05 April 2009

Thoughts on Truck

A while ago someone asked me why, in the nineteen-eighties, it wasn't possible for workers to be paid in cash anymore. Prior to this time the employee could insist upon being paid in cash. But now, to be paid, the employee has to have a bank account and to accept payment by cheque, money transfer or similar.

I tried to find the answer but didn't get very far for a while.

Finally, to cut a long story short, I realised that section 11 of the Wages Act 1986 repealed the Truck Acts which had ensured that an "artisan" (a worker) had the right to be paid in money. With the Truck Acts gone, the employer and employee had freedom of contract to negotiate how the employee was going to be paid by the employer; ie, it was a case of take a cheque or get out.

This was the sort of thing it was hoped that the Truck Acts would prevent. In fact, they were supposed to prevent other abuses; namely, the use of the truck system.

The truck system is described by Hilton (1960) as, "the name given to a set of closely related arrangements whereby some form of consumption is tied to the contract of employment." In practice this meant that the employee would not be paid in cash but instead, be paid in tokens that were redeemable for goods sold at the company shop. Of course, the price of the goods in the company shop was usually inflated compared to elsewhere but, since the tokens were not redeemable elsewhere the employee had no choice but to pay these higher prices.

My initial perception of the truck system was partly captured in the painting by Herkomer, Hard Times (see above): imagine the chap in the picture negotiating his wages with a mill owner; the mill owner could simply say to him, you've got two choices, either have the job with the truck system or don't have the job at all.

However, reading Hilton's (1960) description of the system leads to a much fuller picture. He describes how large profitable employers did not use the truck system because they were in competition for labour - if they used the truck system the labour would go elsewhere. Hilton described how it was the less profitable employers who used the truck system in order to subsidise their concerns, and he described how the prevalence of the truck system was related to market conditions. During periods of deflation the truck system was used to claw back the value that was transferred to the employees by paying higher value money in wages.

Hilton continues by explaining that the wording of Truck Act of 1831 (eg s3 'All wages must be paid in current coin of the realm.') should not be confused with its intent. The Acts principal support came from major employers "bent upon putting down their lesser rivals who were securing a cost advantage out of the truck system." The Act and subsequent Truck Acts were considered to be failures at what they attempted to do. During times of economic prosperity the truck system fell into disuse; during times of deflation, some employers used the truck system.

This situation continued, under various different Truck Acts until they were repealed by the Wages Act 1986.

For me, that's not the end of the story. One of the things that wasn't analysed by Hilton was that when people are paid by crediting their bank accounts, the employee doesn't get any money. Instead he gets a chose in action; the right to sue the bank for the money if they don't pay up.

Consider what Lord Goddard CJ said in R v Davenport [1954] 1 All ER 602, 603:

"Although we talk of people having money in a bank, the only person who has money in a bank is the banker. If I pay money into my bank, either by paying cash or a cheque, the money at once becomes the money of the banker. The relationship between banker and customer is that of debtor and creditor. ... I have a chose in action, that is I have a right to expect that the banker will honour my cheque, ..."

To a lot of people, this situation doesn't matter.

Of course, if the bank goes bust it matters since they are at risk of not being able to convert their chose in action to cash. This almost happened with Northern Rock and it happened with an Icelandic Internet bank. As is well known, the UK gov rescued Northern Rock and, as far as I'm aware, it redeemed money for people who deposited into the failed Icelandic bank.

The other point that sticks in my craw is that under these circumstances, people are being forced to lend their money to a bank. That is, morals aside, people are being forced to put their money at risk for very little reward.

When the Wages Act 1986 was debated in the House of Commons, David Nellist mp said, "I have just discovered that 7 million workers are paid in cash and that only half of them have bank accounts. The high street banks, considering the prospect of 3.5 million new accounts, must welcome this legislation because of the extra profits that those accounts would generate."

So, at least 3.5 million people could survive without a bank account.

Now, who does this situation benefit; those people, or the banks holding those people's accounts?

Herkomer, Sir H von (1849-1914). Hard Times. Manchester City Art Gallery.
Hilton, G W (1960). The Truck System. Cambridge: W Heffer & Sons.

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