In recent years, we’ve seen a lot of discussion about “tokenising” coffee using blockchain technology. This would see the use of coffee tokens (“worth” a certain amount of green coffee) that could easily be traded internationally without market regulation or government interference.
However, it may come as a surprise that this isn’t the first time that the concept of “coffee tokens” has emerged in the sector.
As far back as the mid-19th century, labourers and coffee farm owners used something called “farm tokens” as a form of currency. But what was their purpose? And what were they used for? Read on to find out.
You might also like our article on what would happen if coffee became more expensive.
What are farm tokens?
Farm tokens (fichas de finca) were widely used on coffee-growing haciendas (large farms) in Latin America through the early post-colonial era as a way of paying workers.
But why did they emerge for coffee? Was it a way to increase income and keep workers tied to one place? Or a useful way to earn something that they could trade?
Mauricio Salaverria is a coffee producer in El Salvador with an extensive collection of coffee tokens.
“Back then, most of the farmers who began the coffee industry in El Salvador were good people,” Mauricio says. “Many of them treated the workers very well, though some abused their position, like in any industry.”
On paper, there is a clear economic advantage to paying people for goods and services with a currency that you control and manufacture. However, there is also the counterpoint that on these farms, there was likely no real alternative. Let’s take a look.
An overview of the hacienda system
Haciendas were large agricultural operations with colonial roots that existed until the mid-20th century. The system continued after formal colonial rule, mostly producing cash crops for export, often in exchange for manufactured goods from abroad.
There are valid criticisms of this system, mainly deriving from its relationship with colonialism. Different forms of coercion (such as vagrancy laws) motivated hacienda labour and disrupted existing communities, forcing them to permanently relocate.
While each hacienda operated differently, many of them employed a large number of people who often lived on the property with their families, sometimes for many generations. As economic integration was limited at the time and transport was not widely available, they needed to be self-sustaining.
As such, the haciendas and their workers made, provided, or brought in everything that one might need, meaning that there was no reason to leave. In effect, they existed as self-contained civilisations.
To govern the economic systems in place on each hacienda, the owners manufactured farm tokens and stamped them with the markings of their choice. These were then used to pay workers.
Why not just use regular money?
The system was justified on the notion that national currency was scarce.
In many new nations where farm tokens were used, governments were just starting to form their monetary systems and central banks.
“Farm tokens were used in this period because there was no fractionary money,” Mauricio explains. He says that even when there was currency available, it was often in denominations too large to be used as payment for a single day’s work, as wages were typically paid on a daily basis.
What were farm tokens used for?
Mauricio says that in Central America, farm tokens were generally used within the hacienda itself, at an on-site shop or commissary.
“The way it normally worked was that you were paid in tokens, and you spent them at the farm’s store,” he says.
While this sounds unfair and would not be acceptable today, the situation was different back in the 19th century. Workers lived on the farm where they worked, and the business was able to provide everything they needed. In addition, there was nowhere else nearby to spend any other currency, even if they did have it.
In some cases, the haciendas had agreements with other merchants who would take farm tokens as payment. This was based on their confidence in the proprietor’s ability and willingness to redeem them for currency or some other store of value.
How was value determined for farm tokens?
If the currency doesn’t have inherent value (meaning that it doesn’t meet a need or serve a purpose on its own) its value must be established in terms of something else.
Today, many national currencies allow their value to “float” or be determined by supply and demand. However, this was not practical in a closed economy where the issuer also set the prices of what workers could buy with the tokens.
Sometimes the value of a token was set in terms of the work required to earn one (namely coffee picking). One token could signify the payment, for example, for picking one bag of coffee cherries.
The payment for other tasks like raking, cleaning, and so on, could be established based on the equivalent time or effort of picking coffee.
Of course, this says nothing about what a worker could purchase with the tokens or how their wage compared with other work paid in national currency, if it existed.
Other times, the value of a token was linked to the value of something that could be purchased with it, such as a meal or a bottle of beer.
In the most rigid structure, which left the hacienda owner the least flexibility to manipulate workers’ purchasing power, the value of tokens directly corresponded to denominations of the national currency (normally a fraction of the smallest denomination).
In these cases, a farm token was basically a transferable financial derivative – something with a value understood in terms of the value of something else. When accepted outside the property, they were even transferable.
What were the advantages of the system?
The token system could have had advantages for both issuers (hacienda owners) and workers, and so is not inherently manipulative or malicious. There is little doubt, however, that the system was more advantageous to owners than to workers.
It was practical for workers because they could be paid daily thanks to the small denominations. Owners also got to pay people daily, which was customary at the time.
But what were the other advantages?
A clear advantage for owners is that they could essentially pay wages on free credit.
Paying in tokens is basically like giving the workers an “IOU”, and only turning over something of value when the token is transferred.
However, if workers held their life savings in tokens, owners would in theory be able to receive work without turning over another resource for decades – as the workers would need to remain on the hacienda to redeem them.
Even if tokens were exchanged at a fixed rate for a more widely used form of currency, they allowed issuers to essentially borrow from their workers by temporarily increasing the money supply in the hacienda economy.
Double profit margin
If tokens were only used within the property, at the hacienda store, and owners set the prices at that store, they can control the buying power of their workers.
If products for sale there are purchased by owners at wholesale rates and sold at fair market value, the hacienda makes two profit margins.
They make one margin when they pay labourers to do work that produces something that they sell for a profit. They make another one when the labourer buys something from them that they bought for less the value of the work to earn its price in tokens.
Whether or not they achieve this second profit margin depends on the hacienda store. If it sold all products at cost, this would maximise the purchasing power of the wages they pay. However, if they inflated prices, this would cut the cost of wages and reduce the workers’ purchasing power.
This would be especially easy when the face value of tokens established only the work required to earn one, not what could be purchased with one.
Tying workers to farms
Mauricio says that “workers were free to move between farms” but notes that “it was difficult (and uncommon) because there was no transportation available at the time”.
Coffee tokens were stamped, and as such would often only be usable on the hacienda where they were issued. This meant that a worker’s wages and savings only had value there, and that they often had no way of acquiring another currency with value elsewhere. This means it is therefore unlikely they would have an incentive or the ability to leave if they wanted to.
Whether intentional or not, paying wages in tokens was an excellent way to retain employees.
Boosting the local economy
In the cases where tokens could be spent outside the hacienda, the token system effectively ensured the patronage of local businesses.
As tokens were only recognised locally, their value stayed in the community when spent with local businesses. However, if only spendable at the hacienda, this only returns value to the owners.
In summary, the token system may have been the only reasonable option at the time that it was implemented. As a monopoly of monetary exchange and a way to control what workers could purchase with their wages, it undoubtedly fortified the structural dependence of workers on hacienda owners.
This distribution of power was created by what may have seemed like a simple solution to a simple problem: no available currency.
However, seemingly insignificant structural shifts that have massive consequences are common throughout the history of the coffee industry. While these systemic changes are made in the name of efficiency for everyone, they can end up helping some much more than others.
No matter what you think about this model, the token system created an underlying power structure at the haciendas where it was implemented. While it did offer a practical and advantageous system for some, it also created a system of dependence on landowners, and the potential for extraction or manipulation down the road. As Mauricio says, “every coin has two sides”.
You might also like our article on an early history of the C market.
All quotes from Mauricio Salaverria were translated from Spanish.
Photo credits: Mauricio Salaverria
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