the merit economy.txt

The Merit Economy

Alexander Zatko
Abstract
A number of studies found that work reward, in addition to being a carrier of exchange value has also symbolic value, perceived by workers as a measure of their competence, status, or appreciation from society. Extensive evidence also suggest, that the symbolic function is a more reliable predictor of the workers’ economic performance than its exchange value. The first claim of the presented paper is, that decoupling the two functions into separate rewards can address certain problems associated with the existing remuneration mechanism, primarily the asymmetrical flow of exchange value leading to income inequality. In the second claim, the existing assumptions concerning ownership of profit are challenged. It is argued, that while the symbolic value of revenue from sales belongs to the identifiable workers who created the profit-generating good or service, its exchange value belongs to the descendants of the unidentifiable workers who participated on creation of the good or service indirectly. Based on these ideas a remuneration mechanism is proposed, where the symbolic and the exchange rewards are separated, with the exchange value of profit used to fund a basic income-like distribution scheme. The second part of the paper describes framework of an economic system (NEO), implementing the proposed reward mechanism.
Keywords:  remuneration, merit, income inequality, basic income, NEO
"..Now it is true that the needs of human beings may seem to be insatiable. But they fall into two classes – those needs which are absolute in the sense that we feel them whatever the situation of our fellow human beings may be, and those which are relative in the sense that we feel them only if their satisfaction lifts us above, makes us feel superior to, our fellows. Needs of the second class, those which satisfy the desire for superiority, may indeed be insatiable; for the higher the general level, the higher still are they. But this is not so true of the absolute needs - a point may soon be reached, much sooner perhaps than we are all of us aware of, when these needs are satisfied in the sense that we prefer to devote our further energies to non-economic purposes..."
John M. Keynes, Economic Possibilities for our Grandchildren


1. Discussion
In his essay "Economic Possibilities for our Grandchildren" John M. Keynes described a vision of the world economy "hundred years hence", where most labor is done by machines, the economic problem solved and human interests focused to "live wisely and agreeably and well” (Keynes, 1930, section II, para 15). Fifteen years remain to the onset of the hypothetical new era and due to the rapid advances in technology, the vision no longer seems unattainable. It is becoming clear, that it is not the insufficiently advanced technology, or the lack of resources that present the last obstacle to fulfill the vision. The final roadblock is unequal distribution of wealth, inadequate for an era where the need for human labor is rapidly disappearing from the production process.
1.1 Economic inequality
The World Economic Forum identified growing income inequality as one of the most pressing problems facing the world economy today, threatening stability of the social order as well (Mohammed, 2015; Dabla-Norris et al., 2015). The solutions of the problem presented to date have focused on redistribution of income or wealth through taxation (Piketty, 2014, part 4), or on policy changes (Hacker & Loewentheil, 2012), which for many reasons are encountering opposition. Analysis of relationship between worker motivation and income however suggests a new approach to the problem.
A number of behavioral studies show, that work reward has two functions - economic and symbolic (for example DeVoe et al., 2013;  Loewenstein & Sicherman, 1991; Kohn, 1993; Mickel & Barron, 2008 and others). The former provides recipients with economic value that can be exchanged for goods or services (the exchange value), while the later is perceived by workers as a measure of their competence, recognition, status, or respect (the “merit” measure). Additionally, many studies (Clark et al., 2010; Kohn, 1993; Ariely et al., 2009) found, that the symbolic function of reward is a more accurate predictor of worker motivation, performance, or creativity than the exchange function. These observations are in agreement with and can be explained by the self-determination theory proposed by Deci & Ryan (1985, part II), according to which feelings of competence and appreciation of one’s work by the society are - together with autonomy - three basic determinants of human well-being.
These findings lead to a new kind of answer to the question of the origin of income inequality. In the reward mechanism of the mainstream economies, the merit signal is inseparable from the exchange value and therefore any attempt to reward merit, necessarily grants workers with exchange reward as well. A study by DeVoe et al. (2013) however shows, that income from own labor causes workers to increase their effort, as they see the reward as a signal of their competence (merit). Therefore the most rewarded workers acquire more reward, causing accumulation of a disproportionate share of limited resources. Such local concentrations of wealth from income are over time further amplified by other mechanisms (Piketty, 2014, part 3), resulting in growing differences in distribution of exchange value.
A solution to this problem is suggested by the different attitude of workers towards the two functions of remuneration. A reward mechanism, where exchange reward is separated from the merit measure would allow setting the later as high as necessary, while keeping the former commensurable with the worker's actual effort. In such an arrangement, the likely principal reason driving accumulation of capital into an increasingly narrow segment of population would be eliminated, while keeping the motivational forces giving capitalism its dynamic character intact.
1.2 Profit and reward
A hypothetical economy, where the exchange and merit rewards are granted independently can be modeled by analyzing two existing economic systems, implementing only one of the two functions of reward.
The trillion dollars volunteer economy (Salamon et al., 2011, chapter 4.4., sect 3) is a system, where workers are rewarded for their labor with pure merit reward. The forms of the reward vary, depending on the type of work performed. For example, in the open source application development, for a computer programmer, the measure of merit might be the number of application installations, while in more traditional activities like community development work, volunteer workers are rewarded by gratitude expressed by the service recipients. In all cases, the size of the reward reflects utility of the created product or service rendered. 
Example of a system with reward having only the exchange function is Timebanking (Seyfang, 2004) - a type of complementary currency - where one hour of work of any kind earns one time credit, exchangeable for an hour of another worker's work. For example, one hour of a doctor's work is considered equal in value to one hour of gardener's work. The model of worker motivation built upon the results of behavior research however predicts, that due to the absence of the merit measure in the reward, economies of this kind should not be viable in the long-term. A Timebanking study by Shih et al. (2015) confirms this prediction. It found an over time decreasing participation of timebank members, reluctance of higly-skilled members to trade their work for time credits and other issues. 
Yet, time-based remuneration is the base of not only alternative economic systems like Timebanking, but in certain contexts of the mainstream ones as well. For example, the capitalist remuneration is not different from Timebanking, when workers have the same type and level of expertise. In that case, any differences in the reward amounts received by different workers are attributable exclusively to the magnitude of their effort, commonly measured by the length of their work time. Therefore in systems, where merit is rewarded separately, any type of work performed with the same effort (taking the same length of time) has equal exchange value.
These examples show, that a remuneration mechanism, that combines utility-based merit reward with a separate time-based exchange reward, should - in the worker motivation domain - be equivalent to the capitalist system. It can therefore be expected, that similar to the capitalist reward mechanism, also this new form of remuneration will motivate workers to maximize revenue from sales of the goods or services (assets) they make, as it is also a measure of utility of the assets and therefore the workers' merit. The drive to maximize merit reward should lead to production of profit. Considering that workers in a dual-reward economy only receive exchange reward equal to the number of their worked hours a question is in place, who should be the recipient of exchange value of profit.
The answer has two parts. The first comes from an observation made by a number of economists (for example Ricardo, 1821; Marshall, 1920; Sraffa 1960) who noticed, that assets are produced by two kinds of labor - the directly measurable one and the indirect labor, “contained” in the factors of production used by the direct labor. Using Sraffa’s terminology (1960, chapter VI, section 46), the factors of production can be “reduced”, as they were also created by labor using other factors of production. Applying recursion results in a series of terms, where all but one member represent the labor contributions from all of the workers, whose work made the existence of the analyzed asset possible. The only non-labor member in the series represents the natural resources, consumed in the production process.
The second part of the answer concerns the fact, that according to the definition of the concept, profit was created by the contributions of work from workers and a portion of the resources from the series, that are not a part of the input costs. However, most of the workers who provided the profit-making portion of revenue can't be rewarded, as they have been dead for a long time and natural resources do not have an individual owner. The exchange value of profit should therefore be considered an inheritance from the anonymous workers to their descendants - the mankind as a whole.
Such perspective however clashes with our innate assumptions about property rights and therefore also profit ownership. Those assumptions, according to Eswaran & Neary (2011) are part of an old survival mechanism, that evolved under competition for scarce resources, one of which is the right to own resources developed by own labor. In capitalism, this right is manifested by appropriation of profits by the individuals who produced them - either directly by own labor, or indirectly as owners of capital. Our evolution-formed assumptions about individual property rights however lose their validity, when economic and social stability of whole groups of people is at stake. Various types of taxes levied on income and personal property by governments of all historic periods and economic systems stand in a direct opposition to our assumptions about ownership rights to value developed by own labor.
The profit ownership problem can be solved by a new model of property rights, accounting for the fact, that work reward provides its recipients with two kinds of values. The symbolic - merit - measure of reward (a numeric value equal to the amount of revenue gained from sale of an asset) should belong to the identifiable workers who created it, while the exchange value of profit should be distributed equally among all people. This interpretation of property rights addresses the research-identified source of worker motivation and at the same time provides funding for an universal distribution scheme like basic income (Basic income, 2015)
2. Description of NEO
In this section framework of a new economic system (NEO) is presented, incorporating the remuneration and property rights ideas discussed in the preceding section. The system assumes most of the institutions of the capitalist system, therefore only new rules and supporting concepts are discussed, followed by description of several typical scenarios. The goal is to provide just enough information to illustrate how the new rules could function in an economy. 
2.1 The infrastructure
In a departure from the capitalist system, which relies on its actors to know and follow the economy rules, in NEO, these are encoded into a software application (“Rovas”). In addition to the economy rules, Rovas also implements interfaces that allow the economy participants to perform tasks like creating projects, entering work reports, paying for purchases, e.t.c. Interfaces are also available for facilitating programmatic access to the Rovas-stored data and functions. To ensure robustness, uninterrupted availability of services and prevent the possibility of direct human intervention, the software is deployed on a global, distributed computing platform, consisting of networked computers (nodes) owned by the economy participants (for example MaidSafe or Ethereum). From the governance point of view, development of the application follows the open source philosophy.
2.2 The economy actors
Any person wanting to participate in NEO can create a Rovas account. The registration process - among other requirements - ensures, that the applicant has exactly one account. Biometric information is also collected, to support various usage scenarios where ease of use and/or security concerns need to be addressed (authentication, payments authorization...).
2.3 Chron - the NEO currency
Based on the conclusions made in the Discussion section, the NEO remuneration mechanism calls for existence of two types of rewards, with two corresponding measures. The carrier of exchange value is a new digital currency called "Chron," with ten Chrons equal to one hour of average work effort. Chrons are created by Rovas, whenever good or service is sold, as at that moment new value is created in the economy. The amount of Chrons created is in general equal to the sale price, albeit a portion of the new Chrons is created in advance, as will be shown in the section describing the NEO economy rules.
The NEO currency stability is maintained by keeping supply of Chrons equal to the amount of value in the economy. This means, that as assets loose value over time, certain amount of Chrons must be removed from circulation. Measuring value loss is however practically impossible, therefore an indirect method is used. It is based on an assumption, that whenever a personal account is closed (for example due to the owner death), an equivalent of the lifetime economic value created by that person disappears from the economy. Considering, that the total economic value generated by a worker is equal to his/her merit score (discussed below) and the total number of Chrons in the economy is always equal to the aggregate merit score of all economy actors, an amount of Chrons equal to the merit score attached to a closed account is removed from circulation.
2.4 Merit - the measure
The size of reward, in addition to being the determinant of its exchange value, is perceived by workers also as a measure of their merit. In NEO, this reward is expressed by a new measure, with units carrying the same name. Like Chrons, new Merits too are issued when new value is created in the economy - when an asset is sold - in an amount numerically equal to the sale price. Therefore the amount of Chrons in circulation is always equal to the total number of Merits awarded to all NEO participants. Merits can't be gifted or exchanged for Chrons, goods or services, as they are a measure of individual worker's abilities. Merit scores of the economy participants are stored in Rovas and are publicly accessible, alongside the information about the assets, for which they were granted.
2.5 Universal Distribution
As argued in the Discussion section, the creators of profit are unknown, or can’t be rewarded for other reasons. Therefore in NEO, the exchange value of profit is divided and equally distributed among all economy participants in the form of periodic payments called Universal Distribution. 
2.6 The general NEO account
In addition to the accounts held by the economy participants, a special account exists in Rovas, used by the NEO rules for purposes that include temporary storage of Chrons before they are distributed to the economy actors. It serves also as a storage of Merits that can't be assigned to a NEO worker.
3 Remuneration rules in NEO
The rules described here assume a simple economy, where workers interact with Rovas directly, as individuals. It is expected, that rules governing activity of firms and other types of institutions will be derived from the basic principles of the NEO economy and the rules described in this section. 
The description of the remuneration rules assume a prototypical scenario, where single worker creates a good or service for sale. Once such asset is ready to to be sold, the worker sends a work report into Rovas, containing information about the amount of work hours and about the amount of non-labor costs. The asset is then offered for sale. If sold, the buyers pays using Rovas, which subsequently calculates rewards and grants them to the asset creator. The size and type of the rewards is determined by rules grouped into three ranges, defined primarily by the difference between the amount of the input costs and the size of the revenue generated from the sale of the asset:
3.1 Range 1 - the revenues do not exceed the labor costs
If the revenues from an asset sale are lower or equal to the cost of labor exerted to make the asset, the asset creators by default receive reward equal to the revenues. Workers can however override this rule and receive an advance payment for their work, before an asset is sold. To do so, they would submit a work report, where they would indicate interest in receiving the advance payment. Rovas will then perform a test, to ensure that the reported number of hours is compatible with human physiology, using the time information from the work report. The goal of the test is to minimize reporting error and fraud. If the test passes, Rovas creates new Chrons in the amount equal to ten times the reported work hours and deposits them into the worker's account . An equal amount of Chrons is recorded as a debit in the general NEO account. An amount of Merits equal to the newly created Chrons is also created and deposited into the general NEO account (states T0 through T2 in fig.1). The merit reward can not be assigned to the worker, as the value of the asset (the amount of revenue from the sale) is not known before the sale occurs. Once the asset is sold, Rovas uses the Chrons received to cancel the part of the debit in the general NEO account incurred by the advance payment. The same amount of Merits held in the general NEO account is transferred to the worker (states T3 and T4 in fig.1). If the revenue from the asset sale is lower than the total amount paid to the worker, the (Chron) debit in the universal NEO account is liquidated from profits generated by other workers and an equal amount of Merits held in the universal NEO account is destroyed (timeline B in fig.1).
Fig. 1 - Sequence of states (white background) and actions (yellow background) during a prototypical production scenario with advance payment. Time progresses top to bottom in column A and continuing in column B.
The existence of the advance payment rule is consequence of one of the fundamental principles of the NEO economy - the separation of the exchange and merit functions of reward. It dictates, that all effort (labor time) must be rewarded equally, regardless of the output value. Additional reasons why workers can receive advance payment are:
1. issuing exchange reward in advance solves a bootstrapping problem, most apparent when the economy is launched. At that moment, no assets can be purchased, as no Chrons exist yet. The mechanism of advance payment allows prospective buyers to produce their own assets and use advance payments for their labor to buy the desired assets.
2. work output without value (one that does not sell) often plays positive role indirectly, for example as a guide other workers take into account, when producing more successful work.
3. an asset may acquire value only after significant delay, when the worker who created it can't be rewarded any more. 
3.2 Range 2
If revenues exceed the cost of labor, but are lower or equal to the sum of all input costs, the asset creator receives Chron and Merit reward equal to the revenues amount. Workers can not receive an advance payment for non-labor costs. Those must be paid for from own resources, loans or from investors.
Fig. 2 - If revenues from sales are higher that the labor costs, but lower than the total costs, the factors of productions costs are not fully reimbursed.
3.3 Range 3
Lastly, if the revenues from sales exceed all input costs, Rovas generates new Merits and Chrons in the amount equal to the revenues and distributes the surplus according to these rules:
1. The asset creator receives a merit reward numerically equal to the amount of revenues and  exchange reward (Chrons) equal to the sum of all costs.
2. The exchange value of profit is deposited into the general NEO account, where it is used to cancel any debits from advances made to workers whose assets did not generate enough in sales to cancel them (as shown in figure 1). Any remaining Chrons are periodically and equally distributed among all NEO participants as the Universal Distribution.
Fig. 3 - The exchange value of profit is deposited into the general NEO account to fund the Universal distribution payments.
3.4 Sharing the merit reward
If an asset is made by more than one worker, the merit reward is by default allocated according to the share of time each of the workers invested into making the asset. It can be expected however, that labor time will not in general be a reliable indicator of contributions of the individual workers to the value of the produced asset. For example, some workers may have higher levels of knowledge or talent, making their labor time contributions more valuable. Therefore NEO allows team members to negotiate among themselves the distribution of merit reward in a way that reflects their individual contributions. The project leader would record this custom allocation into the project record in Rovas, which in turn will use it to override the default allocation when distributing the merit reward.
4 Examples
4. Web application
An entrepreneur starts work by creating a new project in Rovas. The project record contains information that includes the name of the project, description and the choice of monetizing model. Upon submitting, Rovas generates unique project (asset) ID and associates it with the entrepreneur's ID. As she works on the project, the entrepreneur may record her work time, or do so upon reaching arbitrary milestones. Recording work time is not necessary, if she is interested only in the merit reward - as is the case with volunteer projects. If third party tools are needed, she will purchase them and record their asset IDs together with the portion of their value used in production.
In order to record sales, the entrepreneur will embed code into the web application, to have the payments received from buyers processed by Rovas. If our entrepreneur wants to receive advance payment for her labor, she will indicate so in the project record. Rovas then performs the physiological feasibility test. If the test passes, Chrons for the reported number of work hours are created and deposited into the entrepreneur's account. An equal number of Merits is also created and deposited into the general NEO account.
In order to earn the Merits, the web application must generate revenue.  The entrepreneur can choose any of the strategies common in the capitalist economy to sell her product. For example, in a pay-per-use scenario, the buyer will authenticate into Rovas and authorize the payment. Chrons from the buyer's Rovas-resident account will get transferred into the general NEO account and the buyer will gain access into the application. 
To provide a more concrete picture of the rewards the entrepreneur receives, let's suppose she invested 100 hours of labor into creating the web application, a value equivalent to 1,000 Chrons. The entrepreneur also paid 100 Chrons for a program module with specific functionality, needed in the web application. The total cost of web application is then 1,100 Chrons. Let's further assume, that the buyers collectively paid 20,000 Chrons for accessing the application. Rovas distributes rewards in the following way:
• assuming that she requested it, the entrepreneur will receive 1,000 Chrons as an advance payment before any sales are generated. After the revenue from sales is equal or exceeds the cost of all inputs, she will receive additional 100 Chrons to cover the cost of the software module. For each Chron of revenue she is rewarded with one Merit, therefore she receives 20,000 Merits once revenue reaches that amount.
• The general NEO account will be credited with 20,000 Chrons from which 1,000 will be used to cancel the advance payment made to our entrepreneur and 100 Chrons will be transferred to her personal account to cover the software module cost. The remaining 18,900 Chrons will be used to cancel any advances made to other NEO workers and the rest will be divided among the economy participants as Universal Distribution payments.
4.2 A team of workers making physical goods
A company owned and run by Jane, Mary and Bill produces sandwiches and resells them through a network of merchants. When starting the business, they made an agreement, to divide any merit reward from sales to 5 parts, with Bill receiving one and Jane with Mary 2 parts each, to reflect their individual value contributions. With the help of technology, they make 100 sandwiches in 1 hour, from 20 Chrons worth of ingredients. Other costs (amortization of machines, electricity...) contribute 0.1 Chron per sandwich. The total input costs per sandwich are 0.3 + 0.2 + 0.1 = 0.6 Chrons. They set the sandwich price to 1.5 Chrons. All sales are processed through Rovas, which issues Chron and Merit rewards to the workers' accounts. For one 8-hour day each of them earns 80 Chrons for labor and the total 1,200 Merits from the sale of the 800 sandwiches get divided among the workers according to the agreed-upon formula: 240 Merits for Bill and 480 Merits for Jane and Mary each. From the sales revenues, Rovas deposits 240 Chrons a day into the company account to reimburse the non-labor costs. The 720 Chrons remaining is deposited into the general NEO account. 
In this scenario, the workers would not request advance payments, as sales and therefore the full work reward distributions are made every day.
It should be noted, that in a marked departure from the capitalist model, the firm does not receive the exchange value component of profits, which in capitalism is often used to fund future business plans. In NEO, capital for business investments must be acquired from the company employees individually or from outside investors as the exchange value of profits is source of Universal distribution payments.
4.3 Example: Investing Chrons to earn Merits
This last example illustrates that the NEO economy actors can use their extra Chrons to increase their Merit score by investing into businesses, in exchange for a share of equity. In NEO, unlike in the capitalist system, where rewards from such investments combine exchange as well as merit signaling functions, the investors receive only merit reward. The exact portion of Merits received is determined by negotiations between the investors and the entrepreneurs and the resulting agreed-upon distribution formula is used by Rovas to allocate the merit reward. The exchange value of profits is deposited into the general NEO account, to fund the Universal Distribution mechanism. Investing Chrons to gain Merits does not violate the principle of non-tradability of Merits, as the Chron holders must use their market knowledge to identify potentially successful enterprises, thus contesting their competence. Investing caries a real possibility of losing the investments, therefore investors are not simply buying Merits.
5 Conclusion
If history offers any insight into the likelihood of mass adoption of NEO, it is not a favorable one. None of the historical alternative economic models aimed at addressing the known problems of capitalism have been successful. There are many opportunities for failure on the path to a successful institution of NEO, but some aspect of the presented proposal are more likely to cause problems than others. The challenge the new economy presents to the traditional assumptions about property rights, and to the established remuneration mechanism in particular is likely to be unacceptable to the majority of the middle and higher income workers. However, the effects of technological advances - and especially robotics and automation - on displacement of human labor from the production process have been a source of increasing middle income jobs erosion (Boushey & Hersh, 2012), a process that will likely weaken also opposition to the ideas of the Merit economy. The rules should not pose a barrier to adoption to specific types of economic actors.
It can be expected, that first adopters will be the same people, who today generate value in the world 7th largest - volunteer economy (Salamon et al., 2011, p. 219). A particularly important segment of this group will be information technology workers, as their output has the potential to generate revenues from non-NEO economies and therefore also raising the value of Chrons against non-NEO currencies. That will enable NEO participants to purchase goods and services outside of the NEO economy, thus addressing a known problem plaguing certain types of complementary currencies namely the lack of assets available for purchase (Costanza et al. , 2003). The amount of such inflows will apparently depend on the willingness of consumers to pay for the volunteer-made assets, but this concern can be alleviated by choosing a suitable payment scheme. For example, the "pay what you want" (PWYW) might be a fitting monetizing strategy. Gneezy et al. (2010) have shown, that PWYW scheme generated significantly more revenues than a fixed pricing strategy, when part of proceeds from sales were promised to be given to charity. Considering the overall pro-social and wealth-sharing character of the proposed economy, a similar behavioral response could be expected also when this pricing scheme is used in NEO.
Another segment of population unlikely to be deterred by the NEO unorthodox rules are the world poorest people. NEO provides everybody with the Universal Distribution payments, as well as with opportunity to earn Chrons for own work. The possibility to receive money for work on projects of one's own design makes it likely, that more often that not people will choose to produce assets beneficial to the society. Wealthy donors and governments searching for the most effective way to maximize the impact of their resources might find the NEO job-creating aspect attractive and support it by donating to or investing into NEO. The government distributions and individual donations will be exchanged on the foreign exchange markets for Chrons and those in turn will fund the general NEO account. It can be expected, that the value of Chrons on the foreign exchange market will be initially low, allowing even small donations made in non-NEO currencies to buy large amounts of the NEO currency. Workers would be able to use their Chrons to buy goods or services in the NEO economy, or - after converting Chrons on the foreign exchange markers - in the non-NEO economies.
Objections could be also brought up against the particular ways the NEO founding principles are implemented, for example the equal effort rule, guaranteeing access to advance payment for simply reporting work hours. It can be expected, that the number of hours reported will not be accurate and may be inflated. However, even Chrons granted by mistake or misapprpriation will eventually get spent, increasing the aggregate size of profits in the economy and eventually liquidating the debits from the advance payments. 
The constraints coded into Rovas, ensuring that the number of hours worked is physiologically feasible puts an upper limit on the number of hours a worker can report and thus also an on the amount of new Chrons created from errorneous/fraudulent reports. Therefore, at a certain point in time false reporting of labor will reach its limit. If the the ideas NEO is built upon are correct, the economy will attract a growing number of profit-generating workers, raising inflows of exchange value into the general NEO account. As a consequence, the Universal Distribution payments will eventually be large enough to make workers stop reporting their work time altogether. They will instead focus on increasing their merit - an objective reachable only by acquisition of knowledge, the ultimate source of individual and communal well-being. That shift will signal arrival of the new era in human history, imagined almost one hundred years ago by John Maynard Keynes.References
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Wilson, J.R., Corlett, E.N., 1995. Evaluation of Human Work, 2nd Edition, 
Taylor & Francis., Chapter 22 Peter Kolarov and Juraj Štefanovič provided valuable feedback on the draft version of this paper. 
Author can be reached at: az@merit.world. 
 Often misunderstood aspects affecting productivity are knowledge and creativity, possession of which allow the endowed workers to perform a given task faster/better than other, less-gifted workers. As a consequence, such workers are more productive and argument could be made, that they deserve larger exchange reward. This is indeed the case, when productivity increase is attributable to the worker’s knowledge. Application of knowledge in the production process is however indistinguishable from other factors of production, thus expenses related to its acquisition (tuition, cost of own study time..) should be included in the input costs.
Creativity is not a product of an individual’s effort. It is allocated among the members of society by a random process and its impact on productivity can be positive, or negative. Therefore - as society carries the cost of harmful actions of individuals from the negative part of the creativity spectrum  - it should be also the benefactor of the positive contributions made by gifted individuals. Thus creativity should not be a factor, affecting the amount of exchange reward received by the individual workers.
 C. H. Douglas (1933) made a similar argument with the idea of Social Credit.
 Ellerman (2015) offers a more rigorous argument about inapropriate appropriation of profit in the capitalist system.
 Slovak word "rováš" means "tally stick" in english.
 An hour of moderately heavy human labor equals approximately 1 megajoule, therefore 1 Chron equals 100 kilojoules. Calculations based on Wilson & Corlett. (1995)
 The law of large numbers applies here. Some workers generate output of ephemeral value, while others create assets that hold value for generations.
 It should be noted, that NEO allows direct exchange value transactions between economy actors. In that scenario, none of the NEO rules are in effect and one of the consequences is, that no merit reward is awarded.
 The economy actors can also get loans from private lending institutions, once they are developed in NEO.
 assuming that investor did not report to Rovas any labor time spent to make the investment. If the opposite was the case, Rovas would reward that labor with an equivalent amount of Chrons.
 As the number of Chrons and Merits must be always equal, new Merits will be created as well. They will be either granted to the person(s) who made the gift, or deposited into the general NEO account, to be eventually liquidated at the rate at which the value disappears from the economy.
 If necessary, the Rovas-resident information like description and the location where assets can be purchased could be used to develop solutions that will allow the community itself to verify a claimed asset’s existence in order to prevent reporting of non-existent labor.