What is LETS?
LETS stands for Local Exchange Trading system. LETS is a way for people in a local community to trade their work and produce with each other. The cost of these goods and services is negotiated between buyers and sellers, valued and paid for in our local currency, the pod.
So MALETS traders exchange goods and services – without conventional money. Instead they use money originating in the goodwill of their own community. Each member is given an account in the system, into which sales and purchases are recorded. Traders advise the Transaction Manager of their trades so he or she can enter each transaction into the MALETS database. As each transaction is recorded either as a positive or negative entry, the individual account statements for each LETS member look rather like a bank statement.
In many respects it is a bank statement, but the balance held in LETS accounts is not redeemable in any other kind of money. It has value only within the LETS community. Thus the holding of a positive account balance is a holding of local money for spending within the local community. A negative balance is the mirror image of this money signifying goods or services need to be paid back to the local community. MALETS as an organisation has no ownership interest in a member’s account balance; it is content through its committee and Transaction Manager to merely be a record keeper for members.
A community can supply its own money
We immediately see a major difference between money in a LETS system and money in the mainstream economy. In the mainstream money system people hold money in a bank – the bank owes them what their bank statement records as a positive account. If it is a negative balance, the money is owed to the bank. In a LETS system the holding of money and the owing of money is with, and to, the community. There is no reliance on some outside authority to provide the money people need to exchange goods and services. So LETS members recognise that they have the ability and freedom to create and manage their own money.
Local Money (called ‘pods’ in MALETS) is not scarce like money in the conventional economy (scarce that is, to all but the banking sector and its government guarantors); but nor is it free to be accumulated or squandered in ways commonly seen in the mainstream economy. Local money does not earn or claim interest. A person’s first transaction can be a purchase which results in them having a negative account balance. No loan needs to be taken out for such a transaction. Unless the size of the transaction was over a limit set by the committee, the Transaction Manager will extend the community’s credit to cover the transaction and the seller will be free to use the credit he gains to buy from other members.
The purchaser is not penalised for his or her account being negative; but is given time to become a seller and earn pods to offset what they have spent. So earning money in a LETS system is a means to an end, and not an end in its own right. Money in LETS is to be earned and spent, recycled back into the local community just as ultimately everything contained in the goods and services we exchange is recycled back into the environment from which they were originally wrought.
Another way of looking at LETS is to say the LETS system works on the community credit of all its members. The combined potential of the members of the group to provide useful goods and services to one another allows credit to be extended to purchasers not already holding positive balances to buy what is put up for sale in the present time. So once again a new trader can begin trading immediately, not needing to ‘earn’ pods before being allowed to spend them. This credit is of the same nature as the goodwill that exists between two good friends. But with this right to access credit free of charge, comes an obligation on every member to deliver goods and services back into the community in a timely way.
So credit is freely given on the expectation that the recipient will respond in like measure. Just like a friendship, all traders are trusted to build on the relationship; to take advantage of the opportunities to both buy and sell. Traders with persistently high positive balances should seek out opportunities to buy what others are offering.
When a trader signs the Account Holder’s Agreement he or she makes a commitment to maintain the conditions necessary to sustain the community’s credit.
- Trading within account limits; Members are asked to trade within any limits on positive and negative accounts, (i.e. within +/- 1000 pods for the first 12 months), and seek confirmation from the transaction manager for large transactions.
- Trading through zero. Each trader must balance their purchases and sales over the life of the account. The ideal trading pattern is for all members to regularly trade through zero.
- When you leave; You start with a zero balance and you should leave with a zero balance – whether you’ve been part of MALETS for 10 years or 10 weeks
Within these constraints LETS traders are free to trade however and as frequently as they like. LETS aims to be self-sustaining. There is no imperative for any member to grow transactions, or contribute to wealth creation. But traders who end up with unspent positive balances should consider sharing them through the MALETS community gift account with those who find it difficult to produce things to sell.
LETS is also a mechanism for supporting local industry, rewarding volunteer labour and building community infrastructure. Traders may offer their goods and services to be paid for partly in pods, and partly in Australian dollars currency. Traders can work together, producing a product that can be traded within the LETS or sold in the conventional economy. For example MALETS has for several years conducted combined olive picking and olive pressing events which return olive oil to participants in proportion to their contributions of fruit and labour.
More on balancing the books in MALETS
‘Balanced trading’ is a key concept within MALETS. Put simply it is about balancing your sales and purchases over the lifetime of your account.
If you need to leave and have a positive balance, it is easy to give that balance to someone else or let the system manager use it to cancel other’s debts. Leaving when you have a negative balance is not so simple. The transactions that gave others credits in their accounts cannot be turned around. The system requires you to pay for what you have received from the system; to leave with a large debt is like ordering a meal then walking out leaving others to pay for it.
Whether your present balance is plus or minus is not important. The frequency with which you use this local currency is not critical either, save that persistent balances that are close to either +1000 or -1000 pods indicate a failure to cycle back and forwards. With that caveat, your account balance may change in small amounts or in single larger amounts. Traders will vary widely in the ways that they earn and the ways they spend. The only thing that is important is that you endeavour to balance your spending and earning, over time.
This will mean that LETS traders will normally ‘trade through zero’. That is, traders will not always be in debt or always in credit, they are always looking for opportunities to earn when they are in debt and to spend when they are in credit.
This may mean that you find yourself doing things that are wanted, but not necessarily what you wanted include in your OFFERS. This is an important part of the LETS social contract, the obligation for negative account holders to try and balance purchases with realistic offers that others need. Equally important, there is no value in aimlessly saving up pods and not spending them. In LETS, this is like one player in a Monopoly game hording all the money, bringing in the game to an end. Pods have only one value; they keep track of all the things we do for each other. Unlike Monopoly the aim instead of producing a winner is to keep the game from ending.
What’s a pod worth?
Members have the right to set their own prices, reach their own deal with another member. Prices are not imposed on members, but the Committee can and does make recommendations.
When working out what to charge , it makes sense to think of a pod as a dollar. But dollar prices reflect a range of pressures not present in a LETS system, most importantly financial charges and the influence of powerful sectional and corporate interests. We should also be able to settle on prices in LETS that reflect the ecological costs of all inputs; so food and farm produce for which the true environmental costs are not being paid in the mainstream economy are habitually undervalued in their dollar prices. Labour, especially specialist labour is often overvalued.
The experience of 16 years trading is that the labour involved in providing both fresh food and prepared food such as jams and relishes is around 5-6 pods per hour (without accounting for indirect costs such as replacing fruit trees or kitchen stoves ). So traders charging for their labour in LETS should be mindful of the labour costs they are paying for in these commonly traded goods when setting their own charges.
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