Rethinking our Centralized Monetary System: The Case for a System of Local Currencies (Bibliographie

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Writing about inflation, this commentator sums it up neatly:. The root cause of this desire for very low inflation is a desire on the part of the bond-holding classes to see a real return on risk-free investment and deposits. If they want part of their portfolio in risk-free deposits, they should not expect it to maintain its relative wealth. This argument taps into the long tradition of George and Gesell I have drawn upon, which recognizes that people should not be able to profit from the mere fact of ownership.

Holders of wealth are its caretakers, its stewards, and if they do not put it to socially beneficial use, then eventually that wealth should flow away to others who will. Revolutionaries past, recognizing that illegitimacy of most accumulations of wealth, sought to sweep the slate clean through confiscation and redistribution.

I advocate a gentler, more gradual approach. One way to look at it is as a tax on holdings of money, ensuring that the only way to maintain wealth is to invest it at risk or, shall we say, to make wise decisions on how to direct the magical flow of human creativity. Certainly, this is an ability that deserves reward, and herein lies an essential missing piece of Marxist theories of value that ignore the entrepreneurial dimension to the allocation of capital.

A liquidity trap is not a temporary aberration caused by a bubble collapse; it is an ever-present default state originating in the declining marginal efficiency of capital 30 , itself a result of technological improvement and competition. As Keynes pointed out,. As the stock of the assets, which begin by having a marginal efficiency at least equal to the rate of interest, is increased, their marginal efficiency for reasons, sufficiently obvious, already given tends to fall.

Thus a point will come at which it no longer pays to produce them, unless the rate of interest falls pari passu. When there is no asset of which the marginal efficiency reaches the rate of interest, the further production of capital-assets will come to a standstill. As I have argued already, this eventuality has been delayed for a long time as technology and imperialism have transferred goods and services from the commons into the money economy.

As the commons is exhausted, however, the need to remove the interest rate barrier intensifies. Given that the root cause of our economic crisis is the inevitable slowing of growth, and given that we are transitioning to an ecological, steady-state economy, decaying currency proposals offer more than a temporary fix for a stagnant economy; they promise a sustainable, long-term foundation for a permanently nongrowing economy. Historically, economic contraction or stagnant growth has meant human misery: Free-money prevents this from happening by providing a way for money to circulate without needing to be driven by growth-dependent lending.

Combined with the other changes in this book, free-money will have profound effects on human economy and psychology.

We have gotten so used to the world of usury-money that we mistake many of its effects for basic laws of economics or human nature. As I shall describe, a money system embodying a new sense of self and a new story of the people—the connected self living in cocreative partnership with Earth—will have very different effects. The intuitions developed over centuries will be true no longer. Consisting of high levels of sovereign debt, mortgage debt, credit card debt, student loans, and other debts that can never be repaid, the debt bomb was never defused but just delayed.

New loans were issued to enable borrowers to repay old ones, but of course unless the borrowers increase their income, which will only happen with economic growth, this only pushes the problem into the future and makes it worse. At some point, default is inevitable. Is there a way out?

The answer lies in a modern-day version of the Solonic economic reform 2, years ago: At some point, it will be necessary to face reality: Either they can be kept in place anyway, and debtor individuals and nations kept in perpetual servitude, or they can be released and the slate wiped clean.

The problem with the latter choice is that because savings and debt are two aspects of a whole, innocent savers and investors would be instantly wiped out, and the entire financial system would collapse. A sudden collapse would result in widespread social unrest, war, revolution, starvation, and so forth. In order to prevent this, an intermediate alternative is to reduce the debt gradually.

The financial crisis offered a clue as to how this might happen as part of the transition to a negative-interest economy. When crisis threatened major financial institutions with insolvency, the response by the Federal Reserve was to monetize bad debts, which means that it bought them—exchanging toxic financial instruments for cash. It continues to monetize government debt which is also unlikely ever to be repaid through the quantitative easing program. At some point, to avoid total collapse, similar measures will be required in the future on an even broader scale.

The problem is that all this money goes to creditors, not debtors. Debtors do not become any more able to pay; nor do the creditors become any more willing to lend. They received face value for them, and then, adding insult to injury, invested the cash in risk-free bonds, paid it as executive bonuses, or bought up smaller institutions. Meanwhile, none of the underlying debt was forgiven the debtors.

The program therefore did nothing to ameliorate the polarization of wealth. What would happen if debt were monetized into free-money? As for the debtors, the monetary authority could reduce or annul their debts by any amount it thought appropriate which would likely be determined through a political process. This might involve reducing the interest rate to zero or even reducing the principal.

So, for example, interest on student loans could be reduced to zero, mortgage principal cut to prebubble levels, and third-world sovereign debt forgiven entirely. While it is true that this monetization of debt could vastly increase the monetary base, because the money would be subject to demurrage, it would naturally shrink back again over time. The monetary authority could also shrink it more quickly by selling the restructured debt on the open market. If the big banks and financiers are permitted to keep their lucre, at least in exchange they should accept a system tilted against further accumulation.

Yes, the financial interests stand to lose, albeit gradually, from this proposal, but what is the alternative? The increasing polarization of wealth is not sustainable. Each time, the solution has been yet more debt, which is shifted from individuals and corporations to nations, and back again, always growing. Unless the Irish economy grows by more than 6 percent a year impossible given the harsh austerity measures upon which the loans were conditioned , the problem will reappear in a few years and be even worse.

We are merely kicking the problem into the future. They want more and more for themselves. It can be sustained only as long as the rest of society is willing to accept worsening conditions: But when it happens—and it could happen simultaneously in many debt categories—let us face the truth. The concentration of wealth, and the usury behind it, must end.

We may have no choice but to rescue the wealthy, for each part of the global economy is connected to all the others, but let that rescue come at a price: Amid all the technical details of money and finance, let us not lose sight of the heart of this endeavor: It feels strange to say that money is a key part of the more beautiful world my heart tells me is possible, because money has long been repellant to me as an obvious cause of so much ruin and evil. However, our repugnance toward money is based on what money has been, not on what it could be.

Negative-interest money, backed by things that are sacred, in an ecological economy, turns the intuitions of the Age of Usury on their head. It is utterly revolutionary, fundamentally altering the human experience.

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This transformation reverberates across all levels, from outer to inner, from the economic to the spiritual. It is part of the Ascent of Humanity to dominion over nature. Lowering interest rates below the zero lower bound makes investments possible that have a zero or negative return on capital. Does this idea sound counterintuitive to you? It is counterintuitive, but only because our intuitions have been so conditioned by a centuries-long culture of growth that we can barely conceive the possibility of another function of money, or of a business model not dependent on profit.

Of course we have nonprofit organizations, but these are fundamentally distinct from for-profit businesses. This is a distinction that will fade. Here is an example to bring home how weirdly counterintuitive this is. Here is my business plan. Another way to understand the dynamics of decaying currency is that, like inflation, it reverses the discounting of future cash flows. In The Ascent of Humanity I offer the following example:. Whereas interest promotes the discounting of future cash flows, demurrage encourages long-term thinking.

This discounting of the future results in the infamously short-sighted behavior of corporations that sacrifice even their own long-term well-being for the short-term results of the fiscal quarter. Such behavior is perfectly rational in an interest-based economy, but in a demurrage system, pure self-interest would dictate that the forest be preserved. No longer would greed motivate the robbing of the future for the benefit of the present. Imagine you are the President of the World and receive the following offer from aliens: We would like to make you an offer: True, we plan to extract all of its resources, destroy the topsoil, poison the oceans, turn the forests into deserts, and use it as a radioactive waste dump.

Through a million little choices every day, we are cashing in the earth. And this is all quite economic.

It seems absurd, but within the logical construct of usury it is quite rational. This argument buys into the basic assumption that causes so much trouble to begin with: Yet despite the fact that everyone approves of it, sustainability has been fighting a losing battle against profit. At every turn they must fight the money power, which helplessly seeks short-term profit even at the expense of its own long-term survival. With interest rates below zero, the opposite thinking prevails. Imagine again that you are President of the World.

At negative interest, in fact, no amount of money would be enough to cash in the earth, because money in the future is actually more valuable than the same quantity of money in the present, and its future value increases exponentially with time. I realize my example of cashing in the earth is far-fetched and that one could construct an economic argument challenging it.

With negative interest and depreciating currency, no longer will our ideals do battle against our economic self-interest. Consider a practical example. Suppose you are considering whether to install solar panels to power your business. But if interest is zero or negative, the decision becomes economic. Today people are already making such decisions even though they are uneconomic, because the truth in our hearts contradicts economic logic.

In our hearts we know that the ideology that equates money with the good is wrong. We need to bring money and goodness back into their promised alignment. But if interest rates are negative, that logic no longer holds. The internalization of external costs works synergistically with decaying currency to make money a force for good. The former aligns private interest with public interest; the latter promotes long-term thinking over short-term thinking. Although both are improvements on the current system, neither by itself will guarantee a sustainable world. Together, they align economic decisions with the long-term interests of society and the planet.

We have many needs that we prefer to fulfill now rather than in the future. If we are starving, we would rather have one meal today than a hundred a year from now. The Austrian School of economics especially, but more generally neoclassical economics as well, extrapolates from such examples to claim that it is human nature to want to consume as much as possible right now. In their view, interest is a kind of compensation for deferring consumption, a reward for delayed gratification.

This is known in economics as the time preference postulate. Time preference—our supposed preference for immediate consumption—is crucial to the discounted utility model developed by Paul Samuelson in the s that lies at the foundation of most mainstream economic theory today. Moreover, in the lone mathematical economics paper I discovered addressing demurrage-based currencies, the time preference postulate was the key variable in constructing a specious demonstration that such currency harms the public welfare.

The Keynesian logic I have deployed minimizes time preference. Keynes did not dismiss it altogether but said that human beings naturally tend to spend a smaller proportion of their income as their income rises. But the greater your income, the less urgency there is to spend it. Keynes believed therefore that people have a propensity to save without needing an incentive interest to defer consumption. Indeed, he thought that this propensity to save can be destructive when it leads to concentration of wealth.

That is why he was sympathetic to low or even negative interest rates. In reading some of the literature from the late s and s, I was struck by the intensity and thinly disguised emotionality of the criticism directed at Keynes by establishment economists. First, his idea of a natural tendency to save essentially claims that money itself is subject to diminishing marginal utility—the more I have of it, the less useful each additional dollar is to me. In fact, they define it that way and state the base assumption that human beings seek to maximize self-interest by maximizing money.

If we reject the linear equation of money and utility i. We deny as well the utilitarian argument for wealth-maximizing capitalism, opening the door to ideas that emphasize equitable distribution of wealth instead. Mathematically, if money is subject to diminishing marginal utility, the optimal distribution of money is: Offering a justification for the redistribution of wealth away from the rich, Keynesian thought is, quite naturally, anathema for the ideologues of the rich.

Consider again the opposite view, exemplified by the classical economists and Austrian School advocates, that people are by nature profligate. As the nineteenth-century economist N. No supply of loanable funds could exist without previous savings, that is, without abstention from some possible consumption of present goods an excess of current production over current consumption. Interest, then, is a reward for thrift, for self-restraint. In this view we find an echo of some of the deep, hidden ideologies underlying our civilization; for example, that human progress both spiritual and material comes through winning a war against nature: Abstemiousness becomes a high virtue; without it, this ideology goes, we would be no better than animals.

We would not have ascended into a separate and better human realm, removed from nature. Karl Marx put it thus:. The cult of money has its asceticism, its self-denial, its self-sacrifice—economy and frugality, contempt for mundane, temporal, and fleeting pleasures; the chase after the eternal treasure. Hence the connection between English Puritanism, or also Dutch Protestantism, and money-making. This mentality pervades our culture. You must delay gratification. You must restrain your desires with the thought of future rewards.

Pain now is gain later. Do your homework for the grade. Go to work for the salary. Do the workout to be healthy. Go on a diet to be thin. In all of these things we apply a regime of threat and incentive designed to overcome our laziness, our selfishness. Interest becomes a motivator in the war against the self, the overcoming of our wanton improvidence. But is this really human nature?

Is it really our nature to consume and over-consume without thought for other people, other beings, or our own future? The ancient Greeks, not given to overly charitable views of human nature, had it right. As Aristophanes said, in all things—bread, wine, sex, and so on—there is satiety. Our needs are limited, and when we have fulfilled them, we turn to other things and are moved to generosity. After attaining a surfeit of consumables, people covet money itself, not what it can buy, and this desire has no limit.

Neoclassical economics and the Austrian School has it backwards, and Gesell and Keynes were right to seek to strip money of at least some of its unique features that make desire for it limitless. Keynes was aware—indeed he explicitly stated—that the dominance of liquidity preference over time preference was a foundational assumption of his theory: Of course, for some people—food addicts, sex addicts, alcohol addicts—there is indeed no satiety in those things Aristophanes listed.

Does this prove that human beings are greedy after all? Actually, the example of addiction illuminates what is wrong with money. Addiction happens when we use something as a substitute for what we really want or need—food, for example, as a substitute for connection; sex as a substitute for emotional intimacy; and so on. Money as universal end becomes a substitute for many other things, including those very things that the money economy has destroyed: Now in a money economy, we can actually exchange any commodity for any other commodity, just not so readily, via the medium of exchange money.

Why then, should we prefer money to other commodities? Excepting cases in which we have a need that must be met swiftly, which indeed justify keeping on hand modest amounts of the medium of exchange, the only reason to prefer money is that it does not suffer loss in storage. The imperishability of money makes it not only a universal means, but a universal end as well.

By making money impermanent, we preserve it as means but not as end and in so doing inspire a conception of wealth radically different from anything we have known. With the introduction of free-money, money has been reduced to the rank of umbrellas; friends and acquaintances assist each other mutually as a matter of course with loans of money. No one keeps, or can keep, reserves of money, since money is under compulsion to circulate. But just because no one can form reserves of money, no reserves are needed. For the circulation of money is regular and uninterrupted.

This is a profound shift. Most economists consider medium of exchange and store of value to be defining functions of money. But combining these two functions into a single object begs trouble because a medium of exchange needs to circulate to be useful, while a store of value is kept stored away from circulation. This contradiction has, for centuries or more, created a tension between the wealth of the individual and the wealth of society. The tension between the wealth of the individual and the wealth of society reflects the atomistic conception of the self that has risen to dominance in our time.

A money system that resolves this tension therefore promises profound consequences for human consciousness. Gifts cement the mystical realization of participation in something greater than oneself, which is yet not separate from oneself. The axioms of rational self-interest change because the self has expanded to include something of the other. In an economy based on free-money, wealth means something quite different from what it means today and in fact takes on much the same character that it had in primitive, gift-based societies.

In hunter-gatherer societies, which were generally nomadic, possessions were a literal burden. In sedentary agricultural societies as well, possessions such as cattle and stores of grain, while sought after, did not give the same degree of security as being embedded in a rich web of social relationships of giving and receiving. Grain can rot and cattle can die, but if you have been generous with your wealth to the community, you have little to fear.

Free-money reintroduces the economic mind-set of a hunter-gatherer. In a negative-interest system, unless you need to spend the money right now, the opposite is true. If I need some in the future, I can call in my obligations or create new ones with anyone within my network who has more money than he or she immediately needs. Similarly, when a primitive hunter killed a large animal, he or she would give away most of the meat according to kinship status, personal affection, and need. Why would you even want to, when your community is as generous to you as you are to it?

Security came from sharing. The good luck of your neighbor was your own good luck as well. If you came across an unexpected large source of wealth, you threw a huge party. Kung concept of wealth explored in this exchange between anthropologist Richard Lee and a! The wealthy person was measured by the frequency of his or her transactions and not by the inventory of goods on hand.

Can you imagine a society where the greatest prestige, power, and leadership accord to those with the greatest inclination and capacity to give? Such was the situation in archaic societies. Status came through generosity, and generosity created gratitude and obligation. To be a lord or king, you had to hold sumptuous feasts and give lavish gifts to peers and underlings. We have an especially clear example of this in the Nibelungen, the great German saga of the high middle ages that draws on source material from much earlier.

When Kriemhild, widow of the great hero Siegfried, starts lavishly giving away the hoard she inherited from him, the king feels so threatened that he has her murdered and the treasure dumped into the Rhine where it remains to this day! The zero-interest loans in a free-money economy are analogous to the gifts of yore. While such loans may appear to violate the gift principle that the reciprocal gift not be specified in advance, they are gifts: In ancient times, the obligations and expectations generated by gifts were socially determined.

The same is true here: Underlying these specific forms, the dynamic is equivalent: It is just that simple, an expression of the innate generosity of the human being I described in Chapter 1. All that is needed is a money system that encourages, rather than deters, that generosity. No miraculous change in human nature is necessary. As I describe it in The Ascent of Humanity ,. Whereas security in an interest-based system comes from accumulating money, in a demurrage system it comes from having productive channels through which to direct it—that is, to become a nexus of the flow of wealth and not a point for its accumulation.

It encourages reciprocation, sharing, and the rapid circulation of wealth. In economics terms, this would happen only if the demurrage rate were too high, leading to a preference of goods over money as a store of value. Natural resources are finite, and we have used them nearly all up. The problem is that we have treated them as if they were unlimited. In answer to this concern, consider first whether our currency of scarcity has actually limited our consumption of scarce resources.

The scarcity of money has aggravated their conversion into money. It is an attitude of scarcity, not of abundance, that has led to the depletion of our natural commons. Competition and the accumulation of more than one needs are the natural response to a perceived scarcity of resources. The obscene overconsumption and waste of our society arise from our poverty: In contrast, the natural response to an atmosphere of abundance is generosity and sharing. This includes sharing within the human realm and beyond it as well. Is it from an attitude of scarcity or abundance that someone buys fifty pairs of shoes?

Is it the secure person or the insecure person who buys a third sports car and a 10,square-foot house? Whence this urge to own, to dominate, to control? It comes from a lonely, destitute self in a hostile, ungiving world. Free-money embodies the spiritual teachings of abundance, interconnectedness, and impermanence. These teachings, however, present a truth that is in conflict with the world we have created through our beliefs, in particular that set of beliefs that composes the story of money. It is time to get used to a new world, in which we no longer try to get rich by keeping, by hoarding, by having.

It is a world in which we are rich by giving. We do indeed need to take on an attitude of abundance and to create a world that embodies it. My dear reader, think about it: When we need money to live, is that not a formula for slavery? Significantly, the forgiveness of debts for which Solon was famous was prompted in part by the indebted servitude of a growing proportion of the population.

Today, young people feel enslaved to their college loans, householders to their mortgages, and entire Third World nations to their foreign debt.

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And since the condition of slavery demeans the slaveholder as much as the slave, in our hearts we want none of it. If you lend money to someone, is it really who you are to hold that obligation over her head, forever and ever? Interest on a loan amounts to that: It lacks that threat of life-long debt slavery.

A negative-interest money system reinforces this salutary tendency, native to all of us, to let go, release the past, and move on. Demurrage originally referred to a storage cost for goods, for example in addition to freight shipping costs. The goods for which it could be exchanged have upkeep costs, carry costs, and storage costs; therefore so should the money. The disadvantage of this term is that it is unfamiliar to most people and awkward. Depreciating currency captures the idea that the value of the money declines with time.

Unfortunately, the term is easily misunderstood to mean a depreciation in the purchasing power of the currency itself, rather than in the value of each token unit of it. Usually, depreciation refers to the value of a currency in relation to other currencies. Review "This extremely interesting and provocative book should be read by all concerned about establishing an effective payment system, and especially by those who believe that the creation of a national currency represents the penultimate development of a monetary system Bibliographies and Indexes in Law and Hardcover: Praeger January 19, Language: Be the first to review this item Amazon Best Sellers Rank: Related Video Shorts 0 Upload your video.

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Rethinking our Centralized Monetary System

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