Get rid of the money system, then get rid of goverrments

It is generally assumed that short term thinking (sometimes at the expense of even the business’ own long term sustainability) is simply the typical norm of our modern civilization. It is generally not appreciated that this process is in fact programmed by the kind of money we are using.

Simply stated, the use, or not, of an interest bearing currency predetermines the kind of investments that will be made in a society. Even less well understood is that we even have a choice in the type of currency used. Indeed, other, non interest bearing currencies, such as demurrage charged currencies, have existed in the past (with extraordinary results) and could become available to us today. A simple metaphor helps to illustrate the effects of interest. Let us suppose that we are asked to choose between two straightforward investments: planting a pine tree or an oak tree (whose maturity takes ten times as long but whose value is also ten times larger). The costs of planting either one are assumed to be the same, say, Euro 10 per tree.

The top portion of the graph below [graphs and other images missing] shows that after growing for 10 years the pine is worth Euro 100 at harvest time, while the oak takes 100 years to reach its maturity, and is then worth Euro 1,000. Let us further assume, for the sake of this example, that all numbers are in constant Euros.

The middle panel of the Figure illustrates the situation when we live in a world with a positive interest rate currency. If one looks at the financial world through the prism of a positive interest rate currency (in our example, at the rate of 5%/year), one sees why one will always invest in pines and not oaks. The pine's value discounted to today is valued at 61.71, but the oak's value seen from today dwindles down to an insignificant 7.60. Therefore, it makes a lot of financial sense to cut down oaks and plant pines, something we are doing metaphorically (and sometimes literally) on a worldwide scale today.

Finally, the bottom portion illustrates what happens when a currency with demurrage is in operation. Demurrage is a time based charge on holding onto money i.e. the reverse of interest.

This may sound like a very strange idea to us today, but entire civilizations considered it quite normal and maintained its use for many centuries (by the Ancient Egyptians for several thousand years; and the Western Europeans for three hundred years during the Age of Cathedrals from the 10th to the 13th century.) Just to put to rest an immediate objection in the minds of today's readers: such currencies were used exclusively as a medium of exchange, and not as a store of value. People would still save and invest in those societies, but in the form of productive assets and not in the form of that kind of money. Now what happens to our little tree metaphor in those societies?

With a demurrage charged currency (also @ 5%/year), oaks become the obvious winners as an oak tree as seen from today would be worth a whopping 168,903!

That this is not just theory is demonstrated by the fact that societies using such currencies in the past would invest with time horizons that look outlandish from our prospective today. For example, their buildings were designed to last forever: we can still visit their temples and cathedrals today. In contrast, how many of our own creations will be standing 800 years from today? So, in our example above, notice that everything has remained the same in this metaphor, except the currency and its intrinsic design.

Short term thinking is therefore not an inherent deficiency of Modern decision makers, but rather the logical consequence of the interest feature of our money. And lest we fault governments and corporations, consider that this same model collectively creates the pressures that push stockholders to be interested only in short term returns at the expense of longer term considerations - including sustainability. So, is it thinkable today to develop a demurrage currency that would realign financial interests with long term thinking?"

Dear friends,


You have pointed out some of the considerations that the buyer has, yes, and you have made this point well; but there are also the considerations -equally important to the effects of a monetary system - of the seller. Bernard Lietaer covers the following point amply in his writings, but to review briefly: In an interest based money system, there is an incentive to liquidate things. Things don't earn interest, only money does. As such, the owners of the forest or of the coal mine are incentivised to sell what they have as fast as they can and turn it into cash so they can earn interest on the money. This drives the price down relative to the cost of labor, thus encouraging consumption of materials: there is a relative advantage to the potential seller of having money vs of having the thing. With demurrage, the cash will diminish toward zero if an excess of the resource is sold, so there is an incentive to sell only what is needed for survival and to keep the rest for the future. The disincentive to sell drives the price of materials up relative to labor, thus discouraging consumption of materials, that is, there is a relative advantage to the potential seller of having the thing vs to having money.

Also, those intending to save a resource would value it higher than those wanting to liquidate it -because it's worth more to them, so ownership would transfer from the potential liquidator to the wannabe preserver. Consider that if debt diminishes over time rather than grows, then it would be far better to borrow money than to liquidate a resource if cash is needed. Owners of resources would borrow against their resources instead of selling them! Monumental effect on resource consumption!

I think it is worth expanding beyond the obvious to some of the more subtle implications: In a money system with a demurrage feature, things of value that can be stored - such as fossil fuels - would be saved for as long as possible, and things of value which cannot be stored -such as human labor, the tidal fluctuation, and wind and solar energy - would be relatively more attractive to use and would thus be put to greater use. As another example, wood products would be more valuable left intact (and so more expensive), because they can be stored in the form of the live trees. Whereas straw, a by-product of grain production, is a substance which cannot be stored and thus cheaper since either sold or quickly lost to the elements. If the owner of forest land is more motivated to keep rather than sell his trees, then straw bale construction becomes a more attractive option since there are many farmers motivated to sell their straw. Under our current monetary system the push is on to extract the wood as fast as possible, so much so that governments subsidize its extraction, and so straw bale construction is discouraged.

The list could go on and on, think of plastics (made from fossil fuels - a non-renewable resource that can be stored), vs alternatives to plastics made from corn and other agricultural crops which can be produced on the same land year after year (land, water and sun cannot be "stored" for long term future use the way oil can by simply leaving it in the ground - and agricultural crops are renewable). Using hemp instead of wood for paper, and natural fibers for carpeting are other examples of changes that would occur as a result of the demurrage caused incentive to owners-of-resources to save rather than liquidate.

A result of demurrage: smaller, longer lasting cars made with the highest possible content of renewable resources that burn fuel made from a high percentage of alcohol derived from agricultural products and by-products - or that use fuel cells charged by wind and or solar power. So,,, with LETS you don't feel rushed to get your massage this year instead of next year and thus you may postpone using some gas - whereas with demurrage you may be in a rush to get the massage, lest your credit be subject to, say, 7% diminishment in value over the next year ;-( a 55 minute massage instead of an hour!) but in the demurrage world, if you treat yourself to that massage today, at least the car is going to be much more efficient and earth friendly, if we even continue to use them. Imagine a world where petroleum is considered more valuable in the ground than it is pouring out the end of a nozzle! Would we now be going into a time of war?

As a person very interested in promoting organic/biodynamic/sustainable agriculture it occurs to me that if money is subject to demurrage a farmer has much more incentive to preserve his soil. Instead of there being a motive (either earning interest on surplus money or paying down interest bearing debt) to extract as much cash crop out of his land today - even at the expense of future fertility, there is now an incentive to build fertility for the future. If only!!! Even if an biodynamic farmer is intent on building his soil he or she is competing for markets with extractive industrial agriculture which is mining the soil and turning farmlands into desert for the sake of interest.

Demurrage may create an incentive not to save monetary credits indefinitely, but it also creates an incentive to purchase things of LASTING value (as a way to save), and it creates an incentive for producers to produce things with renewable resources. If you have the credit now but want your massage next year instead of tomorrow, but don't like the thought of losing 5 minutes of massage time, then next time you are out shopping you could buy something of lasting value worth an hour of your massage therapist's time that she will need next year, and give it to her then as payment. Or just offer to pay her today for a one hour massage next year -she might need the credit and be willing to do this -presto, problem solved. The point is money wouldn't be a store of value, but things of more-lasting-than-average value would be. A demurrage economy would be one in which there is a much higher quality of life. People would be busy creating beautiful things of lasting value out of renewable resources and trading these things with one another. More services and fewer products. Less junk heading for the landfill, not more. Less exhaust spewing out of tail pipes, not more. Human energy more valuable relative to fossil energy.

Leonardo Wild suggests that we shouldn't look to our money system to provide this or that social function such as using demurrage as a way of discouraging liquidation of resources, encouraging creation of things of lasting value, etc. Well that's a bad paraphrase of something he has eloquently said on this topic. And it's a worthy point! (Leonardo is as at least as much a wise philosopher as a writer on - or "engineer" of - money systems.) But I argue for demurrage for the reason of the increasing future uncertainty of being able to fulfill a promise. If it encourages preservation of things-of-value and use of renewable resources, then this would certainly be a fringe benefit.

So I guess what I'm getting at is there are different ways to look at this issue. I appreciate what you are saying about not consuming. I think that is certainly a worthwhile consideration. But as a demurrage believer, I must point out the ways in which it could, if applied on a large scale, encourage the same result in a different and possible more profoundly transformative way.

Thanks again for your time.

Jeff Fairhall

On Saturday, May 14, 2011, Liberty's Hammer and Anvil, hosted by Tom Cryer and Larry Becraft, will broadcast at 3 PM Eastern, 2 PM Central, 1 PM Mountain, and Noon Pacific, and you may listen here:

[link to www.themicroeffect.com]

On the front page of the Microeffect website, look on the left sidebar under both the "Live Internet Stream" and the TME symbol for the gray listen box.

Our guest for today’s show will be Bruce Olley, who attended the recent trial of Bernard von NotHaus of Liberty dollar fame:

[link to www.libertydollar.org]

This case is just one of many indicative of the direction of the feds.

Another way of saying performance bond is: "You gotta have some skin in the game."

If money is a communication, truth in the communication is of the essence.

To restore truth and put some skin back in the game perhaps what is needed is indeed rods as cornucopia says. But not rods of iron - rods of bamboo like the Malaysians use.

Stockades and whips? Cat-O-Nine-Tails?

Anyway; a truth: "In commerce, truth is of the essence."

Zakat has as one of its goals, financial support of militants, and I don't think that should be part of religion, and I realize that tithing might also somehow affect Christian zealotry. Neither of these should funnel time or labor to the militant religious machine. I have explained how COTUS amendments create black markets and how trance states are pervasive, so let us smash these collective entrancements called tithing and Zakat and whatever the third arm of Abraham calls their charity. Well actually, any religion which allows it followers to lend at interest is in direct contradiction to the Cornucopian Amendment philosophy which would surely take the Master's instructions "You received free, give free" to mean that lending at interest and getting rich off foreclosure, repossession, etc, is not a righteous method. Anyone who gives their time/labor to militant theocrats (of any flavor) or their soldiers, is not right. Anyone who uses economic methods to defraud their fellowman or to bring warfare to his neighborhood or area, is not right.

Yeah, military theocrats are as bad as any other gang. I think Jesus is the better of all religious benefactors simply because of his hands off approach and his description of him as Phos Anthropos, aka the light inside all humankind. Jesus refused to become a military theocrat and I think all of his followers should do likewise, and therefore it is then up to the Mohammedans and the Judaist/Talmudists to similarly reject warlike theocracy. Tyranny comes in many flavors, all of which are distasteful to The Master. No godly person can be okay with war as it stands, where children and grannies are used as human shields. That's just bullshit.

To restore truth and put some skin back in the game perhaps what is needed is indeed rods as cornucopia says. But not rods of iron - rods of bamboo like the Malaysians use.
Stockades and whips? Cat-O-Nine-Tails?