A Word About Money

by Keith Sharp

I confess: while trying to put my vision together in words that others can understand, I’ve allowed two competing ideas in my mind to mix, but not blend. My vision – its end result – is clear in my mind, but the steps getting there are clouded. Like how government money and private money mix in an economy, but never blend, so have my ideas appeared in my vision.

Bitcoin and LETS are competing forms of money. After studying both currencies, and seeing the different advantages of both, I’ve been trying to merge the two into one workable system.

The temptation to edit and/or remove all mention of one or the other from this blog is great, if only to help eliminate the confusion about money and what I propose. But this blog is more about exploring how money is used in society, and how we can use it to improve people’s lives.

I realize that eliminating confusion is key to introducing any successful alternative currency to a community. People must thoroughly understand the system, whatever it is, before they embrace it and make it work. Therefore it’s imperitive to explore the nature of money.

In its basic state, money is nothing but information. It’s an idea; a concept shared among at least two people. It is not gold, or wheat, or anything tangible. Money is wealth that has been quantified; given a number. Money is the number – representing wealth – that is entered into an accounting ledger. But not all money entries in a ledger represent wealth.

People use different currencies in order to delineate the different kinds of money. Often, people think of currency as money. It is money, but it’s only one specie of money. For example, we use paper Dollars and digitized Dollars, but these are legal tender, a particular kind of money.

Money, capital, wealth – all these words have many different meanings, depending on the context where they are used. For the purpose of this discussion, money is capital is wealth. We create capital when we combine labor and property (which can be intangible, such as an invention) in production.

The imprtant thing to remember is, real capital is created by people. Without labor, there can be no capital. Real capital having real value is created by labor.

The United States has a central banking system called the Federal Reserve System. It issues Dollars. Dollars are the currency that allows accounting entries be made in order that business can commence. The Federal Reserve System does not create money, but merely nominates it in order that accounting entries can be made.

Dollars, Bitcoin, LETS – all are currencies representing capital. Yet each are fundamentally different from one another, because each rely on different modes of being created. Each occur in an economy under different sets of circumstances.

Bitcoin is a digital currency. It is distinguished from Dollars and LETS by its completely decentralized origin. It has value because people see its ability to store value. There is no centralized issuer.

It is comparable to gold, since it is based on a natural resource: mathematical algorithms that must be solved in order for a Bitcoin to be created. In fact, this process is called mining. People use computers to solve the algorithms, in much the same way that people mine the earth for gold.

Since creating Bitcoin takes real labor to produce, it is capital.  And since people see its ability to store value, it has utility. Realizing this, people buy and sell Bitcoin as a commodity. Therefore it becomes subject to the law of supply and demand. Its value goes up and down, depending on how much is available, and how much people want it.

LETS – from Local Exchange Trading Systems – are units of value in a defined economy. LETS are issued by individuals. They exist in mutual credit associations. It is important to understand that LETS exist only  within a defined group of people, and by agreement.  LETS cannot be be used outside of the group that uses them.

In their most basic form, LETS are nothing more than accounting entries. It is possible to create a physical form of LETS, such as coins, paper, or digitized accounting entries, and use them in exactly the same way Dollars are used. The value they hold is decided among the members as the members transact business. They are “backed” by the community’s faith in the issuer – the individual.

There are many working examples of LETS at large in the world today. Here is one working in the US, with apparent success: http://www.ashevillelets.org/

A LETS requires a central exchange, similar to a bank. It provides the service of recording transactions as they are made among the members, keeping track of debits and credits as a neutral observer.

There is no ability to lend at interest, since its purpose is not for profit. Costs associated with performing its function can be captured in the form of fees or dues paid by members. It is nothing more than a central clearinghouse, where people can find information as to the number of debits and credits that are accruing or reducing.

This is the magic of LETS: Where economies are experiencing a lack of capital coming into a community, capital can be created by people who agree to transact business among themselves. This effectively erects a fence of sorts, that unleashes and keeps capital in the community, yet still allows new capital to enter from outside the community.