LETSystems Provide a Solution
to Unemployment Problems

by Philip Carter for
Down to Earth Magazine and Third World News Agency, 1995

The problems of a growing gap between rich and poor and of chronic unemployment have increasingly affected developed countries inrecent years. This situation has led to innovative attempts to keep resources within a local community rather than having a corporation in a distant city or country benefit. One example of this is to have currency which can only be used within a community. A successful example is the LETSystem, designed and first implemented in the Comox Valley area of British Columbia, Western Canada.

The LETS model is described by Michael Linton, the designer of the system, as being a "personal community currency", radically different from more traditional currency models. Traditional local currencies, known as "scrip", have usually been similar to the national currency, where a limited amount of money is in circulation and tends to become rapidly unevenly distributed between "haves" and "have-nots".

The need for an alternative to the regular economic system arose when the Comox Valley was experiencing economic difficulties in the early 1980's. "When the local economy dried out, we saw that real goods and services were still available, and the needs still present" said Linton, who has worked continually on the system in several countries since 1982. "We sought to co-ordinate this through devising a barter exchange - lists of offers and requests, with the initial idea of direct exchange" he said. "Seeing the benefits of having a money, we checked out the commercial "barter" networks - saw the problems with them - and ended up with the LETSystem."

The LETS concept of money is radically different from the traditional model where a limited amount of currency is circulated by a central institution such as a national bank. LETS is rather what Stephen DeMeulenaere of the LETSystem in the Canadian city of Victoria, describes as a "tally system" - a very ancient form of trading. Each transaction results in a tally being placed on a person's account, either positive or negative.

DeMeulenaere also sees potential for LETSystems in third world countries. "The concepts of LETS have evolved out of the low income communities in the first world, so they have similar ideas and theories to the ways of life of people living in the third world" he said. He compares LETS to the South Asian practice of lending circles. "In a lending circle, people will agree to pool money together to support one of the members' business projects, so they will go around the circle and implement successful business projects. The LETSystem is related to that, in that by trading amongst the people who participate in the group, money is generated which can then be further used to spend within the network, which creates employment".

Many LETS-like systems began in New Zealand during the period of economic difficulty in the mid 1980's. Started by community associations, they have persisted with about 75 now operating. According to DeMeulenaere, they were used as a model by Australia where LETSystems enjoy considerable government support. "The Department of Social Services in the national government allows people who are on the dole or on social services to earn green dollars through the LETSystems in their community without having to apply them against their social security benefits. The result is an increase in personal responsibility" he said.

While the accounting for LETSystems is frequently done on computer, this is not necessary. "Accounting can be done without any computer, and indeed without any central registry" said Linton. "Each user has their own 'tally stick' or 'score sheet' and people mark off with each other when they trade. Another method is that someone who enjoys the trust of the community is the bookkeeper, or else there is a chart or scoreboard hanging on the tree in the village centre."

DeMeulenaere sees the potential social benefits from a central bulletin board of this type. "It brings people together, and encourages education and cultural development within the community as well" he said. "By that I mean bringing people together so that they can acquire literacy skills and take care of just the most basic immediate needs, material, language or health needs, or building and repair and various other things. This can move up in scale as the system advances itself".

Irish writer Richard Douthwaite is the author of "Short Circuit", a recently published book about the role of local currencies in the world economy. "Short Circuit argues that communities cannot rely on the world economy for their incomes and essentials of life any longer as there is a serious risk that it will break down" he said. "In any case, it is progressively excluding more and more people, communities and countries from full participation. The book looks at the way in which communities can use local currencies and local banking systems to create a financial microclimate, in which a lot more local production for local use becomes possible than would be the case if the community restricted itself to doing only those things which are profitable at world market prices. The microclimate ought to enable communities to produce all their own power and food on a sustainable basis."

The book does not deal with the application of LETSystems in third world countries however. "I feel that the onus is on people in developed countries to devise a sustainable way of living for themselves, rather than urging less industrialised countries to do as we are not doing" he said.

According to Douthwaite, there are about thirty active LETSystems in Ireland, of which one of the best, in Castletownbere in County Kerry, was established by people living on government assistance. "Its effect has been to establish a strong social support network between them and to enable them to have things done which they would not otherwise have been to afford" he said. "They have also been able to buy food and clothing through the system. The LETS has made life very much better for them but has not, except in a few cases, led to them obtaining conventionally-paid work in the formal economy."

While most successful LETSystems to date have had less than 1500 participants, a system of trading between individual systems known as multiLETS has the potential to expand the trading method locally,regionally and even internationally. Linton envisages the Internet becoming important as a "clearing house" for transactions. "Personal currency users will generally be registered locally" he said. "Each person would be keeping accounts in perhaps 5 or 10 LETSystems - neighborhood, local, regional, club, church, profession, hobby, charity, political, personal networks... the list goes on. Over any year one might do most of one's earning and spending in one or two systems, and the others progressively less, but each system is generally free to join (for an individual) and only a matter of making a phone call.

"This means lots of small operations acting as the recording nodes. Most transactions a person makes will be with someone at another node - not much different from the current bank cheque clearing system we write cheques to people who bank elsewhere. The Internet is the most available linking system."

The world of international finance has become a casino-like affair far removed from the grass-roots concept of trading embodied by barter and the LETS model. The gap between rich and poor is no longer a simple matter of rich and poor countries, since countries from both north and south owe huge amounts to international financial institutions whose only accountability is that of showing a profit to their shareholders. To ensure their acceptance, LETSystems are designed to be compatible with the mainstream financial system. Most LETS transactions are partly in local currency and partly in national currency, and are taxable. Taxes generally have to paid in the national currency, and as such frequently contribute to paying the interest on a country's foreign debt.

Even with the pressure of having to conform in this fashion, the success of many individual LETSystems in getting communities "back to work" is unquestionable. It at least has given those groups a feeling that effective local action can be taken, even in a global trading system which seems to care little for people left on the outside.


"Short Circuit" is available from:
Richard Douthwaite, Cloona, Westport, Co. Mayo, Ireland
The price is 15 pounds Sterling, including postage by sea, or 20
pounds sterling by air. For those wishing to order through libraries
or bookshops, the ISBN is 1-874675-60-0