forces to manipulate the currency.
Even more stability can be obtained by referencing a basket of essential goods. But which authority will decide which goods to include and in what quantities? Such an index must also be continually monitored and updated, removing obsolete items and including new ones as the economy evolves. Who can be trusted to perform this function in a world-wide economy?
The CHIP is suggested to solve this problem by becoming the “every-good basket.” Since all goods and services are ultimately created using human labor, why not use that commodity as the basis for a value definition? Everyone comes with their own limited supply, so it is much more difficult to corner the market on labor.
The remaining challenge is to come up with a standardized definition so we know just what kind of labor we’re talking about. It is pretty simple to create a gold standard. Just select a purity level (24 carat) and quantify an amount (one ounce) and you have a standard. But labor is a bit more complex.
Picking a quantity is not so difficult. We will just say one hour.
We will also need some idea of the quality of the labor–analogous to the purity of gold. Certainly everyone’s labor is different in terms of productivity and reliability. It is also valued differently across countries and cultures. The CHIP is meant to work everywhere in the world–not just in a single country. So we will make a few basic assumptions to simplify things.
First, we will attempt to define only a theoretical kind of standardized labor–not anyone’s actual labor. We will choose the basic, unskilled kind of labor most everyone can provide without special training that might require a large investment of time or capital.
Next, we rely on the Law of One Price, which essentially says that the price of a commodity will converge to a single value as long as all consumers of that commodity have equal, unimpeded access to all its producers. In terms of labor, that would mean any employer could hire a worker from anywhere in the world without concern for distance, language, borders, regulations, tariffs, or other distortions.
When comparing this theoretical economy to our real one, we would likely find that some countries end up paying more for labor than they would under the law of one price. Others may pay less. But we can still come up with a single unit of value by which to compare them all.
Many transactions in a CHIP economy will be for non-labor items (like bicycles, carrots or movie tickets). But some transactions are for labor. An employer and employee who are negotiating wages are certainly not obligated in any way to settle on one CHIP per hour. But the formal definition, which is incorporated into every CHIP transaction, serves as a stabilizing tether. In a free market where supply and demand is quite balanced, a supplier of reliable, unskilled labor is likely to find himself pretty close to that wage.
In a fully established, operating CHIP economy, the market will ultimately establish the value of the CHIP. But how can you get started with a new monetary measure without knowing that value in advance?
That is the purpose of this research. How can we use existing market data to estimate what a CHIP is worth relative to existing currencies so people can engage in transactions right away exchanging CHIPs for goods and services currently priced in Dollars or Euros?
The first submission to this forum was commissioned by the Got Choices Foundation. The researcher who conducted the work holds a PhD in Economics and is not presently identified by name in order to comply with the terms of his full-time employment. He welcomes substantive feedback on his work.
The intent of this forum is to:
- Present this initial research
- Invite others to review it
- Invite others to perform their own research and also submit it to the site
We don’t have a pre-existing bias about what the best answer is. We do want to facilitate the most accurate result possible and to facilitate adoption of MyCHIPs and other CHIP-based systems that will hopefully emerge.
The Got Choices Foundation is willing to make limited grants and awards to those who submit quality, substantive work that improves the CHIP value estimate.
Some areas to focus on include:
- Is the current model a good approximation of the formal CHIP definition?
- Are there reasonable changes to the formal CHIP definition that would improve its reliability?
- Is the current estimation model internally consistent?
- Are there ways to improve its consistency and/or accuracy?
- How often does new data become available in order to update the current estimate?
- Can you propose an extrapolation function based on the present data to estimate more timely updates (monthly, weekly, daily) to the CHIP conversion rate?
Thanks for your interest in CHIPs! I hope you enjoy the site.
Manager, Got Choices Foundation