Our present monetary system generates a necessity for endless growth, embodies linear thinking, defies the cyclical patterns of nature, and drives the relentless conversion of all forms of wealth into currency. Furthermore, the concept of interest is the wellspring of our economy's ever-intensifying competition, systemic scarcity, and concentration of wealth. Interest is tied into how we see ourselves as separate, competing subjects seeking to gather more and more of the world within the boundaries of "mine." Today, however, the human identity is undergoing a profound metamorphosis. Part of this shift in our conception of self and world will be a new system of money consonant with the new human being.
Given the determining role of interest, the first alternative currency system to consider is one that structurally eliminates it. One such system, called Frei Geld or "free-money" was proposed in 1906 by Silvio Gesell in The Natural Economic Order. Gesell's free-money bears a form of negative interest called demurrage. Periodically, a stamp costing a tiny fraction of the currency's denomination must be affixed to it, in effect a "user fee" or a "maintenance cost"; another way to look at it is that the currency "goes bad" depreciates in value as it ages. (Of course, today this would be done electronically.)
If this sounds like a radical proposal that could never work, it may surprise you to learn that no less an authority than John Maynard Keynes praised the theoretical soundness of Gesell's ideas (with one critical caveat [1]). What's more, the system was actually tried out with great success, and is again in use today.
The best-known example was instituted in the town of Worgl, Austria, in 1932. To remain valid, each piece of this locally-issued currency required a monthly stamp costing 1% of its face value. This anti-hoarding measure spurred citizens to spend their money quickly, even to pay their taxes early. Instead of generating interest and growing, accumulation of wealth became a burdenmuch like possessions are a burden to the nomadic hunter-gatherer. Worgl's economy took off; the unemployment rate plummeted even as the rest of the country slipped into a deepening depression; public works were completed, and prosperity continued until the Worgl currency (and hundreds of imitators) were outlawed in 1933 at the behest of a threatened central bank.[2]
A similar story transpired in the United States. With national currency evaporating through an epidemic of bank failures, citizens and local governments created their own. By 1933, several hundred cities and even states were preparing to launch, or had already launched, "emergency currencies." [3] Many of these were stamp scrips like the Worgl currency. Despite the vigorous advocacy of prominent economist Irving Fisher, Roosevelt banned all emergency currencies when he launched the New Deal and declared a bank holiday in March, 1933, fearing the new currencies' decentralizing effects. [4]
Today we are at the brink of a similar crisis, and face a similar choice between shoring up the old world through an intensification of centralized control or letting go of control and stepping into the new. It is important to understand that the consequences of a demurrage-based currency system would be profound, encompassing economic, social, psychological, and spiritual dimensions. Money is so fundamental, so defining of our civilization, that it would be naive to hope for any authentic shift in the way we exist in the world that did not involve a fundamental shift in money as well.
Conceptually, demurrage works by freeing material goods which are subject to natural cyclic processes of renewal and decay from their linkage with a money that only grows, exponentially, over time. As established in Part 1 of this text, this dynamic is driving us toward ruin in the exhaustion of all social, cultural, natural, and spiritual wealth. Demurrage currency merely subjects money to the same laws as natural commodities, whose continuing value requires maintenance. Gesell writes:
Gold does not harmonize with the character of our goods. Gold and straw, gold and petrol, gold and guano, gold and bricks, gold and iron, gold and hides! Only a wild fancy, a monstrous hallucination, only the doctrine of "value" can bridge the gulf. Commodities in general, straw, petrol, guano and the rest can be safely exchanged only when everyone is indifferent as to whether he possesses money or goods, and that is possible only if money is afflicted with all the defects inherent in our products. That is obvious. Our goods rot, decay, break, rust, so only if money has equally disagreeable, loss-involving properties can it effect exchange rapidly, securely and cheaply. For such money can never, on any account, be preferred by anyone to goods.
Only money that goes out of date like a newspaper, rots like potatoes, rusts like iron, evaporates like ether, is capable of standing the test as an instrument for the exchange of potatoes, newspapers, iron and ether. For such money is not preferred to goods either by the purchaser or the seller. We then part with our goods for money only because we need the money as a means of exchange, not because we expect an advantage from possession of the money. [5]
In other words, demurrage redefines money as a medium of exchange instead of being a store of value. No longer is money an exception to the universal tendency in nature toward rust, mold, rot and decaythat is, toward the recycling of resources. No longer does money perpetuate a human realm separate from nature.
Gesell's phrase, "… a monstrous hallucination, the doctrine of 'value'…" hints at another effect of demurrageit makes us question the notion of value. Value assigns to each object in the world a number. It associates an abstraction, changeless and independent, with that which always changes and that exists in relationship to all else. It is part of humanity's descent into representation, the reduction of the world into a data set. Demurrage reverses this thinking and removes an important boundary between the human realm and the natural realm. When money is no longer preferred to goods, we will lose the habit of defining a thing by how much it is worth.
Whereas interest promotes the discounting of future cash flows, demurrage encourages long-term thinking. In present-day accounting, a forest that has the capacity to generate one million dollars a year every year into the foreseeable future is considered more valuable if immediately cut down for a profit of 50 million dollars. (The net present value of the sustainable forest calculated at a discount rate of 5% is only $20 million.) This state of affairs 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. The exponential discounting of future cash flows implies the "cashing in" of the entire earth as opposed to an immediate wholesale liquidation of our remaining resources.
Whereas interest tends to concentrate wealth, demurrage promotes its distribution. In any economy with a specialization of labor beyond the family level, human beings need to perform exchanges in order to thrive. Both interest and demurrage represent a fee for the use of money, but the key difference is that in the former system, the fee accrues to those who already have money, while in the latter system it is levied upon them. Wealth comes with a high maintenance cost, thereby recreating the dynamics that governed hunter-gatherer attitudes toward accumulations of possessions.
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. In other words, it puts the focus on relationships, not on "having". The demurrage system accords with a different sense of self, affirmed not by enclosing more and more of the world within the confines of me and mine, but by developing and deepening relationships with others. It encourages reciprocation, sharing, and the rapid circulation of wealth.
In today's system, it is much better to have a thousand dollars than it is for ten people to owe you a hundred dollars. In a demurrage system the opposite is true. Since money decays with time, if I have some money I'm not using right now, I am happy to lend it to you, just as if I had more bread than I could eat, I would give you some. 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 needs to meet immediate needs. As Gesell put it:
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.[6]
No longer would money be a scarce commodity, hoarded and kept away from others; rather it would tend to circulate at the maximum possible "velocity". The issuer would ensure stable prices (P) according to the equation of exchange (MV=PQ) by regulating the amount of currency in circulation (M) to correspond to total real economic output (Q). The same result could be achieved by linking the currency to a basket of commodities whose level corresponds to overall economic activity, as proposed by Bernard Lietaer.
The dynamics of a demurrage-based currency system ensure a sufficient amount for all. This is in contradiction to today's economy in which a surfeit of material goods is coupled with their grossly unequal distribution. Hence the deeper contradiction in which, on the one hand, there are hundreds of millions of people who are unemployed or engaged in trivial, meaningless jobs, while on the other hand there is much important, meaningful work left undonehighlighting a disconnect between human creativity and human needs. "With Free-Money demand is inseparable from money, it is no longer a manifestation of the will of the possessors of money. Free-Money is not the instrument of demand, but demand itself, demand materialized and meeting, on an equal footing, supply, which always was, and remains, something material."[7]
When I look at the poverty of this world, the anxiety, the desperate and destructive pursuit of a fraudulent dream of security, I can hardly stifle a howl of protest. Not because it is unjust, though it is, but because it is so unnecessary! We live, after all, in a world of plenty, and we always have. The present money system and underneath it, the enclosure of the wild into the exclusively owned, has created artificial scarcity where none need exist. It is not food or any other necessity that is scarce; it is money, whose built-in scarcity induces the same in everything else.
In a highly specialized, technological society, most of us need to perform exchanges to live. To do so we need a medium of exchange money. Some people, noting this inescapable fact, can see no alternative but to return to a primitive society, to undo the millennia-long course of civilization, which they quite understandably view as an enormous mistake. The scenario changes if money is used to recreate rather than destroy the social relations of a hunter-gatherer. In those societies, when a hunter killed a large animal, he or she would give away most of the meat, dividing it according to kinship status, personal affection, and need. As with demurrage money, it was much better to have lots of people "owe you one" than it was to have a big pile of rotting meat, or even of dried jerky that had to be transported or secured. 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. As a member of the Pirahã tribe explained it when questioned about food storage: "I store meat in the belly of my brother."[8]
A negative-interest currency is a step toward the gift economies of yore that strengthen and define communities. Describing Lewis Hyde's theory of the gift, author Jessica Prentice writes, "Part of the sacred/erotic energy of gifts is that the receiver cannot accumulate themeither a gift needs to be passed on, or another gift needs to be given so that the gift-giving energy keeps moving. Gifts are about flow, and they are meant to circulate."[9] This is a perfect description of free-money, which like a gift collecting dust in the closet loses its value when kept unused. Free-money reverses the compulsion to constantly expand and fortify the accumulation of the private, the realm of me and mine. Just as interest shrinks the circle of self until we are left with the alienated, mercenary ego of modern civilization, demurrage, the opposite of interest, widens it to reunite us with community and all humanity, ending the artificial scarcity and competition of the Age of Usury.
Demurrage recreates, in the realm of money, the hunter-gatherer's disinclination toward food storage or other material accumulation. It resurrects the ancient hunter-gatherer mentality of abundance, in which sharing is easy and natural, in which there is no mad scramble to enclose the world. It promises a return in spirit to the "original affluent society" of Marshall Sahlins, but at a higher order of complexity. It is not a technological return to the Stone Age, as some primitivists envision after the collapse, but a spiritual return.
Consider the !Kung concept of wealth, explored in this exchange between anthropologist Richard Lee and a !Kung man, !Xoma:
I asked !Xoma, What makes a man a //kaiha [rich man]if he has many bags of //kai [beads and other valuables] in his hut?
Holding //kai does not make you a //kaiha, replied !Xoma. It is when someone makes many goods travel around that we might call him //kaiha.
What !Xoma seemed to be saying was that it wasn't the number of your goods that constituted your wealth, it was the number of your friends. The wealthy person was measured by the frequency of his or her transactions and not by the inventory of goods on hand. [10]
Wealth in a demurrage system evolves into something akin to the model of the Pacific Northwest or Melanesia, in which a leader "acts as a shunting station for goods flowing reciprocally between his own and other like groups of society."[11] Status was not associated with the accumulation of money or possessions, but rather with a huge responsibility for generosity. Can you picture a society in which prestige, power, and leadership were accorded to those with the greatest inclination and capacity to give?
In a system where affluence comes from sharing, our focus is no longer on how to make a living. We focus instead on how to best give of our gifts. A corollary is that money and art are no longer at odds.
Imagine a life where you simply focus on your art, on your gifts, on being of service, in the serene knowledge that your needs will automatically be fulfilled as a matter of course–such an economy is possible. In it, competition is reduced to its proper domain: a yearning for excellence in all that we do. In it, productive work comes from a desire to create a more beautiful world, not to own it; to live and not just survive. We all know in our hearts such an economy is possible. We know it in our dreams, those we deny because we have to "make a living". Life becomes a grim business, a struggle. The Age of Usury presents us with an ineluctable pressure that we can resist but never escape: to make a living is to deny art, purpose, and beauty.
The locution "cannot afford to" reveals just how often money impedes our innate tendencies toward kindness, generosity, leisure, and creativity. Interest-money generates the greed that we mistake as human nature and perpetuates the illusion that security and wealth come from gathering more and more of the world unto the self, carving out a larger and larger exclusive province of "me" at the expense of every other living person, animal, plant, and ecosystem. As well it seems to directly contradict the teaching of karma, which says that what we do to the world, we do to ourselves. In our current money system, giving out to the world means less for me, not more! Free-money reverses this role and brings money into line with karma, reinforcing rather than denying its fundamental principle that by enriching the world we enrich ourselves.
When wealth is separate from accumulation but refers to a richness of relationships, each person's wealth makes everyone wealthier. Art will no longer be limited by what we can afford, for money will be art's ally not its enemy. Business will be the seeking of ways to bestow wealth upon others rather than the stripping of wealth from others. No longer, then, will our lives be full of cheap stuff. Work will no longer be bound to the search for money, but will seek out ways to best serve each other and the world, each according to our unique gifts and temperament. That will be, self-evidently, the way toward richesboth spiritual and financial, for no longer will the two be in conflict.
I would like to comment on the popular New Age idea of "prosperity programming," "opening to the flow of abundance," which is to say, becoming rich through the power of positive thinking. These ideas come from a valid source the realization that the scarcity of our world is an artifact of our collective beliefs, and not the fundamental reality. However, they are inherently inconsistent with the money system we have today. One of the principles of prosperity programming is to let go of the guilt stemming from the belief that you can only be wealthy if another is poor; that more for me is less for you. The problem, illustrated in Part 1 of this essay, is that under today's money system it is true! More for me IS less for "you". The monetized realm grows at the expense of nature, culture, health, and spirit. The guilt we feel around money is quite justified. Certainly, we can create beautiful things, worthy organizations, noble causes with money, but on some level we are robbing Peter to pay Paul. Please understand that I am not suggesting that you not open to the flow of abundance. On the contrary, when enough people do this, the money system will change to conform to the new belief. Today's money system rests on a foundation of Separation. It is as much an effect as it is a cause of our perception that we are discrete and separate subjects in a universe that is Other. Opening to abundance can only happen when we let go of this identity and open to the richness of our true, connected being. This new identity wants no part of usury.
My dear reader, think about it: Is it really who you are to say, "I will lend you money — but only if you give me even more in return"? 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. Interest is slavery. And since the condition of slavery demeans the slaveholder as much as the slave, in our hearts we want none of it.
The metamorphosis of the human sense of self, the transition from an Age of Separation to an Age of Reunion, is underway today, propelled by a convergence of crises that is rendering obsolete the old self, and the civilization that rests upon it. Each crisis springs from a different facet of separation; each facet of separation contains within it the seed of its own demise. Such is today's financial crisis, the culmination of a Ponzi scheme centuries in the making and based on the delusion that a finite planet can support exponential increase forever. Today, unless we find as yet undreamed of sources of natural and social capital to incinerate, that bubble is about to burst.
The longer we hang on, the harder we scramble to apply one technical fix after another to our tottering money system, the more severe the crisis and its subsequent dislocation will be. The eventual result, however, is assured: a new system of money will emerge that is aligned with the priorities of the connected, interdependent self: sustainability, beauty, and wholeness.
Demurrage-based currency is only part of this transition. Due to space considerations I have ignored key pieces of an economy of Reunion, such as full-cost accounting, JAK banking, local currencies, mutual credit currencies, the leasing economy, P2P economics, and industrial ecology. Yet demurrage is the key. An economy that emulates ecological principles cannot rest on a money system that requires exponential growth. The two are inimical. While usury still reigns, all the other pieces will remain marginal. Nonetheless, the efforts of visionaries such as E.F. Schumacher, Paul Hawken, Herman Daly, and countless others are not in vain. They have planted the seeds for a new kind of economy that will heal our ravaged earth.
Money in the Age of Reunion will be an agent for the development of social, cultural, natural, and spiritual capital, and not their consumption. It will be a mechanism for the sharing of wealth and not its accumulation. It will be a means for the creation of beauty, not its diminishment. It will be a barrier to greed and not an incentive. It will encourage joyful creative work, and not necessitate "jobs". It will reinforce the cyclical processes of nature, and not violate them. And it will accompany a shift in consciousness that we are beginning to experience today, a shift toward a connected self in love with the world. That, after all, is the true self, and that is what we will return to as the pretense of everlasting increase collapses.
Notes
[1] Keynes discusses Gesell's work in his 1936 classic The General Theory of Employment, Interest, and Money. He says that the demurrage solution is sound but incomplete. Since currency is not alone in having a liquidity premium, the danger in a demurrage system would be that other forms of money, such as marginal reserve bank-money and commercial paper, would take over the
role currency exercises today, with similar results. This is not a theoretically insuperable difficulty, but it does require a more comprehensive transformation in money than I can describe in this space.
[2] This history draws on Bernard Lietaer's 2001 book The Future of Money.
[3] A list and description appears in Stamp Scrip. Irving Fisher, LL.D. New York, Adelphi Company, 1933
[4] Birch, Dave. "When Monopoly money was real", Digital Money Forum, June 12, 2007,
http://digitaldebateblogs.typepad.com/digital_money/2007/06/when_monopoly_m.html
[5] Gesell, Silvio. The Natural Economic Order, 1906. Trans. Philip Pye. Ch. 4.1
[6] Gesell, Ch.5.5. Gesell also advocated the abolition of land ownership.
[7]Gesell, ch.4.4
[8] Everett, Daniel L., "Cultural Constraints on Grammar and Cognition in Pirahã: Another Look at the Design Features of Human Language" Current Anthropology, Aug-Oct 2005. Vol.46, No. 4
[9] Prentice, Jessica. Stirring the Cauldron New Egg Moon, April 13, 2005. www.wisefoodways.com
[10] Lee, Richard. The Dobe !Kung. P. 101
[11] Sahlins, Marshall. Stone Age Economics, p. 209