The Merit Economy and NEO

Merit economy is economic system, based on two conclusions from behavioral research and real-world evidence:

  1. Income from work provides not only "economic" value, allowing its recipient to buy things like food or pay rent, but its amount is seen also as a signal of "merit" - a measure of personal characteristics like competence, skills, or expertise.
  2. Once personal income reaches levels sufficient to cover life necessities, people focus on acquiring more merit. If they are also interested in economic value, it is mainly because it can be exchanged for social status-signaling goods or services.

The dominant role of the signaling function of income over its economic function explains a number of phenomena, the established beliefs and economic models have problem to explain. For example, why over a billion volunteers every year willingly perform work, for which they receive no economic value in return,* or why people often show disinterest in the wealth they earned. For example Warren Buffett is known to lead middle-class lifestyle, in spite of being one of the wealthiest person on the planet. People - regardless of their income or wealth - are also known to pay own money through charitable giving and psychological signaling is the motivating factor of this behavior.

These observations lead to the basic principle of the Merit economy: separation of work reward into distinct "merit signaling" and economic value rewards. This principle, combined with other rules, makes up an economic system called "NEO," with the following characteristics:

  1. There are two separate work rewards:
    1. The measure of worker's competence or abilities in general is called Merit,
    2. the economic value of reward is expressed in the NEO currency - Chrons.
  2. NEO rules are implemented as a (distributed) software application called Rovas, running on a global network of computing devices, owned by the economy participants. All transactions in the economy are recorded into digital ledger (neither Merits nor Chrons exist in a physical form).
  3. Workers receive 10 Chrons for every hour of labor they report to Rovas, and they receive them before value of their work is known - before (the product of) their labor is sold. As a consequence, workers are rewarded also in cases when goods or services they produced are not sold at all. The monetary reward is for labor performed, not for the value of the goods or services produced.
  4. All payments for purchases made by the economy participants are made to Rovas, not directly to the seller.
  5. Rovas not only creates, but also destroys Chrons, whenever economy participant buys a good or a service. At that moment purchase price worth of Chrons is taken from circulation. See an example of the ledger.
  6. In order to earn Merits, workers must attempt to sell the assets (goods or services) they made. If successful, Rovas rewards them with a number of Merits numerically equal to the purchase price. No Merit reward is granted for goods or services unsold.
  7. Some workers will produce assets that sell for more than they received for their labor (see #3). The difference between that amount and the purchase price - profit - is used by Rovas to improve the negative ledger balance, created by the advance payments. In effect, value generated from work of more productive workers is used to fund labor of workers whose products sell for less than cost of their labor. However, the more productive workers are rewarded with Merit reward.
  8. To address the possibility that workers might report labor not performed, economy participants can penalize such behavior, using publicly available information about products or services offered for sale by the workers.

Benefits of NEO

  • Income equality. Economic value of reward for one hour of work is the same for all workers, regardless of the market value it produces. This aspect of NEO does not compromise more productive workers' motivation as they are rewarded with greater Merit reward,
  • Equality of opportunity. Workers are free to choose what goods or services they want to create (or participate on creation of), with a guarantee of receiving payment for their effort,
  • A more dynamic economy. Equality of opportunity allows anybody to engage in entrepreneurial activities without fear of loosing livelihood in case of a failure. Entrepreneurial engagement leads to innovation and generation of value which in NEO is shared equally,
  • Streamlined government:
    • no need to support job creation and preservation, as this task is better performed by the (now economically secure) people themselves,
    • fewer monetary institutions are needed. For example, most central banks roles are performed by the economy algorithm (monetary policy), or are not needed any more (jobs creation function),
  • Merit score provides everybody with a publicly accessible universally recognized measure of reputation. Information about the types of activities for which Merit score was earned is also public, making the merit measure more meaningful.

See the FAQ page to learn more, or ask via email or twitter the questions you can't find answers for.

For more detail on NEO, references to research papers and other sources of information the economic system is based on, please read:

  The Merit economy (working) paper.

* Volunteers generate an estimated value of over a trillion USD every year. That would make a hypothetical Volunteerland the 7th most productive country in the world (by GDP).