Local Employment Trading Systems
Three years ago Jeanne (not her real name) was on welfare. Now she operates almost entirely outside the "normal" economy, thanks to a simple barter network called LETS, or Local Employment Trading System. With LETS, instead of waiting for money to trickle down from somewhere else, Jeanne creates her own personal money by getting things she needs through a medium of exchange called "green dollars." She can also contribute her skills as a healer and musician to the well-being of the community in exchange for the same green dollars. Since green dollars are always in abundant supply, anyone can afford her services.
Too good to be true? It's simple. It's elegant. It's available. And it's a Canadian idea that's working in about 500 communities around the world, 20 of them in Canada.
The idea of barter is as old as humanity. Indeed, the concept of money itself was first instituted to facilitate barter. The idea of a community currency is far from new; the first central bank in 12th century Venice was based on it. During the depression of the 1930s, towns in Austria that printed their own currencies thrived while those around them were bankrupt. Now, once again, communities around the world are searching for a means to survive the pressures of unemployment and environmental degradation that have accompanied the increasing globalization of the economy. An answer to this need may be the Local Employment Trading System (LETS).
LETS was first developed on Vancouver Island by Michael Linton in early 1983 in response to the disastrous local effects of the recession of 1982. At that time, the unemployment rate in the communities of the Comox Valley where he lived hovered around 25%. Linton designed a simple accounting system whereby account holders could purchase goods and services, in whole or in part, by transferring accounting points from their account into that of the seller. Linton labelled the accounting points "green dollars" after his vision of the environmental and social benefits that would follow general use of the system.
In its first four years of existence the first LETS system recorded $350,000 of trading in green dollars that would not have taken place if these participants had relied entirely on hard, federal currency. Since then, LETS has been spreading throughout the English speaking world. Of the 20 in Canada, about 15 are in Ontario, including six within 100 km of Toronto, six in British Columbia, and one each in Winnipeg and Saskatoon.
Linton based his idea on the concept that money is a form of information, a means of measuring the value of something, just as a centimetre is a unit of information to measure length. Imagine that you are going to have a house built. You have assembled all the materials, you have the necessary permits, have acquired the land, and have engaged experienced and skilled workers to do the job. But when you come on the scene to find out how things are going, you find that nothing has happened. The foreman responds to your look of annoyance. "Uh, sorry, we can't start." "Why not?" you ask incredulously. "Well, we're all out of inches. Used'em all up on the last house down the road. Have to wait till we can get some more, maybe next week."
It seems absurd that people might not be able to use their valuable skills because there was a lack of information, i.e. money, to pay them. Yet, these days we are hearing with increasing stridency that we have to cut back on social programs at the very moment when they are needed most because we don't have enough money to pay for them.
The problem arises because money has been treated as a commodity-a real thing that can be bought or sold, that is scarce. Yet anyone who has ever played the stock market knows that money is not "real." If a rumor on Wall Street can affect your wealth in seconds, how real can money be? In fact, money has evolved in modern society to such an abstraction that we now see huge sums of deutschmarks, yen, sterling and dollars circling the globe in the form of electronic blips, bouncing off satellites, being exchanged for each other on the money market, while having nothing to do with what people actually do for one another.
One of the consequences of a scarce-commodity currency is that it creates rich and poor, not because of greed, but because of the very structure of money itself. If there is only so much to go around, then it is axiomatic that if one person has a lot, many more will have much less. The more you have, the easier it is to acquire more; the less you have, the easier it is to lose it. Francis Moore Lappe and Joseph Collins describe the mechanism of the widening gap between rich and poor graphically in their book Twelve Myths of World Hunger. Edgar Bronfman was quoted in The Globe and Mail a few years ago: "If you have a million dollars, it's almost impossible not to make money. But if you have a hundred, it's almost impossible to make money at all."
In his book Bringing the Economy Home from the Market, Ross Dobson, city planner and founder of the Winnipeg LETS, points out that the structure of conventional money dictates that wealth must flow from poor to rich. This situation applies equally to nations, regions or individuals. Conditions of affluence and vigorous redistribution policies slow this trend down, while recessions and tight money policies speed it up. But the mere fact that we have structures such as income tax, federal transfer payments and foreign aid attests to the inexorable flow of wealth.
In response, Michael Linton proposed that we treat money as the unit of information that it is. Having no value in itself, it can be used freely to facilitate trade within the community. Green dollars exist only as accounts held in a central computer. Account holders can buy and sell freely, unimpeded by any restrictions of the money supply.
The scarcity of conventional money is said to be necessary to avoid inflation, that is, to maintain its value. In fact, the function of conventional money that investors like to think about-the storage of wealth function-creates the inequities that negate its use as a medium of exchange. Common sense tells us that if money is being invested to earn interest, there will be less for us to use for the things we need.
This thought prompted Michael Linton to challenge another aspect of money-fluidity. Money comes and it goes. Like a leaky rain barrel, if more is coming in than is going out, the barrel is full and you feel wealthy. But if the supply or rainwater or money slows down, then more goes out than comes in, the level in the barrel drops, and you feel poor.
You get a paycheque from your employer; you buy some groceries: the grocer hires a carpenter to build some shelves. But at some point the money will be put into a bank, and it will be invested where it will get the highest rate of return. As the RRSP advertisements have been telling us lately, the place to invest is certainly not in your community, or even in your country, but somewhere else. To finance rainforest clearance? To build a strip mine? To pollute a river? Money has no morality. Meanwhile, since money is being invested outside our communities,our leaders are trying furiously to get some to come in. Large amounts of taxpayers' money may be spent by communities to attract industry, even if the long-term result may be hazardous to the environment or dangerous for the well-being of local people.
What would happen if there were a way to keep money in the community, so that it would continue to circulate, eventually to return to you? Merchants whose inventory is stuck on the shelves while their customers are unable to buy would be able to move their stock, and buy from their suppliers. That is precisely what LETS does. Like a skin around the community, LETS keeps the local currency circulating within the community, to everyone's benefit.
Economist Abraham Rotstein and political scientist Colin Duncan argue that, because they exist entirely within their communities of origin, local currencies provide a solution to the dilemma of how to satisfy the need of the state to control inflation without severely constricting employment at the local level. They do so by separating the medium of exchange function from the storage of wealth functions of money. Other economists, such as Guy Dauncey and Hazel Henderson, state that because green dollars are abundant and accessible to all, LETS should be able to eliminate poverty and unemployment while augmenting current, self-help initiatives. Indeed, without networks like LETS, the current strain on the welfare system may cause such social programs to fail, leaving yet more idle capacity and unused resources.
Well, if green dollars circulate freely, and stay in the community, where do they come from? One of the things we know about conventional money is that it always comes from somewhere else. If you make your own, some people in authority get very upset with you. One of the most interesting aspects of LETS is that the money is created by the very act of its use. Everyone starts with a balance of zero. So, at the beginning of a LETS system, there are absolutely no green dollars in the system. However, when the first person purchases the first item from another, then the amount of local currency agreed upon by the two traders is put in circulation, as the following example illustrates.
When I have a massage for my stiff back, I can pay the $55 hourly fee in green dollars. I make my appointment and have the massage, but at the end of the appointment, I'll telephoneto have the balance transferred from my account into the masseur's. If this were the first trade for either of us, then my account balance would be minus 55, and his would be plus 55. We both would have started out with zero, but in the act of acknowledging my masseur for the gift of massage, we have put 55 green dollars into the community.
I have now paid for my massage; I am not in debt. Although my account shows a negative balance, there will be no interest charged or earned by anyone. At some point, I will bring my balance toward zero by doing a service for someone else or selling some product. Since I am a dentist, that's easy to do. I have sold my old computer and facilitated consensus-building workshops for green dollars. In return, I have bought crafts and meals, had income tax prepared, and acknowledged my appreciation of a fiddle player at a Christmas fair, just to name a few. Each month I receive a statement of my transactions, balance and total turnover.
One important advantage LETS has over other "barter" systems is the ability to pay part in cash and part in green dollars for goods or services. So for dentistry, I can cover my office overhead expenses in federal dollars if I choose. The proportion of green dollars to federal in any transaction is entirely up to the parties involved.
In Toronto, the LETS that started with only five members in 1990 now has over 400 active account holders. A sample list of goods and services offered ranges from new bicycles and repairs, to handmade clothing, construction, entertainment, health care of all kinds, office work, and tarot card reading. Rural systems like the Saugeen Valley Trading System have farmers as well as crafts people, as does Saskatoon. The Sudbury system, started only last year, has seen a surge of activity, with local small business becoming involved at a rapid rate. Each community defines LETS slightly differently, and adapts it to the community's particular needs.
Although there is diversity, there are many common elements among LETSs. All systems are operated by members holding accounts. There is no interest accruing or owed on account balances. Accounting in most systems is done by a central administrator, who enters transactions with a readily-available computer program.
Since LETSs are by agreement non-profit and are controlled entirely by the communities in which they operate, they facilitate the circulation of skills, services and goods within the community while greatly reducing the need for federal currency. Participation in LETS should not depend on personal philosophy, values, or ideology. Linton maintains that although individuals and businesses participate because they perceive it to be in their economic interest to do so, the act of participation is said to facilitate the reassessment of common beliefs concerning the nature of wealth and money itself, thus empowering the community to achieve economic self-reliance.
LETSs are designed to be self-regulating in order to reduce the need for bureaucracy and the danger that the system, like all bureaucratic systems, could come to exist for its own self-perpetuation. People in the community get to know one another, who needs what and who has what to offer. Any person can also find out the balance and trading turnover of any other member, so if someone is not playing well, you don't have to play with them-local social control instead of bureacratic control.
LETS is as close to a biological organism as an economic system can be. It is designed to be self-sustaining. Low administration fees pay for daily operations entirely in green dollars. Federal dollar expenses like telephone and postage come from nominal annual fees. Money for development comes from grants for specific projects, such as a recent grant from Environment Canada to develop a workshop for environmental groups on LETS. While funds for development of LETS are being sought externally, no functioning LETS system has used external funding for administration. LETS can operate and even thrive without ongoing development if it operates according to the self-sustaining design. However, those that have depended on external fuding, such as the short-lived Charlottetown system, have died when the funding expired.
Most systems use some form of cheques to keep track of trading, and with central recording of transactions, this economy is not underground as far as taxes are concerned. Revenue Canada's 1982 interpretation bulletin of the Income Tax Act states that taxes on regular green dollar income are declarable at par with federal dollars but can also be claimed as charitable donations or business expenses.
Although it is too early to see large-scale effects of LETS, advocatesmake two modest claims. LETS can eliminate poverty and unemployment. The social environment of abundance engendered by a self-issued currency has already helped many people besides Jeanne to become economically more self-reliant. Regular trade fairs and potluck suppers enhance face-to-face contact and encourage imaginative exchange of services. At a recent event in Toronto's Bain Co-op, the atmosphere was that of a medieval marketplace.
The kinds of care-giving activities traditionally undertaken by women that are currently often unacknowledged and unpaid can be used to earn green dollars. The recognition and reward for these services at once remove the exploitative aspects of "women's work," increase the availability of service in the community, and acknowledge the individual workers. Child care or senior care, for example, can easily be created in response to need, thus increasing the quality of life for the community as a whole. For example, catering for social events and meetings by LETS members has become a regular feature of the Toronto system.
LETS is an organic economic system that is based on the needs of the local community, rather than the needs of the nation state. LETS is more efficient than the national economic system in the same way that cells of a complex organism such as a human being are more efficient than an amoeba. Money is generated where and when it is needed, without the need to attract investment that might not be in the long-term interests of the community, just to keep the local economy going.
LETS requires no "top down" intervention to work, for it allows each community to create its own economic conditions. People may participate only out of economic self-interest, but in so doing, they change the social environment from one of scarcity where people must guard their possessions for fear of losing them, to one of abundance. LETS appears to address the structural problems of money supply, without threatening the national currency.
Children understand the idea of LETS immediately. It takes adults longer because our present monetary system encourages us to look for complexity. The closer one is to the financial world, the greater the task of unlearning the complex structures required to maintain the economy of scarcity. This unlearning may be an essential part of what theologian and cultural historian Thomas Berry calls the re-invention of the human-a condition necessary for our survival on this planet.
David Burman is a dentist who also teaches at the School of Pharmacy, University of Toronto. He teaches native issues, health, and alternative models of health and healing.