Often I use an analogy with a village to help me imagine how the system should operate. Here I am going to define the village analogy a bit more precisely, show how this analogy can reflect a fair and practical society and start to show how it is useful to create the proposed alternative currency.
The village analogy
This village is a scaled down representation of society: every individual has a different amount of ability at all the different professions: mothering, doctoring, cooking, farming, labouring, engineering. caring... which they can use as they please. There are young and old, healthy and unhealthy, talented and not so talented, lazy and motivated... etc. There are resources: woods, fields, pastures for livestock, water supply.. The village is self sufficient and has no interaction with other societies or un-natural outside influences.
For ease of use: imagine there are only 150 people in this village (small enough that everyone knows each other). There is no point in having conventional paper money, nor a leader, nor police force, nor laws. Mainly it is too cumbersome and inefficient to create and anyway there is a better way...
Assume everyone in the village has an excellent memory (they use diaries) and also that they discuss with each other what they have done for whom in the village: So in this way everyone in the village knows: what everyone else has or hasn´t done for the village, who helped whom, who used what resources, who got drunk and woke everyone up singing at midnight, who uses how much firewood, etc...
The villagers use this information to decide how to help each other. When one villager asks another for help, for example to ask a cobbler to fix a broken shoe, the cobbler simply remembers all the actions of the person, weighs the good deeds against the bad (in his own personal opinion, which is very important as not everyone has the same idea of good and bad) and decides what to do (e.g. no help at all, ugly repair or brand new shoe). This is your currency and your market and even - as I will show later - your government.
From this system, the people who do not contribute to society or make a lot of trouble do not get helped so much. You don´t need a prison system or police, they just get ignored, totally ignored. If they start as a good citizen, but then one day - for some reason - decide to be selfish/lazy/greedy, then the villagers will notice, and then not be so kind in return. If they keep on taking more than they give then they will get less people to help them and they will have to do things independently, grow and cook their own food, make their own clothes. This is fair, if you don´t want to contribute usefully to a society, then why should that society should contribute to you - at all. Total dis-communication would only happen in extreme cases and the bad person (for want of a better description) can always redeem themselves.
Most of the time the system would be a lot less extreme: all that is required is that your benefits to the village outweigh your burdens (on average), then most people will help you. If someone has very strict idea of what a good citizen is, then these strict requirements mean they end up not helping many people, thus they will not get helped in return. If someone has very relaxed definitions then they will find themselves helping a lot of people, including people who they do not consider so good for the village, hence they will quickly make their requirements more strict to avoid being taken advantage of. Thus you can see there will be a natural balancing and market of services. If a villager is not willing to help the village doctor then they should be prepared for poor or no treatment if they ever need his services.
Importantly, it is up to each and every individual to decide what is and isn´t good. While one villager may give extra help to those caring for old and disabled people, another may think that having a very low energy use is most important and , therefore, that person would less often help people who waste energy. In this way, it can be seen that what happens in the village reflects the kind of village the citizens want. If they don´t want a society full of people who waste energy, then the people who waste energy find they get help less often. The more other villagers feel the same then the more the society goes in that direction.
When I explain this people often say that the village sounds like it will be very totalitarian or polar, and that villagers will only help others who are exactly to their liking... this is just because of the examples I use, actually the system would be quite forgiving. Many hundred of different variables would be considered, not just one or two in our examples here. The sum of all these hundreds of variables would be used to determine if the villager asking for the service is good, bad, or somewhere in between.
Now what I want to do is examine how this process works, I can imagine it working on the local, personal, word-of-mouth basis, but how is it possible to scale it up and make it work in a population magnitudes bigger, with so many more resources to be shared, and so many more degrees of seperation between them. How is social information (information about events that happen between the members of society) created, stored, processed and evaluated in the analogy? and how can we do the same on a larger scale, in a society of billions, where people don´t all know each other?