October 23, 2017

A currency for every community

To reconstitute local economies is an imperative if we are to prevent misery and chaos when the global economy collapses. We need them in any case to reduce our environmental impact and to render possible local co-operation and solidarity that can alone assure our livelihood and welfare on a sustainable basis. LETS and Time Dollar schemes – both based on local currencies – provide a valuable tool for doing this.

Published in The Ecologist Vol 28 No 4, July–August 1998. Co-written with Perry Walker.

It is by now clear that the global economy must inevitably marginalise, and render largely destitute, a very large section of the population of both the industrial world and the so-called developing countries. For this reason alone everything must be done to fight the Multilateral Agreement on Investment and to prevent the further implementation of the NAFTA, Maastricht, GATT and other large-scale, free trade agreements that are designed to advance the globalisation of the world’s economy.

At the same time, we must revitalise local economies on which the vast bulk of humanity must always depend for its livelihood. There are a number of strategies for achieving this goal. In this article we shall examine two of them:
the setting up of LETS and of Time Dollar schemes.

LETS stands for Local Exchange (sometimes ‘Employment’) Trading Systems. The role of a LETS is to revitalise a local economy and thereby a local community, by providing an alternative method of supplying people with the goods and services that they can no longer obtain via the formal (globalised) economy. The principle involved is very simple. If the formal economy no longer provides people with the goods and services that they require, then people must provide them for each other, payment being made in an informal local currency that is only valid within the local area.

The second strategy consists in creating Time Dollar schemes which are basically alternative ‘welfare’ systems.

Industrial countries that have developed elaborate and very costly welfare services are now systematically dismantling them – as part of a strategy for reducing costs – so that their corporations may hope to compete with those operating in countries where labour costs are 20 to 40 times lower. Once again, if the state can no longer provide these services, then people must provide them for each other. Under a Time Dollar scheme, they do so without payment in the national currency, but instead they earn credits in a local currency to obtain similar services which can be used when they in their turn are old or sick.

These are not fantasies. There are already, for instance, over 350 LETS in the UK with about 30.000 people involved, as well as a considerable number in Australia, Canada, New Zealand and more recently in France, where some 20,000 people are now involved and a few in the US. Time Dollar schemes are so far confined to the US; 150 of them, with a membership of from a few dozen to several thousand members are now operating throughout 30 States. [1]

Both LETS and Time Dollar schemes do more than merely deputise for the formal economy once it ceases to be capable of catering for people’s more obvious needs. Access to the goods and services provided via the formal economy is via money, but Edgar Cahn and Jonathan Rowe, co-authors of an excellent book entitled Time Dollars [2] point out that people need a lot of things that money cannot buy, in particular all those benefits provided by what Cahn and Rowe refer to as “the kitchen table world” – the world of the family and its close friends, to which we once all belonged and where everybody helped each other and cared for each other without any thought of remuneration.

However, the functions that were once fulfilled by families and communities for free, have been “taken apart, function by function and sold back to people who missed the things that these once provided”. As a result, for most people in the industrial world, the kitchen table world is no more and the things it represented – “companionship, entertainment, security, intimacy, even gossip, must now be bought for money”. Increasingly it is the TV and the computer and soon it will be the information superhighway, that will replace the “kitchen table world”.

Very much the same thing has happened to the benefits that were once provided free by the local community. Thus security from crime “no longer means the watchfulness of neighbours. Rather it means insurance policies, burglar alarms and other devices as well as greater demands for police”. Inevitably “massive social problems ensued, as the glue that held people together no longer seemed to be there”, and governments “have been forced to try and patch up the damage with programmes and services bought for money”.

People have “become purchasers of community and care, rather than participants in it” – and inevitably they are rapidly losing the capacity to produce the goods and fulfil the functions they once did. As Ivan Illich puts it,

“When lawyers settle all the disputes, teachers do all the teaching, doctors do all the curing. . . then people lose their capacity to do these things, and the result is an ever-enlarging circle of dependency and need.”

This is not a mere side effect of the process of economic development but its very essence. Indeed, the monetization of functions previously fulfilled for free by the now largely defunct family and community accounts for much of the economic growth that we identify with progress.

As Cahn and Rowe put it, the economy grows “by eating the flesh and sinews that hold society together”. Of course, as this “cannibalising process” takes place, ever more money is required to buy the services that the family and the community used to provide for nothing.

Eventually, as is increasingly the case today, to earn their keep now requires a two worker family sometimes holding down three or more jobs between them. But this in itself increases the requirement for more money, among other things, to pay the cost of the day-care centres where the children of working mothers will be looked after, and the old people’s homes to which the grandparents will be consigned.

It is not surprising that government expenditure on social services has escalated in the last decades in an obviously unsustainable way. By creating a global economy, however, matters have now been brought to a head. If industrial countries are to compete with Third World countries, which now have almost equal access to capital, technology and management, while benefiting from incomparably cheaper labour costs, they can no longer afford a welfare state and not surprisingly it is being systematically dismantled.

This creates a state of emergency, with the corporations providing ever fewer jobs and thereby producing goods and services that ever less people can afford, and with the State incapable of caring for the growing number of those whose basic needs the market can no longer satisfy.

The most obvious contribution that LETS and Time Dollar schemes can make is to give people access to a local currency with which to acquire the goods, services and care that they require. The local currency can take the form either of special banknotes or merely of entries in a book, or blips on a computer, as is usually the case. If this is possible it is because the people who use this local currency for buying goods, services and care are, at the same time, those who provide them.

What in fact we are seeing is the development of a local economy based on an emerging community of people who are willing to co-operate with each other in order to provide benefits that, in recent decades, have been provided (less satisfactorily) by the state and the market.

One of the advantages of LETS and Time Dollar schemes is that for two reasons, there can be no shortage of the local currency, as there is of the national currency in poor communities. The first reason is that people actually create their own currency themselves by the simple expedient of providing goods and services for other members.

The second is that there is no incentive to hoard it, as occurred with the national currency during the depression years, for as local solidarity builds up, a new and more reliable form of security comes to replace that provided by money. Also, no interest is paid on credit balances just as no interest is charged on debit balances.

Equally important is that the local ‘currency’ is not convertible into any other local currency, let alone the national one, and can thereby only be spent on goods and services provided by other members. This means that rather than serve to fund the production of, for instance, cash crops, that would be exported to satisfy the needs of distant populations – often at the price of creating local shortages – it is far more likely to fund the production of food for local consumption. This also provides a means of ensuring that purchasing power stays within the community; in sharp contrast to the situation today when money is sucked out of poor communities into the rich urban areas – where, among other things, the headquarters of the large corporations that control most of today’s commerce, are situated.

Thus, in the case of a predominantly black district in Baltimore where the inhabitants are largely unemployed as the result of the closure of a steel works and of the local railway station, the shops, according to Cahn and Rowe, have closed down so that there is now almost nowhere to spend the money locally. Shopping is almost entirely in an out-of-town supermarket.

This means that all the money that flows into the area, mainly in the form of social security payments, almost immediately flows out again. In the case of Indian reservations, it has been calculated that it takes only 48 hours for 75 percent of every dollar the Federal government provides, to flow out to border towns.

Pricing different services

Some LETS have a standard hourly rate for whatever the services rendered might be, but most LETS attribute a different value to different services and in our view this certainly seems preferable.

We feel that one of the reasons why Robert Owen’s Equitable Labour Exchange of 1832 to 1834 foundered, was that people were paid a standard rate of sixpence an hour, regardless of what particular function they fulfilled, and, as a result, those who were earning more on the open market tended to stay away.

Most LETS seem to have adopted this view. The price of the different goods and services provided by members, however, is evaluated by the local community, rather than being determined by the market. As a result the price differential tends to be much lower than it would be within the formal economy.

To take an example, a dentist, in a Vancouver Island LETS, started off by charging his normal fees, and then expected to hire other members to do unskilled work for him at a minute fraction of his own hourly rate. They refused. The differential still exists, but it has been drastically reduced. This change of attitude can be attributed to the ability of LETS to bring people together and negotiate as members of a community rather than as complete strangers.

With Time Dollar schemes the situation is different. Payment for services provided in these schemes is not that important. Members see themselves as volunteers who are acquiring Time Dollars for doing work which many of them would be quite willing to do for free. Cahn considers that “people who are asked for help will get it even if they don’t have any Time Dollars to pay for it”.

Yet the fact that they receive something for their efforts is important too, because it validates their contribution and encourages people to do things which they would never do for cash. “A retired bank president would never mow a sick person’s yard for money, but he’ll do it for Time Dollars”, Cahn says.

Price is not the issue, it is status. To accept money for such a task implies one has accepted the market status defined by the wage. “Not entirely surprisingly only 15 percent of dollars are ever spent, and no one is refused care because of a shortfall in their account.”

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Building up community

This brings us to one of the most important functions of LETS and Time Dollar schemes – their role in building up the local community. This occurs because the people involved rapidly get to know each other by working, and above all, by caring for each other. As a participant in an early Canadian scheme put it,

“Just about every time I trade through the LETS system, I get to meet someone personally. I have got to know an extra 100-150 people in this way. To me, that wealth of relationships is synonymous with economic well-being.” [4]

As you build up community people learn to trust each other. We are used to a central bank having the responsibility for maintaining confidence in the national currency – which is an increasingly difficult task – since the value of a currency is increasingly determined by giant international banks and even more so by currency dealers such as George Soros.

But it is not only a central bank that can create trust. Until the Scottish Bank Act of 1845, banks in Scotland were free to issue their own notes and there was no central bank. An authority on the subject, Laurence H. White [5] concludes that bad money did not drive out good; banks did not tend to issue too many notes; and that loss of confidence in banks was not an endemic problem.

LETS is clearly yet more decentralised, and so far there have been remarkably few defaults. This is mainly because members of the system trust and develop a sense of responsibility towards each other. It is also due to the openness of the system. One party to a prospective transaction can always ask to know the balance of the other party’s accounts, and he may decline to trade if the latter’s debit balance is too great. Finally, some systems also have limits on how far people can get into debt or “in commitment” – to use the language of LETS.

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The LETS experience so far

The first LETS was started by Michael Linton in January 1993, in the Comox Valley, British Columbia, Canada. The unit of currency was the green dollar, tied to the Canadian dollar. In its first twenty months, about 250,000 green dollars worth of trade was carried out.

LETS was introduced to the UK in 1985, after Michael Linton described it at TOES (The Other Economic Summit) [6]. There are now around 400 systems, with membership varying from 14 to 500. Today, roughly a fifth of these are growing and developing dynamically.

The largest UK LETS have a turnover of about the equivalent of £70,000 a year. The biggest, and arguably the most successful LETS, is in Australia – in the Blue Mountains of New South Wales, centred on the town of Katoomba, about one hour east of Sydney. The Blue Mountains LETS was started in February 1991 with the help of a committee of five people. Since then it has grown to be the world’s biggest LETS with a current membership of about 1,800 people, who between them have 1,100 household accounts. In all, locally provided goods and services, worth an equivalent of US $270,000 are traded every year.

Among the more interesting services so far provided has been the organization of a wedding. This involved arranging for the design and production of the bridal gown, the food and the entertainment, and, when it was over, the cleaning up of the mess. It has also dealt with the extension of another member’s home, all the building work being paid for in the local LETS currency.

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Experience of Time Dollar schemes

The idea of Time Dollars is the brainchild of Edgar and Jean Cahn. They met when students at the Yale Law School, and started their first Time Dollar scheme in Miami, Florida, providing services for the elderly, which is still today the main accent of many Time Dollar schemes. Tragically, Jean Cahn has since died and Edgar Cahn has moved to Washington, where he works up to 80 hours a week with students and volunteers to spread the Time Dollar idea as a memorial to her.

The Miami Time Dollar scheme remains one of the most successful. It now has 900 participants, most of them elderly, retired people with time on their hands, and they are putting in more than 8,000 hours of work a month at 32 different sites in different parts of the city. The scheme can be seen as a community welfare scheme, also as a vernacular insurance system. Retired people provide help for other retired people, as do younger volunteers. They are known as ‘respite workers’ and they are paid in Time Dollars, which they can use to obtain help for themselves or for their elderly relatives whenever either of them need it.

Similar schemes have been set up in Boston, St Louis, Brooklyn and San Francisco. In Michigan and Missouri, Time Dollar programmes have been launched, with the help of the local State authorities. Several are already evolving into mini-economies, linking together people from different generations.

Young people are mowing lawns and painting houses for elderly neighbours. Some, rather than keeping the credits they have earned for themselves, actually contribute them to other elderly people who need them more than they do. In some programmes, Time Dollars have been ‘woven’ into conventional medical care systems that provide services that normal dollars alone cannot buy. In this way, as Cahn and Rowe note, the elderly – among others – are becoming providers rather than simply consumers of care.

A particularly impressive Time Dollar scheme is in El Paso, a very poor town known as the poverty capital of the United States, where almost two out of every four residents live below the poverty line and 80 per cent of the children are born to teenage mothers. Lower Valley, directly outside the city, is even more poverty-stricken. There are few jobs and hence no tax base to finance public schemes such as schools, water, sewage, public transport and medical care.

Recently, Phylis Armijo, of the Daughters of Charity, started a Time Dollar service based on the San Vincente Health Clinic run by members of her Religious Order. Her idea was that under the Time Dollar scheme, people would themselves participate in the provision of the health services. Although they obviously could not replace the doctors, they could provide other very important services, transport for instance.

People had to get to the hospital for treatment, so other patients could earn Time Dollars by driving them there. They could also provide counselling and prenatal care, and help mothers once their babies were born, which turned out to be very effective in reducing infant mortality. They could also provide baby-sitting for the sick children of working parents and companionship for the elderly, whom they could also help with their shopping.

There seemed to be no end to the services that patients could fulfil for other patients, all of which would reduce their hospital bill and in this way give them access to medical services which would otherwise never be available to them. This is exactly what is happening: for instance, the Time Dollar scheme has reduced the charge for prenatal care from $250 to $75.

However, Phylis Armijo is even more ambitious. Conventional medicine is largely concerned with treating those who are already sick, and little is done about prevention, hence about reducing the actual incidence of diseases, which in the long run must be a far more effective strategy, than treating the victims, which is expensive and not always successful. So she extended the services that could be paid for by Time Dollars to such things as digging wells, removing lead-based paint and undertaking a survey of all possible sources of water pollution in the area, of which she identified several thousand.

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Will LETS and Time Dollars be taxed?

Fiscal authorities are unlikely to be too concerned about LETS and Time Dollar schemes, while they are still small, but as they grow bigger, they may well begin to feel that they are being done out of a lot of tax revenue. What then can we expect? In the UK, the general position seems to be that if LETS workers are doing the sort of work they would normally do to earn their living, their LETS earnings are taxable.

If, on the other hand, people are using skills they do not use in their normal work, their transactions are classified as social favours and are not taxable. This seems to be a position with which LETS can live. There have been attempts, particularly in Australia, to secure agreement that taxes, at the state level if not the national level, be paid in LETS. So far it does not seem that the Government has accepted this.

In the US the experience with Time Dollar schemes in the State of Missouri has been significant. In the mid-1980’s, the State passed a law to provide tax relief for members of Time Dollar schemes who took care of elderly family members at home. If no Time Dollar member was available to help, the person who has earned a credit in the local currency, the State actually committed itself to providing this help at its own expense.

In 1985 the State authorities went further and actually asked the Internal Revenue Service (IRS) to declare money earned in the form of Time Dollars to be exempt from Federal income tax. To everyone’s surprise the IRS accepted to do so. However, since then, the IRS has enacted new regulations expanding the definition of barter, requiring full disclosure of all such transactions on people’s annual tax returns. Credits received through a barter network are now deemed to be taxable when received rather than when spent.

Fortunately, Time Dollars were made an exception to this rule. In March 1985, as Cahn and Rowe note, the regional IRS office in St. Louis ruled that volunteers in the State programme who earned service credits would not be taxed on their value. The reason is that such transactions are deemed to be of a charitable nature, which serve the public purpose and would otherwise have been provided by the State. For these reasons a Time Dollar transaction is seen as fundamentally different from a transaction based on commercial barter, which could easily have been undertaken for cash.

In commercial barter, it is pointed out, the parties are bound by contract, and credits earned are a ‘cash substitute’. In Time Dollars schemes, on the other hand, members who receive a service have no contractual, and hence no legal, obligation to pay for it, while people who render a service acquire “no contractual right to compensation, the credits merely providing a means of motivating the volunteers to continue their community service.”

What is seen to be particularly important is that Time Dollar members do not have access to the courts to settle their disputes. Resorting to the courts “means you are asserting the rights of a stranger against strangers, and that you are operating in a context of monetary values”. The IRS, as Cahn and Rowe put it, see Time Dollars systems as being very similar to the sort of transactions that once occurred among members of traditional families and communities in the pre-industrial age. They note,

“Families and communities operate on a standard of reciprocity. That is a moral norm, not a legal one; the mechanism of enforcement is not the courts, but the sanctions that operate naturally between people.”

People, they should have specified living in a real community – of the sort that Time Dollar schemes are helping to reconstitute.

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Future developments

How then are LETS and Time Dollar schemes likely to develop? Firstly, it seems but a question of time before people start regarding as a hindrance the restriction that a LETS currency can only be spent in a specific locality. For example, within Perry Walker’s own small scheme in London, he has no access to organic vegetables, nor to much food of any sort.

There will therefore be pressure to link systems so that they can trade with each other. There are two ways in which this could happen. A centralized register could handle the accounts for several different systems. They could then trade with each other either if they shared a currency or if their currency could be converted into the national currency.

However, this could destroy the essence of LETS because trading would no longer be so local. Hence, proponents of this view are likely to favour setting up additional systems to cover larger geographic areas each with their own non-convertible currency that leave in place the original, highly localised, systems.

Outside LETS itself there are plenty of ways to extend the range of services available to the membership. For instance, Michael Linton has suggested a LETS fund. This is a sort of community bank that only deals in the local currency. Unlike an ordinary bank it would not charge interest on loans or for that matter pay interest on deposits.

The final development, which is already starting to happen, is the greater involvement of business. LETS, at least in Britain, started with a slightly New Age flavour. It was thus not surprising that businesses were initially suspicious. Furthermore, many individuals use skills to earn LETS that they would not otherwise use to earn national currency, which means that the LETS currency they earn is thereby additional to the money they earn in their normal occupation.

Businesses, on the other hand, are likely to feel that the LETS currency they earn will be at the expense of earnings in the national currency. Nevertheless, in many areas small local businesses start joining after a while. One reason may be that charging partly in LETS can bring them new customers who could not afford to pay entirely in the national currency. Furthermore, their ability to pay in LETS reduces their expenditure in the national currency.

Again, the Australian experience illustrates how business can become involved. Already 21 businesses have joined the Blue Mountain LETS system, together with 25 self-employed traders. The businesses involved include cafes, healing and medical centres, schools, hardware and fresh fruit and vegetable stores, together with a legal partnership, a few accountants, a book store, a nursery, a food co-operative and a local community newspaper called The Weekender. [7]

As this happens, what appears to be little more than a relatively marginal self-help system becomes in effect an almost mainstream local economy, though one that is partly, at least, insulated from the global economy that would otherwise swallow it up. This partial insulation is critical. That is why LETS cannot he allowed to expand indefinitely by allowing super-markets, and other large enterprises that are integral parts of the global economy, to join, which they may well want to do if these schemes continue to grow. This would clearly be totally self-defeating and LETS must be very vigilant to assure that, whatever the temptations, this is not allowed to occur.

Cahn and Rowe make a number of interesting suggestions regarding the future development of Time Dollar schemes. One is the creation of a new government tax to meet basic social needs, and that can be paid either in dollars or in Time Dollars.

Another suggestion is to introduce Time Dollar schemes into the field of education. A portion of the financial aid to students, whether it takes the form of guaranteed student loans, tuition grants, work-study money and other benefits, would be set aside for students working in Time Dollar schemes. Students would thereby become participants in their own education by doing such things as maintaining their college buildings, tending the gardens, growing and cooking their own food, and looking after the library. Some of these things are already done at Berea College in Kentucky and also at Schumacher College in Devon, England.

The question of State involvement in Time Dollar schemes is clearly delicate. Clearly it is in the interests of the authorities to stimulate both LETS and Time Dollar schemes. Both seek to assure the livelihood of people who otherwise might be seeking unemployment benefits and other welfare payments that the State, operating under the constraints of the global economy, must be ever less capable of providing. For this reason, it should welcome these initiatives, even if they marginally reduce its tax receipts.

This has been one of the objections levelled against these schemes. It is argued that they are just providing benefits that the State and the corporations should themselves provide, and that, in this way, it is discouraged from providing them. There is a certain element of truth in that, but the objection is not entirely fair. By building up local economies, LETS and Time Dollar schemes reduce our dependence on the State and the corporations, making it far easier for citizens to oppose the latter’s socially and environmentally destructive development policies.

Finally, it could be argued that the formal world economy is already tottering on the edge of collapse. The Far East economic crisis we are now experiencing [8] is by no means over, and it might be but a foretaste of what will soon occur elsewhere, as it has already occurred in South America and Mexico, probably on a bigger scale and with more permanent consequences.

Since today a vast proportion of people depend for their sustenance on the functioning of the global economy, this would have the direst possible consequences, but they would be incomparably less dire for those who have organised their own local community-based economies and have thereby partly, at least, insulated themselves from the consequences of such an eventuality.

In any case, as already noted, the formal economy, dominated by the corporations and the State, cannot even, in the most propitious conditions, provide all the benefits that were once provided by the ‘kitchen table world’ that it has so effectively supplanted.

Ralph Nader, in the prologue to Cahn and Rowe’s excellent book, notes how “the serious problems our society faces today come from the erosion of . . . the economy of the family and the neighbourhood”, and “the Time Dollar is a currency designed to reward time spent on rebuilding that economy” – and so, of course, are the LETS. That is why both these schemes are a source of great hope to us all.

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1. New Economics Foundation notes.
2. E. Cahn and I. Rowe, Time Dollars. Emmaus. Pennsylvania. Rodale Press 1992.
3. Ivan Illich, Deschooling Society.
4. G. Dauncey, After the Crash: The Emergence of the Rainbow Economy. Green Print Books, London 1988.
5. L. H. White, Free Banking in Britain. Cambridge University Press, 1987.
6. M. Linton, “Money and Community Economics”. Creation, July/August 1988.
7. Letslink 1994.
8. Walden Bello, “The Rise and Fall of South-east Asia’s Economy”. The Ecologist Vol. 28 No. 1, January/February 1998.
9. Ralph Nader, “Introduction” in Cahn and Rowe’s Time Dollars.
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