The LETSystem Design Manual

1.3 Fundamentals of the LETSystem


Summary

The LETSystem is designed to deal with the problems associated with conventional money. The system is defined by three underlying considerations: community, personal and practical.

The principle of community refers to a finite group of people who decide to participate in the system. It also requires that nobody can claim or exert ownership.

The money created within a LETSystem is personal in that it is created by the promises of the participants. The consent of the individual is required at all times. No third party can have control over the money and the money cannot leave the system.

The LETSystem differs from other personal money networks by adopting a practical stance. The unit of measure has the same value as the national currency, so allowing the local money to integrate into the mainsteam economy where it sets up beneficial cycles within the community.

These three considerations give rise to the five essential characteristics of the LETSystem as originally defined and are implemented through the standard Account Holders’ Agreements (Section 1.4).

The function of the LETSystem

The LETSystem is an economic system intentionally designed to address the problems and limitations of conventional money. LETSystems offer only one of several frameworks which can be used to facilitate the use of personal or community money. But the LETSystem differs from most of these proposals in several respects.

These specific characteristics ensure that the LETSystem works with the existing money system. Rather than proposing a replacement for conventional money, the LETSystem is designed to integrate with all aspects of economic and financial life. It is a complementary system rather than an alternative one.

The foundation of the LETSystem

The LETSystem is underpinned by three considerations. It is:

  • community
  • personal
  • practical.

The LETSystem is defined by five fundamental criteria:

  • cost of service - from the community for the community
  • consent - results in the "flat start" of all accounts
  • disclosure - to ensure informed action by users
  • equivalence to the national currency
  • no interest - no commission

Cost of service

The LETSystem is designed to operate cheaply and sustainably. Individuals who run accounts on the system will be looking for an efficient, trouble-free service. If a LETSystem is not run in a professional way, it will lay itself open to competition from systems which are better-run. Some of those systems may not share the same ethical basis.

Voluntary effort does not encourage the professional approach and is rarely sustainable. It therefore makes good sense to reward effort spent on administering the system in an appropriate way through the readily available local money.

The cost of service principle excludes any ideas of commissions and profit-taking in system administration At the same time, we can provide a service which would be the envy of any profit-making business. Through feedback from those who hold accounts on the system, we can ensure that the services provided match their needs.

Consent

All activities within the LETSystem are based on consent. This consent is freely given by all participants to each other as a condition of holding an account. The most fundamental is the consent for an individual to make promises to the community. But there are many others, including the consent for any individual to start and administer a system.

Consent also involves the recognition that the individual may choose not to do something, for example, "there is never any obligation to trade." Nor is there any obligation upon anyone to join a LETSystem.

Consent inevitably leads to the "flat start", whereby all accounts start at zero. Money will not be moved from an account until permission is given by the account-holder. Nor can money be issued from the administration account in order to start a new account in credit. There is no consent to run the administration account in commitment (although participants will probably make allowances for day-to-day fluctuations).

Disclosure

Disclosure of key information is necessary for the users to have control over their system. First and foremost the users have to be able to trust the system. This takes pressure off them when it comes to trusting each other. The ability to know the balance and total trading of another account is both necessary and sufficient for users to regulate the system collectively. The balance shows the commitment of an account holder and the total trading volume demonstrates the degree of participation.

Equivalence to the national currency

In a LETSystem, the unit of measure has the same value as the national currency. A brief look at the nature of LETSystem currency will show that it is a totally different kind of money from the national currency. Equivalence only means that the value or measure of the two units is the same.

The value of money and the value of people are totally different things. Money is used as a measure, like a ruler is used to measure feet and inches. When we agree on what the measure is, we can value people's efforts in those terms. Conventional money, because of its scarcity, distorts valuations. In a LETSystem we are much more likely to value others at their true worth.

Equivalence means that a large number of individuals and organisations will be able to use LETSystems. Issues of accessibility, taxation and business accounting become straightforward. If equivalence is not present, many sections of the community are effectively prevented from using the system.

No interest

LETSystem money exists solely to allow exchange. It arises from people's promises to one another and there can be no profit in storing it up or treating it as a commodity. Interest is an idea which is alien to the way that the system works.

The principle of no interest applies to positive balances as well as negative ones. No interest means just that: so-called negative interest, where charges are levied on positive balances, has no place in the LETSystem. Agreements ensure that system administrators have no permission to levy any interest-related charges.

The above points underpin the definition of a LETSystem and the all important account-holders’ agreements. The principles should apply not only to the LETSystem itself, but to all our efforts in starting and developing systems.

If a money system does not adhere to these five principles it is still valid and it can still be workable. But it is not a LETSystem.

Some notes on LETSystem fundamentals, the Definition, and the Account-Holders’ Agreements

Looking at our five fundamentals:

  • cost of service/community (no ownership)
  • consent/"flat start" (no obligation)
  • disclosure (no cheating)
  • equivalence to the national currency (no confusion)
  • no interest/no commission (no point)

- these lead straight on to the definition of the system and the account-holders’ agreements. They can also be grouped under the three headings: community, personal and practical.

Community

A community is a group which relates to itself. In any true community we have a sense of being there for each other and we act in a mutually supportive way.

The LETSystem is a finite network of participants that provides an opportunity for them to interact. Trading on the LETSystem brings benefits to all those who participate in addition to any individual gain. Any self-regarding community can therefore be supported by a LETSystem. Further, the system itself actively encourages a sense of community.

Communities can be both local and global. So LETSystems can be both local and global, too. Within LETS, "local" means local to the network of participants. In all cases, "local" is defined by the community itself - it may mean a geographical area, then again it may not.

"Cost of service" relates to the idea of community and "no ownership". This principle is secured by item 8 in the agreements

Personal

"Consent" recognises the freedom of the individual. It is secured by the authority to transfer (item 3) which automatically leads to:
  • no interest
  • a flat start.

The flat start criterion is important, as it emphasises whose money it is and tends to discourage "budget stuffing" by administrators.

Consent is made explicit in "no obligation to trade" (item 2) Consent is also secured by disclosure of balance and trading figures (item 6)

There is no consent for the registry to issue money (via an admin. account in commitment) or to levy charges beyond the ongoing cost of service.

Practical

The value of the unit is related to the value of the legal tender. (Stated in "essential characteristics"). "No interest" is also a practical consideration.

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Landsman Community Services Ltd Paper No. 1.3 Version No 1.3 17 August 94
Written by Michael Linton of Landsman Community Services Ltd. and Angus Soutar of Robert Soutar Ltd.
Compiled 10-01-95 by Andy Blunt and Adrian Steele of LETSgo Manchester