Frequently Asked Questions about LETSystems
The key points include:
Barter is a type of exchange where we swap goods and services without using money - I give you a loaf of bread and you give me two cabbages. You fix my car and I'll cook you dinner. But you may not like my cooking.............
Money overcomes the limitations of barter. I give you money for your goods and services and you can spend it elsewhere. In a LETSystem you can use your account to buy what you want from one person and then sell what you can to another.
Eric Frank Russell, the story writer, expressed this as "Freedom I will, Freedom I won't" - everybody has choices. (Ref. 1)
LETS supports trading which results in win-win outcomes. This is to be contrasted to the more coercive types of behaviour often seen in communities which are short of money - "I've got the money, so you have to work for me." In LETS, there is never any obligation to trade.
The use of LETS as an acronym was an afterthought. The most common rendering is 'Local Exchange Trading System'. However, we prefer to avoid the use of the word 'local', as it suggests a geographical emphasis, which can be misleading.
Other forms of LETS may assign other measures to their trading units, such as a standard hour of work. These systems can all be catered for within the standard LETSystem support framework.
A system, on the other hand, can respond to changes in its environment. Once established, it can be naturally self-regulating throughout its life. This is why we use the word 'system' - 'a complex whole, a set of connected parts'.
LETS is not a scheme, it is a coherent system. LETSystems have a sound underlying ethos, they are self regulating and they conform to all legal requirements. We do not use it the word 'scheme' ourselves, and we are unsure how has crept into use.
The Pocket Oxford Dictionary also defines 'scheme' as 'an artful or underhand design'. (This is not something we wish to be associated with).
Although account-holders use the same measure as the legal tender, LETSystem money differs from conventional money.
LETSystem units can only be spent in the system on which they are issued.
The units themselves are information about an individual's position within a trading community. They represent promises made by those who issue them. But those promises cannot be 'called in' as if they were a debt. They are not 'redeemable'. They are not material property. It follows that they have no intrinsic value until they are spent.
LETSystems and other similar networks can also be registered, enabling one Registry to support several different systems. This makes systems easy to set up. As soon as a system is registered, individuals can open their accounts in it and trading can begin.
LETSystem Registries are community-based, not-for-profit enterprises. They are responsible directly to the individual account-holders registered with them.
Stewards may be the initiators of a system, or else provision for their appointment can be made at start-up.
All accounts begin at zero. For one account to move up, another account must move down.
So at any one time approximately half of us will have positive balances and the other half will be negative. Negative balances are an essential feature of the system, so they are not to be viewed as bad and wrong (i.e. debts). Negative balances simply mean you have received more goods and services than you have given out.
So, if you wish, you can buy something with your first trade. As long as your initial commitments are modest, this is perfectly acceptable.
If you wait to earn before you spend, you could find it slower to start trading. If everybody had to wait to earn before they could spend, nobody would get started!
You can now spend your 30 (or more, if you wish) with anyone else on the same system.
Every time an account moves up, another account must move down by the same amount.
When you have a balance in commitment and someone pays into your account, your commitment is reduced, or turned into credit.
In a healthy system, account balances bob up and down, sometimes having a balance in credit and sometimes in commitment.
People in commitment can be considered to have issued LETSystem money to those in credit. There is no central body issuing credit, there is no need.
This means that there is never a shortage, and never a surplus, of LETSystem money.
If the trade is part of your normal business or profession, you may have a tax liability and you will need cash for that.
The LETSystem recording service will only keep track of the LETS part of your trade.
The money issued within a LETSystem can only be spent within that system. It therefore stays within the trading community, going round and round, supporting further trading as it goes.
LETSystems accounts are very cost-effective and more affordable than a bank or credit card account. No interest is charged on, or is payable to, accounts. This reduces costs and encourages people to keep spending, since there is no benefit in 'hoarding' positive balances.
Because LETSystem units cannot be spent outside the LETSystem, they do not have the same spending power as cash, But they are supplementary to cash, not alternative to it. As a result, those people who use LETSystems can reduce their cash outgoings, and make their cash go further.
This is a function of the way the LETSystem operates. The differences result from using a 'money' which is not in short supply and which is only acceptable to other users of the system. No intervention is required for this to take place, except education - and even that can be self-education.
Money does not value people, people value each other. But, when money is scarce, valuations become distorted . For example, I want to give you as little money as possible, for as much as I can get from you.
By using a 'money' that is not scarce, people are able to value each other more appropriately.
Everyone is still keen to get as much cash as possible. But the ability to earn LETSystem money is enhanced and there is pressure to spend it rather than hoard it.
These factors can combine to give a much lower spread between low price and high price services. People who overcharge find that they can't spend fast enough, people who undercharge find less resistance when they put their prices up.
Nothing, provided that the rest of us carry on trading with each other. Absconders can't take the LETSystem money with them, because it always stays in the system.
This is one of the most frequently asked questions and it reflects a justifiable concern about cheating within a co-operative activity.
If someone leaves like this, they are basically a dead loss. They have taken more goods and services from the trading community than they have given. But they have turned their backs on a useful support system and will have difficulty if they want to return.
People can, and do, play these games, but it's a bit like cutting your nose off because you want to cheat your face.
Once account holders know that the risk is there, but it is not catastrophic, they play their part in looking out for cynical behaviour and act to nip it in the bud before it becomes a big problem. This is one reason why we agree to our balance and turnover details being available to all the other people who hold an account in that system (disclosure). Then you can say that you'd like to trade with a particular person, but you'd prefer to wait until they have put their account into better shape.
Jan Carlzon said that an individual without information cannot take responsibility, but an individual who is given information cannot help but take responsibility. (Ref. 2) All account-holders agree that their account balance and turnover (total trading to date) can be furnished to any other account-holder. We encourage account holders to take up references when considering a trade. If you are at all unsure that another is "credit worthy", then you are encouraged to decline to trade or ask for payment by some other means (and that includes cash).
There is a further difficulty with credit limits - it is difficult to make allowance for individual circumstances. If someone has not yet provided something through the LETSystem and they are several hundred pounds in commitment, there may be cause for concern. But someone who is several thousand in commitment, yet has traded twenty thousand overall, is a much lower risk. This is because they have demonstrated their good faith to the trading community.
In smaller systems (up to 500 accounts or so) it is surprising how word gets around concerning large negative balances and, just as important, about large positive ones. Personal behaviour and circumstances are usually taken into account when deciding whether or not to trade with the relevant people. With larger systems, the stewards act as a backstop in bringing unusual or unethical behaviour to light. As a final sanction, with the interests of other account-holders in mind, the stewards can suspend an account. But only in exceptional circumstances, as a last resort.
No one can force anyone else to transfer or exchange LETSystem money. (In technical language, the units are not redeemable).
However, individuals are free to transfer LETSystem money from their account in exchange for cash from another account-holder. And if they have an account in another LETSystem, they can transfer units between systems with the assistance of another account-holder. But the integrity of each system is still maintained. (In technical terms, all transactions must be recorded as double-entry).
At start-up, particularly if cash is an issue, some of these activities can benefit from external support from a LETSystem development group or a suitable sponsor.
None of these services need be compulsory and it is important that account-holders are charged only for the services that they individually use.
Donations to charities in local money can be offset against tax in the usual way. This provides further opportunities for fund-raising.
Voluntary associations may also use LETS directories to obtain more services and to gain a higher public profile.
LETSystems provide a framework for people to value activities which are not normally valued in the conventional economy. Many people who have difficulty gaining paid employment can nevertheless participate in a LETSystem.
Those who are so seriously incapacitated that they are unable to offer anything can benefit from gifts made through the LETSystem. For those of us who are active, it is a lot easier to give LETSystem money than it is to donate hard cash.
Benefit claimants should obtain specific advice from their nearest LETSystem development group before trading. This is to ensure that they do not jeopardise their entitlement to benefit.
Do LETSystems work better for people who have an adequate amount of money, or for people who have little money?Our standard answer is:
LETSystems work for everyone who uses money and could use some more.The state of a person's bank balance is not as relevant as the ability to trade. Does (s)he have time available? Is (s)he willing to devote skills and energy to trade with others?
Of course, there are often costs that cannot be met on the system and will have to be paid for with cash in the normal way. Replacement parts for repairs, for example. Even then, you should find it possible to make your cash go further.
In the longer term, LETSystems will help to build community economies in which everyone will be able to buy and sell goods and services. This will lead to less dependency on state benefits.
Until then, any reductions in state benefits for people who use LETSystems would be damaging and counter-productive. For those who claim benefit, the fear of losing that money is a key factor when considering whether or not to trade on a LETSystem.
"Although the unemployed offer a narrower range of goods and services than the employed, they are more successful at selling them."He believes that the volume of their LETSystem trading as a percentage of their annual income may not seem significant, but:
"its use-value should not be under-estimated..........the work accomplished is seen by the respondents as significantly improving their living standards."
(See also: "Who are LETSystems for?")
Many people are ready to express an opinion on this topic, but they often have underlying assumptions that LETS only works with middle class/the green lobby/businesses/ minorities/poor people/rich people/whatever. The reasoning is that the people who are using LETSystems are not like us, so we can't, or won't want to, use them.
With the increasing diversity of applications, this exclusive attitude is being transformed into a more inclusive one.
We refrain from identifying ourselves completely with poverty issues, or rural issues, or community issues etc, because LETS can be used to address all these. Development in one area can support development in other areas. There is no conflict of interest, no need for insularity.
The act of forming mutually beneficial trading relationships is not a function of geography, race or class. LETSystems work best where people want to participate. What matters is the enthusiasm and abilities of the individual participants, together with the accessibility and transparency of the systems.
The LETSystem itself has the same official status as an informal game of football in the park.
Problems only arise if someone tries to act "on behalf of the LETSystem". At which point they soon find themselves up a legal gumtree. Account-holders can be represented, just as a group of players in the park can be. But a system cannot be represented - how do you represent a game of football?
All account-holders agree to adhere to a simple set of legally-binding agreements. The agreements also apply to those who provide services which are essential to the operation of the system itself, such as transaction recording. Providers of essential services enter into additional agreements with the other account-holders In common with other account holders, they have to take into account their particular legal status when trading.
It is the agreements which legally define the relationships within the LETSystem. These agreements can be subject to contract law.
Include in your tax return all possible business-related expenses paid for in local units. Remember that you only pay tax on your profits.
Assign sterling values yourself, or the Revenue have the right to value transactions using current market rates.
If you do this, then you don't need to submit separate details of your LETS trading, just include all the sterling equivalent items in your accounts, then report the net totals for both sterling and LETS combined. Keep your LETS statements in case the Revenue decide to audit, it's just like having another bank account.
If you are in any doubt, check with your Inland Revenue office. We have found the Revenue very helpful as long as you are honest with them.
On the one hand, LETSystem money is not legal tender. On the other hand, people can gain real benefits from their LETSystem transactions.
The safest advice is for claimants to keep their LETSystem trading within any weekly disregard.
Our position, which has not been officially accepted, is that claimants should accept reduction of benefit only when they use their LETSystem account to obtain the basics of life such as food, rent etc.
Further, trading on non-monetised systems (e.g. hour based LETS) should not result in loss of benefit. In Australia, this has already been achieved through a government ruling.
More details, in the form of position papers and reports, are available from your nearest LETSgo office or through the LETS-CONNECT network.
If you are VAT registered and you are selling an item for 100 pounds before VAT, you could charge 25 LETSystem pounds and 75 pounds sterling. Then you add on 17.50 in Sterling for the VAT.
Of course, anyone with a LETSystem account can offer quality assurance or other brokerage services to the trading community. But they take on the responsibilities for providing this service on their own account and never on behalf of 'the LETSystem'. And this service remains an option which individual account holders can choose to use or not, as the case may be.
It is unrealistic to expect any third party to be answerable for all the trading within a system. It is also disempowering for the individual buyers. Education and information are better routes to fair trading.
Buyers should seek assurance that the providers of goods and services are suitably competent, qualified and insured as necessary.
"Let the buyer beware."
It's not their business how you spend your money. They don't guarantee that the bread is fresh or that the car won't break down. That's your job.
The aim of the LETSgo is to initiate prototypes and establish a LETSystem Regional Development Initiative (LDI). The LDI is a consortium of different parties who work together to achieve common aims in establishing a diverse but coherent network of LETSystems and LETSystem Registries across the region.
A LETSgo project is therefore part of the LDI activities.
Michael established Landsman Community Services Ltd in the early 1980's, so making all the organisations listed here possible.
A Local Authority support worker is not necessary for the implementation of the project. If such a support worker is working to a pre-arranged brief as part of the consortium team, and properly trained and qualified to carry out the brief, then funding a worker is one way in which the Local Authority can contribute.
But there are other ways that Local Authorities can provide support. We recommend that the direct appointee option be considered only when the Local Authority is committing a substantial spend to the project, and therefore needs a representative to ensure good financial control of the activities to which funds are to be applied. This should be negotiated by all parties in advance.
regLETS is a package which is the upgraded version of mLETS. Currently in beta-testing phase, we recommend that users have experience of mLETS and access to e-mail so that they can participate in the development process. Unlike mLETS, a 386 or 486 machine is required. regLETS provides a noticeboard modules as well as accounting software. It also has a module for recording trades. All modules are stand-alone and fully compatible with mLETS.
Whatever software is used, please note our recommendations that that the functions of accounting and listings be administered (and costed and charged) separately.
Cost-of-service ensures that account recording costs are all met and that everyone is fairly rewarded for the work of recording transactions. A sustainable system cannot rely on volunteers, because this invites problems associated with "burn-out". The payment of a 'going rate' for work on essential services is included in the cost-of-service ethic.
Operational services can be paid for entirely in LETSystem currency. Account-holders meet costs on a 'pay as you use' basis. The charges can be kept low, as long as they consist of strictly operational costs. There is no place for charging promotion or other development costs directly to account-holders. This is not only unfair, it also threatens the sustainability of the system.
Initially, consumables such as paper and postage often have to be paid for in cash. In the absence of external support, account-holders will have to meet these cash costs.
The only serious threat to a LETSystem is loss of confidence by the participants - a threat common to all money systems. But it is worth reflecting that the cessation of a LETSystem is far less traumatic than, say, the collapse of a bank or the failure of an investment fund.
The main contributing factors to confidence in a LETSystem are:
Money is scarce and we will try to spend as little as possible to get as much as possible. We are therefore attracted to imported goods produced at third-world pay rates using cheap raw materials. These materials are cheaper if they are produced by unsustainable methods. Meanwhile our local economic activity is declining and unemployment is increasing. Our manufacturing shrinks, the tax base contracts, social costs increase and there is even less money to spend on improving the environment.
Rupert Sheldrake, the physicist, points out that the people who delight in recreation in the natural world during the weekend are busy destroying that same world during the week. (Ref. 3) This is not because they want to be destructive, but because they don't know how to avoid doing so.
For many people, the only 'green' issue is whether the giro or other funds arrive on time. Only when we are sure that we can buy what we need, when we need it, will we turn our attention to all the other pressing matters which require our time, resources and ingenuity.
LETSystems have the potential to breathe life into the local economy. Using LETSystems, traders are already turning their attention towards recycling, sustainable food production and energy efficiency. But more than that, the ability to 'shop local' and get good value for money is a move in the direction of a more sustainable way of life.
Local food production is a business and, like in any business, cash has to be found at all stages. The grower needs to pay for labour on the land, the book-keeper (even if when it's her husband!), the seedsman, the distributor, the packing and so on. And we won't mention advertising.
All of these people and all of the services may be found in one small area. If these people are prepared to accept local units (LETSystem money) for their time and effort, they will have created a local business which is sustainable, probably ethical and well and truly supported by LETS.
The outcome is that local people are able to buy local food for part local money, in addition to each other's "regular" services, on a daily basis.
In our promotion of LETS, we are now looking more towards people who understand LETSystems and will set up their businesses to use LETSystems from the outset, as a normal part of business life. This is opposed to the "LETS activist" approach where you try to convince existing business people of the benefits. So we "walk our talk" as far as food production, or any other business activity, is concerned.
(From John and Mandy Winkworth)
As a self-builder, in every sense of the nail, I have to say that LETS is the most exciting tool in the bag so far. The biggest drawback for me, after all the excitement, the sheer hard work and endless fun, is having to pay in the conventional way for the house that we built with our own hands.
Produced by LETSgo Manchester, 23 New Mount Street, Manchester M4 4DE, with contributions from Landsman Community Services Ltd, Nigel Leach of LETS Solutions, John and Mandy Winkworth of LETS-Connect. Special thanks to Nigel Stewart of XTML for electronic publishing.
Copyright held by Robert Soutar Ltd 1996 on behalf of the LETSystem common-wealth.
Permission to copy this document is granted on the following conditions which apply whether the copies are of the whole document or of any part:
Last Revised : 21 April 1996 by Nigel Stewart