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2003 update on the Westport LETS, by Richard Douthwaite
In 2003, ten years after it began, the Westport LETS system had withered away to just two members, the one trading with the other. Almost every other Irish system had either disappeared entirely or was in a similar state. This was due to two things. One was a boom in the Irish economy that made it much easier for people to find work and meet their needs without having to resort to 'funny money'.
Two serious design faults common to all LETS systems are the other reason. One fault is easy to explain. It is that a tremendous amount of work is required to run a LETS system because every transaction, no matter how small, has to be recorded twice, once as a debit on the buyer's account, once as a credit on the vendor's. A simpler payment method is needed and it is a pity that the tokens introduced by Westport LETS never went into general use. It is significant that the Argentinean LETS systems quickly abandoned the use of cheques and moved over to paper notes called creditos when the collapse of that country's mainstream economy meant that thousands of people wanted to become LETS members and trade.
The other fault is more serious and less easy to correct. It is that LETS currency is created in the same way as conventional currency - by someone going into debt - but that, unlike conventional currency, LETS systems have no effective way of ensuring that debts are ever repaid. Even the term 'debt' is avoided., with the much more positive sounding phrase 'on commitment' being used instead. Most people who borrow conventional money repay their debts as quickly as possible to minimise the interest charges but as LETS systems don't charge interest, their members are not under this pressure. Instead, the standard LETS design is based on the assumption that, if the state of everyone's account is made public, moral pressure from other members of the system will be enough to force indebted participants to honour the trust placed in them and get back into credit in a reasonable time. Unfortunately, experience has shown that this does not work well even in small systems and becomes totally inadequate when membership numbers grow and the average member is known personally by a declining proportion of the other participants.
When a new LETS starts, the system is small and the group pressure to get out of debt fairly quickly works reasonably well, especially as most members know each other and are enthusiastic about the trading network they are starting. A honeymoon period of 18 months or two years results. However, as time goes by, two types of member become apparent. One type regards the LETS currency in the same way as conventional money. Their gung-ho attitude is: "Great. Let's earn and spend as much of this new money as we can" And they do. They pour enormous energy into the system, working for, or selling to, everyone they can and spending their earnings with panache. The second group, however, is much less energetic. Sure, they like having keen people coming to do things for them, but actually earning the LETS units to pay the system back, well, that's not so good. Working off their growing debts would mean inconveniencing themselves and, as there is insufficient pressure from anyone in the system to force them to do so, they increasingly don't. And so the enthusiastic members inevitably find that they have large credit balances in their accounts that they would like to spend if only they could find anything desirable to use them on while the more laid-back characters who should be meeting the enthusiasts' demands to discharge their heavy debts are not sufficiently motivated to do so. Accordingly, with more LETS units than they know what to do with, the one-time enthusiasts cease to trade. This deprives the system of most of the energy that was driving it along. Consequently, as they are set up at present without any adequate means of ensuring that debts are honoured, LETS operate as near-perfect mechanisms for eliminating their most active and valuable members and devaluing their own currencies.
What few LETS members recognise is that, if their system is to work fairly and well, each accountholder should spend roughly as many LETS unit-days in credit as they do in deficit and vice versa. Such a balance would ensure that everyone only took out of the system as much as they contributed in both value and time terms. With a conventional bank account, anyone not maintaining such a balance pays interest on the shortfall but no LETS system as far as I am aware has a computer programme that allows its members to know how many LETS unit-days they should be in debit or credit to ensure that they have no net debit or credit balance over the course of, say, a year. Moreover, even if a system had the software to make this information available, it would still almost certainly lack a mechanism to force its more debt-prone members into line especially as the idea of forcing members to do anything is against the LETS ethos. Many people join systems attracted by the idea that they rather than a bank manager or a committee will decide how much debt to take on and when to repay it, and once a system has started on this basis, if the experience in Westport is any guide, it is almost impossible to get its members to agree to its reform.
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