LETS fills up the gap that has been created by the established monetary system. In this article we will try to find out, what has created this gap, what its consequences are, and in which ways a local currency system can offer alternatives.

Not so long ago, the economies of communities depended for a large part on barter. A farmer would trade his milk and his meat-products for the services of a carpenter, and the sheep- farmer would get beans in return for his wool. This exchange and trade system had as its principle: I do something for you, you do something for me. The priests and the lords would get their revenues in kind.

Gold and silver

Trade in communities was often facilitated by the use of local currency. This made it easier to set up more complex transactions, and gave the priests and the lords a means to exert power and control over their subjects. The money derived its value not only from the authority of the king, but also from the gold or silver of which it was made. Sometimes money was spent that was covered by gold or silver stocks, or sometimes a religious sanctioning from the clergy. In the beginning of our era, the temple treasures of Jerusalem, for instance, functioned as a cover for the paper money that was put into circulation. Currency that is made of precious metal or is balanced by a stock of silver or gold, is more than just an exchange unit or a monetary unit. It can also be used as a means to create a capital, and thereby a means for exercising power. It could enable a feudalistic sovereign to raise an army. Just having money made him powerful.

Interest

Silver and gold don't rust, and this has created an inequality between owners of money on the one side, and people who don't have money on the other side. Both small and large companies need money for investments, for buying other companies or sowing-seeds. Inequality comes into being, because the money-lender is no worse off keeping the money in his pocket, whereas the farmer has to borrow money he can't postpone sowing the seeds. The money-lender will charge interest over the money he lends to the farmer. The farmers will pass on the costs for lending money, in the price of his cereals, which, as a result, will show in the price the baker asks for his bread. In short society pays for the profits the moneylender is making. The profits of the money-lender mount up nicely, because all companies have to deal with the pressure of interest. All this causes a continuing concentration of wealth and power, because in this way a small group of people takes a large part of the profits companies make.

Production drive

Our story doesn't end here. The extra effort an employer as to make for being able to pay the money-lender, as well as finance his own livelihood, pushes production. Every employer has to continue making investments in new factories and improved products, if only to be able to pay off debts and interest. It's a never-ending circle. An example: a co-operation of dairy-farmers manages to make ends meet by producing a sufficient amount of milk. Then at a dairy farm ten cows die. The farmer has to borrow money, so he can buy ten new cows. The bank wants a repayment, an amount that equals what the farmers would have to spend, if he would buy eleven cows. So, in principle, the production is increased with one cow. This will push up the price of the milk. The other farmers will be forced to buy another cow, and will also have to pay interest. Production will increase, prices will drop and further growth will be necessary. To make a long story short: money is used to create capital by making use of interest. Repayment of interest leads to a growth-economy and ever-increasing gaps between the rich and the poor.

Poverty

The unfair distribution of wealth is not the only consequence: poor people simply don't have the money for local transactions. The result is a combination of progress and poverty: production is increased, whereas people start to work less and less for each other. Because of the side-effects of the present monetary system, trade and services amongst the poor are reduced to an all-time-low.

Local currency systems

Within a local currency system these problems do not occur. First of all, because there is no use in hoarding up LETS-units. Within a LETSystem there is no interest; one is allowed to be in the red, and this doesn't create increasing debts. More than that, for the system to be able to function, half of its participants have to be in the red. Because the system doesn't work with interest, there is no one-way flow of money from the rich to the poor. There is no pile of gold, that forces people to invest in new plants, faster-working machines and an ever-increasing output of advertisements to sell new products. Within a LETSystem there can be no flight of capital. The system has no problem maintaining itself, because there is no lack in potential purchasing-power. It is no coincidence that LETS came into being at a time when the monetary economy was very unstable. Local currency systems give people a new opportunities for trading goods and services on a local basis.
 

Aktie Strohalm, 1997