by Michael Linton and Thomas Greco
This piece was originally published in Home! A Bioregional Reader, edited by Van Andruss, Christopher Plant, Judith Plant, and Eleanor Wright, New Society Publishers, copyright 1990.
Joe cuts firewood. Pat is a welder, and she wants wood but has no money. Joe doesn’t want any welding. In a barter system, that’s usually where it stops. However, if Joe and Pat are members of the LETSystem, then Joe delivers the wood, and Pat picks up the phone. She dials the LETSystem office and says, “Hi, this is Pat, No. 48, please acknowledge Joe, No. 83, $75.00 for firewood.” Joe’s account balance increases and Pat’s decreases by $75.00. In turn, Joe employs the carpenter, the carpenter gets a haircut, gets some clothes made, buys food from the farmer. The farmer now has a way to pay for a welder, so Pat gets to work again.
And so it goes. The unit of exchange, the green dollar, remains where it is generated, providing a continually available source of liquidity. The ultimate resource of the community, the productive time of its members, need never be limited by lack of money.
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Local Exchange Trading Systems (LETS) is the name of a remarkable tool for building and strengthening local communities. It’s a kind of banking system that is fully compatible with traditional currencies. And, like any monetary system, it depends on confidence. Each community exists in the world in a more or less precarious balance between its income and expenditure. Hence the drive to export goods to increase income, and the incentive to shop locally, to keep the money in circulation. From the nation to the province, to the city and the village, we have an appalling history of selling our soul to the export market.
There are two characteristics of conventional money that render it ineffective as a proper support for the convivial community. Conventional money, being universally distributable, has no inherent tendency to remain in circulation in any particular community. Conventional money, which is the essential lifeblood of the economy, derives from agencies external to the community. The combination of these factors causes excessive dependency upon circumstances external to the community and essentially beyond its control.
Communities dominated in this way tend to become of merely geographic significance, having little or no infrastructure that might reflect self-direction.
Local Currency Systems: Benefits
When a community has its own currency, full employment can be available to anyone who wants to work and has a skill or service, of any nature, that is required by that community. It need no longer be the case that there are jobs that need doing and that people who wish to work are are kept idle for want of money. This is a natural consequence of the necessary recirculation of the local money; in contrast, conventional money will generally drain out of the community to the cheapest available source of labor or goods. A community with its own currency has the capacity to adopt and maintain coherent and relevant directions of development with minimal dislocation by external events.
It generally seems to have escaped notice that money today is essentially a mere promise that value will be given. We are willing to trade in such promises when they derive from governments, one of the least reliable of institutions, but it seems that people are unwilling to go very far in trusting each other as individuals. At the root of the matter lie two fundamental causes—(1) the isolation of the individual from any integral local community, and (2) the failure to take personal responsibility and to assume risk.
It makes greater sense to base a money system on the promises of the individuals who make up the community itself and are the actual producers of value. The promise suggested is not the promise to repay cash to the community for goods received (we know that such promises are too dependent upon external circumstances beyond anyone’s control to be reliable) but a promise to make some time or goods available at some future date, which is only jeopardized if the promisor is persistently unwilling or dead.
A Local Exchange Trading System (LETSystem) is a self-regulating economic network that allows its members to issue and manage their own money supply within a bounded system. Essentially, a LETSystem resembles a bank, and being a member of a LETSystem is as simple as having another bank account. Members’ accounts hold “green” dollars, a currency equivalent in value to the federal dollar, but no money is ever deposited or withdrawn. All accounts start at zero and members can use “green” dollars only with other members. The system is thus always exactly balanced with some of the members in credit and others in debit. This creates a local recirculatory currency, whose effectiveness is determined by these arrangements:
- There is never any obligation to trade.
- Any member may know the balance and turnover of another member.
- No interest is charged or paid on balances.
- Administrative costs are recovered, in the internal currency, from member accounts on a cost-of-service basis.
LETSystems are self-stabilizing, set-up costs are minimal and the operation can be self-supporting from the outset even at a fraction of its full capacity. Administration is simple and requires no special training.
A LETSystem allows members of the local community to exchange goods and services on a “green” dollar basis when federal dollars are scarce or unavailable.
Essential Characteristics
- A LETSystem is operated as a non-profit agency whose rights and authority are vested in a TRUSTEE who acts as an agent for the members who are principals. LETS provides a service that allows members to exchange information to support trading and maintains such accounts of that trading as members request.
- The agency maintains a system of accounts in a quasi-currency, the unit of value being related to the prevalent legal tender.
- Member accounts start at zero; no money is deposited or issued.
- The agency acts only on the authority of a member in making a credit transfer from that member’s account to that of another.
- There is never any obligation to trade, but members must be willing to consider trading in “green” dollars.
- A member may know the balance and turn-over of another member.
- No interest is charged or paid on balances.
- Administrative costs are recovered from member accounts on a cost-of-service basis.
- Accountability for taxes incurred by members is the obligation of those involved in an exchange, and LETS assumes no obligation or liability to report to taxation authorities or to collect taxes on their behalf. (Barter exchanges are considered taxable by the I.R.S.—Editor’s note.)
The bookkeeping function of the LETSystem closely resembles that of a credit union whose members can use the currency only in trade with other members. Hence credit transfers between accounts and the issuing of periodic statements are the only necessary accounting procedures. This can be done by hand or computer, as appropriate.
The currency unit used in the system should be recognized as the equivalent in value to the regional legal tender so that valuation between members is customary and the LETSystem can associate accurately with the existing economy. It has to be clear to all participants that the internal currency of the system has no intrinsic value. It is never issued and cannot necessarily be cashed. The distribution and development of LETSystems therefore will generally reflect natural geographic regions and economic communities.
Accounts can be positive: when a member has earned more than spent to date; such accounts are “in credit.” Equally, some accounts must be negative: the member has received more than she/he has contributed; in which case the account is considered to be “committed.” Clearly, only those accounts in credit risk loss if the currency should devalue. The economy is thus always balanced, the total value of green dollars held in credit being matched by the commitment of the members in debit. The individual member effectively issues money into the community by spending, and redeems it by earning or selling. All transfers from a member’s account is on that member’s authority and may not be enforced otherwise. Neither can a commitment be invoked. The commitment is to the community as a whole, not to any one person, so no member can ever demand performance from another. However, a member who is reluctant to earn or receive green dollars will find it progressively more difficult to spend them, since this information is freely available to any member from whom she/he might want to buy.
A negative bank account is a private matter, but a negative LETS account is an issuing of promises in a community, and is thus, do facto, a public act. The LETSystem offers a facility, and proposes an ethic, that services can be exchanged on a “cost- to-provide” basis including reasonable profit. It is appropriate that its own service is offered in this way. The constitution of LETSystems as non-profit agencies, paying administrative staff at current market rates, will obviate tendencies to profiteering.
As more goods and services become available for green dollars, businesses will be better able to absorb costs in green, thus expanding their capacity to sell in green. This will eventually raise the applicability of green dollars to that of a full local currency. The effect of a local currency will be to protect local producers from being undercut by imported goods, and thus provide a more stable environment for developing the local infrastructure. This will be of particular benefit to local food producers with ecologically sound farming practices that make price competition with agri-business difficult. Charity groups and service clubs which have found fund-raising difficult during a recession will also be able to raise donations more easily in green dollars. Donors will be comfortable in contributing funds which are more likely to return to them as income, particularly since their other expenditures are not thereby limited.
An organism is defined by its skin, a boundary layer that selectively allows the free transfer of some materials while retaining others. The more complex the organism, the more its activity is related to internal processes than to transfers across the skin. The only skin possessed by a community in present circumstances is geographic and is related to transportation costs. Since the last half-century has seen transport costs steadily decline, most of our communities have been reduced, by excessive dependence on imports and exports, to extremely primitive economic processes. LETSystems are a way to give local communities new skins.
(First published in Fourth World Review, No. 26, 1988, with acknowledgments to Whole Earth Review, Sausalito, CA.)
Michael Linton is the inventor of the LETS system of monetary exchange. This “personal community currency” launched in Courtenay, British Columbia in 1982, and a number of other communities attempted their own versions of it. In 2018, Linton donated LETS documentation spanning more than thirty years to the University of Victoria for the study of students in the anthropology department.
Thomas Greco (b. 1936) is a community economist focusing on monetary alternatives. He taught economics and related subjects at the Rochester Institute of Technology for fourteen years, then remained in Rochester working as a community activist for local peace and justice groups. In the 1980s, he served as president of the School of Living. He’s contributed to and edited a number of journals, including Fourth World Review and Green Revolution. Currently, he produces the Beyond Money podcast and blog.
