A newsletter of simple ideas #31 -- November 2000
Barter: The Next Generation
It's been a while--about two and a half years, actually--since I've written about barter or complementary currency systems. It's time to revisit this topic because of an exciting change that is happening to Free Market. I'll get back to the Free Market part at the end of the article. For now, I'd like to do a Reasonably Simple profile on LETS--Local Exchange Trading Systems.
Money-Saving Tip:Let your thermostat reflect the seasons. Thomas Stanley, author of The Millionaire Next Door and The Millionaire Mind has found that most of the millionaires he studied had several practices in common. In the category he calls "Reducing the Monthly Burdens," the majority of respondants said they raised the thermostat setting on the air conditioner during the summer and daytime as a way to reduce the cost and enhance the productivity of running their household. In fact, 57% of millionaires chose this approach to saving money. It was the most popular response around reducing monthly burdens (ahead of "switching long distance telephone companies" at 49% of millionaires). Here in the northwest, you might get more of a chance to do the opposite--turn down the heat in the winter/evening. Either way, letting your home temperature fluctuate like it does in nature--warmer during the summer and during the day; cooler during the winter and at night--uses less energy because the heater or air conditioner doesn't need to work so hard. This is the third of four Reasonably Simple "Money-Saving Tips" that have money-saving tips of the millionaires in creating a more economically productive household. |
To review briefly, barter is the most basic way for people to exchange things. Alison offers to cut Ben's hair for a year in exchange for the dresser he wants to get rid of. Nobody exchanges any money, it's just a straight trade. But barter depends on what's called "double coincidence"--that is, Alison needs to have something that Ben wants and Ben needs to have something that Alison wants. Double coincidence doesn't always happen, though.
In steps "fiat" or "federal" money: it allows people to get things they need without having to directly provide something that the seller wants. (There's actually a step between pure barter and fiat currency, backed currency, but it's not important for this recap.) However, fiat currency has its drawbacks, too. For example, it's issued as debt--governments, banks, and so forth, create money and charge interest on it--so there is always more debt than there is money to pay it. Because of this, and the fact that there's a finite amount of money, people hoard it. That makes it harder to make exchanges, which kind of goes against what money is supposed to do--make exchanges easier.LETS to the Rescue
A Local Exchange Trading System aims to solve both of these problems at once. One LETS dollar is equivalent to one US dollar (or whatever national currency the members of the LETSystem normally uses). That makes it easy to use and valuate, easy to determine how much both goods and services are, and so forth...it's just like using the regular federal money. However, unlike federal money, everyone has an unlimited supply. LETS money is a measure of value, not a store of value. In addition, no interest is charged, and no interest is earned. There is no reason to hoard it, and therefore people can trade to their heart's content.
It works something like this--going back to the previous example, say Alison wants Ben's dresser, but he doesn't want a haircut. She can write an IOU for, say $150, and give it to Ben. Now Ben has a piece of paper that is essentially worth $150. He can pass it on to Catherine for classical guitar lessons. He's saying "Catherine, Alison owes me $150 and I'm willing to transfer that committment to pay to you. If you give me lessons, Alison will owe you the money and not me."
That is how money is created in a LETS. Eventually, someone will want a haircut from Alison and will pay her in LETS money (that original IOU that she created). It has come full circle and by accepting LETS money for the haircut, she has "paid back" or "redeemed" the IOU.
This might all seem a little confusing to keep track of--and it would be if it wasn't for the LETS registry. The registry is like the bank. When you get an account with the registry/bank, you get an account code/number. From the registry's standpoint, the above exchane would look like this: Alison's account goes to L$-150 and Ben's goes to L$+150 with the description "Dresser." Then Ben's account goes to L$0 and Catherine's goes to L$+150 with the description "Classical Guitar Lessons." Eventually there will be a similar credit to Alison's account with the description "Haircuts" that will bring her back to zero (or above--if she gives lots of haircuts!). The registry simply keeps track of the information about the value of things and services members have exchanged.
The registry doesn't charge interest on negative accounts, so there's no need to avoid being negative. In fact, the total negative accounts will balance the total positive accounts. The registry also doesn't pay interest on positive accounts. It does, however, charge a transaction fee in LETS money for each exchange recorded--a fee that covers only the cost of running the registry. In other words, the registry is a not-for-profit record-keeping service.
What About Free Market?
If you haven't figured it out, let me point out that Free Market worked on the double coincidence model. Sometimes people would give stuff away for free, which was essentially single coincidence barter. As I said above, that's not the most efficient way of doing things. Therefore, I have chosen to discontinue Free Market because there's something better: the King County LETSystem Registry (kcLETS).
Anyone in King County, Washington, can get a lifetime membership in the King County LETSystem Registry if they pay the registration fee (we're starting off at $20 federal dollars to cover costs that can't be paid with LETS), and agree to some simple rules. The rules basically say that you're going to actually use the LETS money with other members--both buying and selling--and agree to letting the registry remove LETS money from your account if you report that you made a payment. You agree to report LETS exchanges to the registry, and deal with your own tax issues (since LETS exchanges follow the same rules as federal money).
So as not to go on forever, I will close with a promise of what is yet to come. LETS is very flexible and multiple currencies can be handled by the same registry. So while there is a King County-wide currency (called "Seattle LETS"), smaller-scale currencies--at the neighborhood or organization level--could be recorded just as easily. LETS can also be used as an efficient way to fund nonprofits, give businesses tax deductions, and lower expenses for individuals in a cycle called the "Community Way." Look for future editions of RS on multiLETS and Community Way.
If you are interested in learning more about the King Count LETSystem Registry, getting an account, or have any questions about community currencies like LETS, email me at michaelc@ardeacoaching.com
Quote of the Month
There is no greatness where there is not simplicity, goodness, and truth.
Editor's Notes
It is currently July 2001 but I'm only just posting the November 2000 Reasonably Simple. My intention is that during 2001, I will write and post a new article about every other week, so that by the end of the year, I'll be current again. I'd appreciate suggestions, guest writers, or anything else that could help me step up production this year.
You can contact me with your submissions, suggestions, or comments at:
Michael J. Coffey
PO Box 23221
Seattle, WA 98102
(206) 522-6224
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