Time Banking

What Is Time Banking?

Time banking is a system of bartering various services for one another using labor-time as a unit of account which was developed by various socialist thinkers based on the labor theory of value. Labor-time units can be credited to a person’s account in the time bank and redeemed for services from other members of the time bank. Time banking can be considered a form of community currency. However, because the labor-time units of account are not generally accepted outside the membership of the time bank, nor for general goods traded in the market other than specific labor services, it does not constitute a form of money in an economic sense outside the inherently limited context of the time bank itself.

Understanding Time Banking

In a time-banking environment, people receive labor-time credits when they provide a service to another member of the time bank (and the member receiving the service is debited an equal amount). Every hour of time is generally valued the same, regardless of the service rendered. In theory, any type of service can be exchanged for another. However, services traded often revolve around simple, low market-value tasks, such as the care of the elderly, social work, and home repair. 

Time banking originates from the ideas of various 19th century socialist thinkers, including Pierre-Joseph Proudhon and Karl Marx, who advocated various versions of labor-time based chartal currencies. Rather than issuing paper notes, modern time banking utilizes electronic recordkeeping of credits and debits for registered members. 

Time credits can theoretically be registered on paper, although computer databases are generally used to keep records.

The term “Time Bank” was coined and trademarked in the 1980s by Edgar Cahn, an American law professor and social justice advocate. Cahn promoted Time Banking as a means for community self-help and to fill the gap in public social services during a period when the Reagan administration was pushing cuts to spending on social programs.

In his book No More Throw-Away People, Cahn outlined four core principles for time banking, later adding a fifth. They are:

Over the years, time banking has been adopted in various communities at different times, usually for relatively short periods before eventually shutting down. In some areas it has managed to persist for several years or longer on a limited scale.

In 2018, there were around 120 time banks in the United States.

Example of Time Banking

Let’s look at an example of exchanging gardening and computer technical support. Gerald is a keen horticulturist and Lucy is a whiz at fixing computers. Eventually, their paths cross as Gerald needs help with his PC and Lucy would like to grow some vegetables in her back yard and has no clue how to do so.

Using time banking, Gerald helps Lucy with her garden and Lucy helps Gerald with his computer. No money exchanges hands for the services rendered, so the only costs that both absorb are for the materials used to complete the jobs.

Overall, Gerald dedicated three hours to preparing Lucy's garden, while Lucy spent two hours getting Gerald's computer in working order. That means that Gerald emerged from the arrangement with one extra labor-time credit on account in the time bank to use in the future.

Pros and Cons of Time Banking

Time banking uses modern technology to try to introduce the secondary functions of money (as a unit of account, a store of value, and a means of deferred payment) to formalize and regulate the practice of trading favors and mutual or social obligations. It functions as a hybrid system between a true monetary economy of indirect exchange and a reciprocal gift economy characteristic of informal, pre-capitalist, and primitive economies. As such, it can have some of the advantages and disadvantages of both types of economic systems. 

The advocates of time banking, from the early socialist writers to present-day proponents, emphasize its advantages in building (or restoring) community, inclusion, volunteerism, and social assistance. It is promoted as helping to foster community ties and encourage people who would not normally get involved in traditional volunteering. It seeks to overcome the problems of the social and economic alienation between producers and consumers that is widely believed to characterize industrial capitalist economies and has often formed the rationale for social unrest and revolutionary communism. It formally and tangibly recognizes the economic value of labor services that are not traditionally traded in the formal monetary economy (or would be diminished by doing so) but that often form the basis of valuable social capital. Above all, it has been championed for enabling people with low incomes to access services that would be unaffordable to them in the traditional market economy.

However the overhead costs, problems with managing the relative prices of different services, and difficulty of maintaining participation in effective competition with the larger money economy often spell problems for time banking systems. The operations of the time bank itself must somehow be financed, particularly those that require goods and services which cannot be purchased with time bank-issued labor-time credits. This means both an initial and ongoing requirement for some source of external funding in outside money, which can become prohibitive. 

Pricing of labor-time units for various different services and types of labor is a persistent problem for time banking. If the value of the credits is allowed to float according to voluntary, mutual terms of exchange between participants (or priced proportionate to market wages in the local currency) the time bank becomes nothing more than a competing (inferior) form of currency, one handicapped by its own self-imposed limits of acceptability. 

If the prices in labor-time-credits are set by the time bank, then the system will eventually run up against the same knowledge, calculation, and incentive problems faced by any centrally-planned economy, which will sharply limit its scale and viability. Frank Fisher, an American economist who taught economics at the Massachusetts Institute of Technology (MIT) from 1960 to 2004, predicted in the 1980s that this would distort market forces and cripple the economy, using Soviet Russia as an example.

Lastly, if the value of labor-time credits is locked in at parity for all types of services and labor, then the system will face an enormous adverse selection problem. Those with the least valued labor-time (such as baby sitters) will enthusiastically participate and those with the most highly valued labor-time (such as physicians) will opt out and sell their services for money instead.

Because the inherent limits of the nature of time banking impose these overhead and pricing issues, the time banking system gives up much of the economic advantage that a system of indirect monetary exchange makes possible. Its acceptance will be limited and it will always depend on the existence of a broader money-based economy using some other currency, within which it has to function. Unless imposed by law on the population (as advocated by early socialist proponents), time banking will tend to be confined to relatively small communities or social networks, trading in a limited selection of labor services.