LETSystems revisited … and reasonably concisely
When most of us talk about money, we generally mean "legal tender" - money issued by government (or, more accurately, by private banks under government supervision).
The term "legal tender" doesn't mean that other forms of money are illegal. It means simply that this is the only form of money that the law insists, in the absence of additional agreements or contracts, must be accepted in settlement of obligations.
In general, money flows one way, goods and services flow the other way. The "money" flowing one way records a mutually agreed "value" for whatever has flowed the other way.
This is happening all the time. Little payments. Big payments. Tiny payments. Huge payments. Payments potentially from anyone (or any business or organization) to any other. Goods and services flow, and the records of those flows form a counter-flow. Numbers and records. Ledgers. Accounts.
Some of these flows occur locally - within what we might call the "local economy". Some occur between the local economy and what we might call "the wider economy" - the term we use to lump together all the other local economies and everything in between.
When someone (or some business or other organization) does not have sufficient "money" to purchase something, the usual choices are to borrow (at interest) or to do without. Most money is lent by banks or credit card companies or (generally at much higher interest rates) finance companies working at a national scale. Some LT is retained locally (in a very limited sense) when borrowing from a credit union (a savings and loans co-operative) or a CDFI (Community Development Finance Initiative - a not-for-profit lending body with broadly comparable objectives), but these can do little more than scratch the surface, and are ultimately reliant upon banks.
Everybody needs things, and (for most of their lives) almost everybody has the capacity to produce some of the things - whether goods or services - that others need. Those needs and productions don't all occur at the same time, but (in reality - physical, biological, emotional, social and every other kind of real human reality) everyone's needs are pretty much the same, but spread widely over time, and, cumulatively, our productive capacity is more than sufficient to meet those collective needs.
So why are we paying for credit? Why is our access to life's essentials something for which we have to pay - often at a ridiculously inflated rate - to an extractive third party that contributes nothing of essential value to our collective needs? Why is our own future production not sufficient?
After all, we are just moving numbers around - adjusting numbers in an infinitely extensible ledger, albeit one currently beyond our control.
Why don't we all simply record the value (i.e. price) of what we have received from others, and the value of what we have done for others, the value of what we intend to do for others in future (our "commitments"), and when each of these transactions (or trades or flows or exchanges) has occurred in a common ledger? An interest-free, mutual credit, zero sum ledger?
The term "mutual credit" means that each person's immediate needs are met by their own commitment to contribute to meeting the needs of others - in a manner and apportionment not yet know (which is why here we stick to the lazy equation of "value" to price) and at a time not yet known either. The term "zero sum" here means that all accounts add up to zero - which is natural since no interest is charged. All accounts in this ledger start at zero (which they have to - otherwise they would never sum to zero unless some started in commitment, which would hardly be fair or acceptable), and credit is provided by the cumulative commitments of all members.
This is the essence of the LETSystem (sometimes known as the "Local Exchange Trading System" or "Local Energy Transfer System" or "Local Employment Trading System" or just about anything else someone might choose to call it. These names don't really matter. Even the word "local" means different things to different people in different places. It doesn't matter what it's called, only what it does - and what it does depends on how it's used.
Any transaction may involve payment of more than one type. In the case of a LETSystem, each payment combines a portion of LT with a portion of "green" (local) money. The two components are metrically equivalent, meaning that payments using the "local money" can, where appropriate, be taxed using LT (the only form of currency accepted by any governments for taxation).
The picture above is far from complete. The “subsystem” it illustrates is far from self-sustaining, and a much larger and well-interconnected system is required to generate a sustainable abundance. Nevertheless, it addresses one of the common misconceptions about LETSystems.
[Side note: scalar currencies and vector currencies]
The bigger picture - Open Money
There may be many different concepts of "value", and many different conceivable forms of "money" with which to record such flows. We shall return to that later. Above we took the lazy approach of most economists, equate "value" with "price".
"Value" is a slippery term however, and such expressions as "store of value" and "flow of value" are self-referential and ultimately nonsensical no matter how useful that nonsense is to get things done. If the "value" is the price agreed between two parties at a particular place and time, informed by a number of factors (often known only separately to each of the two agents negotiating the "price"), then it is clearly not in any way something that can be stored. If there is no constancy, then whatever is perceived as flowing clearly has no stable or objective value. However, at this point we are interested only in getting things done, so are content to leave the term in as meaningless a state as an economist would - as something rather abstract negotiated within the inescapable madness of what we call "the market".