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= An economic proposal by Silvio Gesell to make bills lose their value gradually

There seems to be a consensus amongst monetary reformers that a key change would be the replacement of interest with the system of demurrage:


From the Wikipedia:

"Demurrage is a cost associated with owning or holding currency over a given period of time. It is sometimes referred to as a carrying cost of money." (



"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.

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 decay—that is, toward the recycling of resources. No longer does money perpetuate a human realm separate from nature. " (

2. Demurrage-based currencies


"As a matter of fact, there are money systems that encourage sharing not competition, conservation not consumption, and community, not anonymity. Pilot versions of such systems have been around for at least a hundred years now, but because they are inimical to the larger patterns of our culture, they have been marginalized or even actively suppressed. Meanwhile, many creative proposals for new modes of industry such as Paul Hawken's Ecology of Commerce, and many green design technologies, are uneconomic under the current money system. The alternative money systems I describe below will naturally induce the economies described by visionaries such as Hawken, E.F. Schumacher, Herman Daly, and others. They will also reverse the progressive nationalization and globalization of every economic sector, revitalize communities, and contribute to the elimination of the "externalities" that put economic growth at odds with human happiness and planetary health. Given the determining role of interest, the first alternative currency system to consider is one that structurally eliminates it. As the history of the Catholic Church demonstrates, laws and admonitions against interest are ineffective if its structural necessity is still present in the nature of the currency. A structural solution is needed, such as the stamp-scrip system proposed by Silvio Gesell in The Natural Economic Order. Also known as demurrage, Gesell's "free-money" (as he called it) bears a form of negative interest. Every week a stamp costing a tiny fraction (say 0.1%) 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. If this sounds like a radical proposal that could never happen, it may surprise you to learn that Gesell's ideas were praised by no less an authority than John Maynard Keynes himself. What's more, the system has actually been tried out and it worked!

Although demurrage was applied as long ago as Ancient Egypt in the form of a storage cost for commodity-backed currency, the best-known example of instituted in the town of Worgl, Austria, in 1932 by its beloved mayor Uttenguggenberger. To remain valid, each piece of this locally-issued currency required a monthly stamp costing 1% of its face value. Instead of generating interest and growing, accumulation of wealth became a burden--much like possessions are a burden to the nomadic hunter-gatherer. People therefore spent their income quickly, generating intense economic activity in the town. 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 was outlawed in 1933 at the behest of a threatened central bank.

Demurrage has a number of economic, social, and psychological effects that are highly relevant to our discussion. 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 Chapter Four, this dynamic is what is driving us toward ruin in the utter 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."


Good explanation by John Macleod:

"we can see our present form of money as unconscious, unscientific and a source of arbitrary power in free market exchanges. This arbitrary power is the ability to withhold it from the marketplace to gain advantage over suppliers and borrowers. It is the sole unit in economic transactions to be exempt from the second law.

In order to resolve this problem, let’s consider a scientific approach that would enable a money design that accurately reflected goods, life and the second law of thermodynamics:

- Determine the basket of commodities that are used in the global economy: x bushels of wheat, y barrels of oil and so on. Then determine the average storage costs for this global basket of goods needed to maintain them. Say, for example, we find that we find the average storage costs of this global basket are 5% per annum. We could then apply a 5% storage charge per annum for withholding money from the marketplace.

- This, in turn, would create level footing for exchanges as both money holders and suppliers of goods have equal compulsion to meet at the market. As a result, velocity of exchanges and liquidity would increase and in the long run most of the money supply will enter into circulation. This is because the fee would encourage the constant infusion of energy into money while acting as a penalty for money’s idleness.

- The increasing velocity and circulation of money would make it exponentially easier to manage money supply than today. Today, downturns in the economy lead to hoarding, which worsen the problems. In this new case, money would almost always equal demand leading to unprecedented economic resiliency.

- Because of the 5% charge for idleness, money in the future will take on greater value than the present. This would reverse the current trend, where money in the future is discounted in favor of the present. This would make interest free loans attractive to the lender as a means of planning for retirement. It would also create an economic orientation favoring longer term planning and projects that integrate the concerns of society as a whole. Such projects might include developing alternative energy sources, protecting rainforests, improving infrastructures, international development and providing outstanding education for our children.

- This storage fee, which originator Silvio Gesell called demurrage, would encourage everyone to spend what they need, and find other ways to ensure storage of wealth, such as capital investments, loans, etc. The money holder will now have total incentive to lend money for future return. In the long run this fee would internalize the incentive to lend and lead to the voluntary, long-term evaporation of interest. This in turn would release our compulsion for growth and over-competitiveness that interest propagates.

- The reward for long-term thinking would encourage the resurgence of quality and products built to last. This would make planned obsolescence inconceivable. Yet it would improve the position of producers and sellers because of the radical shift in the market dynamics. For the first time in history, buyers would have as much incentive to buy as they have to sell, meaning their position is considerably more secure and predictable." (

Contextual Citations

1. Anthony Migchels:

"Gesell does not want you to save. He wants you to not hoard the means of exchange, but buy real assets. Gold is probably cool for you. Hoard anything, NOT the means of exchange. Money is to exchange goods. To exchange is to circulate. To hoard is not to circulate. Ergo: money is not a good store of value. That’s why Gesell destroyed the store of value function of money. And that’s exactly why his money was so successful, for instance at Wörgl." (

2. 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." (Gesell, Silvio. The Natural Economic Order, 1906. Trans. Philip Pye. Ch. 4.1)


Shann Turnbull responds to the concerns of Ellen Brown on negative interest money (i.e. Demurrage-based):

"the evidence of history is inconsistent with your concern that people would not use depreciating speed money. It was called speed money because according to Professor Fisher (1933: 14) it circulated four times faster than US dollars in normal times and twelve times faster during the Great Depression The efficiency of money is measured by the speed of its circulation.

The acceptance of speed money in competition with the monopoly fiat legal tender funny money adopted by governments very much depends on such factors as the economic conditions and the nature and architecture of speed money. Gesell suggested a stamp (negative interest) of 0.1% per week or 5.2% p.a. Keynes (1936: Chapter 23 part V1) thought this was a bit high. However, initial issues of speed money in Germany in the 1920’s was at the rate of 1% per month or 12% p.a. Later rates of 2% a week or 104% p.a.were used in the US and adopted by the Bankhead-Pettengill Bill of 1933. The US money would become self-liquidating in a year creating a 4% profit for the issuer. 5% negative interest rate would take 20 years to be self-liquidating.

It was because Gesell (1919: Chapter 11) shared your concern of "Products are sitting on the shelves and workers are idle” that he was motivated to create money that did not compete with products that sit on shelves though its ability to earn interest. Depreciating money made people more interested in investing in real things (like products on shelves) that employed people to make them than investing in fiat funny money not definable by any one or more real things.

Not withstanding your concern about folk being “paranoid” about using speed money it began re-circulating during the last decade in Germany - not in a condition of a depression or hyper inflation - but when Germany has been the strongest economy in the Euro Zone. The adoption of the Chiemgauer Regiomoney (Gelleri 200) with an negative rate of 2 % a quarter or 8% p.a. has been impressive. It is tethered and convertible to the Euro. It illustrates speed money by circulating 2.5 times faster than Euros that may earn interest.

The propensity for speed money to compete and replace official fiat funny money could be improved by the way it is created, controlled and/or designed to be better fit for purpose. There are many design options for Terminating, Tagged and/or Tethered (3T) money. We have accounting standards but no standard unit of value that can be defined in terms of anything real!

Money that provided a creditable stable sustainable measure of value would seem to possess compelling prospects for becoming highly competitive and adopted." (email August 2015)

How is demurrage different from inflation

Joseph Shirk:

Demurrage, from Latin, means 'to delay' and is a legal term. In the monetary context, it is a fee established by law. The fee goes the the issuer of the currency. If the issuer is government, demurrage is a tax. Whether the issuer is government or social community, demurrage can be a redistribution of "wealth" (actually, purchasing power). Its effect is to reduce the quantity of money in circulation, resulting in deflation, that is, decreasing prices. It is claimed that it incentivizes spending and disincentivizes money savings. [1]

Inflation is supposed to mean increasing prices due to devaluing / debasement of the currency - loss of purchasing power per unit. It is not a legal fee but rather money-printing, apparently an "unintended" consequence of bad monetary policy. It results in redistribution of "wealth" (actually, purchasing power) away from society to the issuer. It is claimed that it incentivizes deposits and disincentivizes spending.

Overall it is visible that the two ate not the same, and in most ways, opposites." (Facebook, August 2015)

Why demurrage is better than interest

Charles Eistenstein:

"Gesell's phrase, "... a monstrous hallucination, the doctrine of 'value'..." hints at another effect of demurrage—it 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.

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 undone—highlighting 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." (

How Demurrage is linked to the restoration of sharing and gift economies

Charles Eisenstein:

"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.

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 them—either 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. " (

Demurrage and Inflation

Ran Prieur:

"So how do we keep concentrations of wealth shrinking? The way it's been done historically is by setting up money itself to have built-in depreciation. This Charles Eisenstein chapter, The Currency of Cooperation, covers some examples. Another is the Brakteaten system. And several readers have argued that the same thing could be done with inflation, although I think their point was, "Inflation does the same thing as demurrage, inflation ruins economies, therefore demurrage is bad."

The difference is in the context. What we know as "inflation" is not a planned permanent mechanism to create negative feedback in wealth. It's a temporary unintended consequence of an economy designed to create positive feedback in wealth. Interest leads to runaway lending, which creates more and more imaginary money, which leads governments to print more money to keep up with it, so each piece of money is worth less. This is negative feedback, but it's not a negative feedback system. It's not an ocean of water, but water thrown on a fire, and it paradoxically increases the flames, as the money-concentration interests become desperate and extreme in their attempts to continue the "growth" that they feel entitled to." (

The two main planks of currency reform

Explained by Thelma Weeks:


First of all the proposals address two main problems within today's monetary system -

1. The right that Central Banks have to issue money at will, almost without restrictions and without any backing. This right, the uncovered loans and the ensuing interest will have to go.

2. The new system will no longer be built on growth. Without the burden of interest companies no longer need their customers to pay for their loan repayments (an estimated 30% on every article being bought in Europe). This will get rid of inflation and companies can concentrate on production that meets a real need.

The new financial system incorporates the numerous complementary currencies (approximately 5000 at the last count) to sustain the co-operative trade system, alongside the present currencies for competitive global trade. Complimentary currencies - currencies created and issued by co-operating people, used for exchange within a defined context and interest free - are to used wherever appropriate to stimulate local, regional and national trade. They are seen as especially useful to achieve specific aims in specific areas. A lot of these complimentary currencies already exist - e.g. air miles, bonus points barter schemes, LETS, Time Dollars and the Japanese National Health currency. It is further proposed that there is a demurrage (opposite of interest) for currency which is not in circulation('savings accounts') to encourage the use of currency as an active tool for trade and exchange. Money should have the same function in the societal body as blood has in the human body. When it gets stuck it causes problems. For that reason the demurrage has historically proved its viability. The new system will address many existing challenges in our society and have an immediate effect on poverty, starvation and inequality. Not to mention the damage to ecosystems. It will be part of the present emerging paradigm/consciousness shift from fear and insecurity to confidence and trust of a large part of humanity to implement these proposals. If everyone understands where the present system doesn't work and why and more importantly what it obstructs or undermines then we can all focus on the alternatives and the successful experiments that are already taking place and build on them.

What happens to savings under demurage?

Sylvio Gesell:

"Free-Money disproves all predictions; none of the dismal prophecies of its opponents have been fulfilled. It was said that nobody would be able to save, and that interest would rise to unprecedented heights; but the contrary has happened.

When I have saved a sum of money I now do exactly what I did formerly - I take it to the savings bank which enters the amount in my savings book. In this respect nothing has changed. It was said that the sum of money entered in the savings book would be subject to the same rate of depreciation as Free-Money, but that is nonsense. The savings bank owes me so many dollars, American Standard, but not the notes that I handed in. And the standard dollar stands above the notes. If I lend somebody a sack of potatoes for a year, he will not give me back the same potatoes, which have meanwhile rotted, but a sack of new potatoes. It is the same with the savings bank. I lend it $100 and it agrees to give me back $100. The savings bank is in a position to do so, since it lends the money on the same terms, while the businessmen and farmers who obtain money at the savings bank for their enterprises do not keep the money at home. They buy goods for use with it, and in this way the depreciation loss is distributed among all the persons through whose hands the money has passed in the course of the year.

Nothing has changed, then, with regard to the sum to be repaid by the bank. But I now find that I can save a great deal more than formerly.

A socialist attributed my increased power of saving to a general reduction of "surplus value" which, keeping pace with the decline of the rate of interest, has affected all capital (tenements, railways, factories, etc.). The manager of a consumers' co-operative society explained that with Free-Money commercial costs have fallen from an average of 40% to barely 10%, so that for this reason alone I economise 30% on my purchases. And a social reformer attributed my increased saving capacity to the removal of economic disturbances. They may all three be right. The fact is that instead of $100 I now save over $1000 and live more comfortably than before. And for many people Free-Money has made saving for the first time possible.

How was it formerly with my savings book? At every political rumour there was a slump in trade, accompanied by unemployment which forced me to withdraw some of my money from the savings bank. That was a setback, and it was sometimes years before I had filled the gaps in my savings book caused by an industrial crisis. Saving resembled the labour of Sisyphus. I have now regular employment and am no longer periodically obliged to have recourse to the money saved with so many privations.

I now carry my monthly surplus to the bank with astonishing regularity. And what is happening to me seems to be happening to everybody, for there is always a throng at the counters. The savings bank has already repeatedly reduced the rate of interest, and a new cut is announced for next month. It justifies its action by stating that the sums coming in are in excess of those going out. From 4% the rate of interest has in this short period fallen to 3%, and it is said that with the universal introduction of Free-Money it will fall to zero ! And so it will, in my opinion, if present conditions continue.

For while the influx of money into the savings banks is continually increasing, requests for loans are decreasing, since businessmen, farmers and manufacturers, for the same reasons that make saving easier for me, are now able to enlarge their businesses with their own surplus.

The demand for loan-money is shrinking, and the supply is growing, so the rate of interest is bound to fall. For interest expresses the ratio of demand and supply of money loans.

For the filled pages of my savings book the fall of the rate of interest is, no doubt, regrettable, but it is all to the good for the unfilled pages which are far more numerous. For what is interest ? Who pays it ? What I save today is what remains of my wages after I have paid, in my personal outlay, my share of the interest-tribute exacted by the creditors of the State and municipalities, and my share of the interest-tribute demanded by capitalists for the use of houses, plant, provisions, raw material, railways, canals, gas and water-works and so forth. If the rate of interest falls, everything becomes cheaper and my power of saving increases proportionately. My loss on the sums already saved will be compensated ten-fold by my increased savings. My house-rent, for example, amounts to 25% of my wages, and two-thirds of it is interest on the building capital. If, now, the rate of interest is reduced from 4 to 3, 2, 1, or finally 0%, I save and so on of my house-rent, that is 4 - 16% of my wages on house-rent alone! But house capital is barely one fourth of all capital, the interest on which I pay out of my wages. (*Industrial, commercial and agricultural capital, National Debt, capital sunk in means of transport.) If the rate of interest fell to zero I could therefore save a much larger proportion of my wages.

Out of my income of $1000 I was able to save $100 a year. At 4% compound interest that would produce $1236 in ten years. Since the elimination of interest my wages have doubled, so instead of $100 I can now save $1100 a year, or $11,000 in ten years. (*This is on the assumption that the prices of commodities are kept at the same level by the Currency Office. Elimination of the interest that now goes into price, will, in this case be expressed, not by lower prices, but by higher wages. On the opposite assumption, that the prices of goods fell with the rate of interest, wages would remain at the same level. Savings would then increase because of the fall in the cost of living. But the sum thus saved is not immediately comparable with the savings formerly, since commodity prices were then higher.) Should I not therefore rejoice at the abolition of interest ?

So far from injuring me, therefore, the complete elimination Of interest would enormously facilitate my saving. For example, if I work and economise for twenty years and then retire I shall possess:

With compound interest at 4%	$3,024
With interest at 0%	$22,000 

My income from the former sum with interest at 4% would be $120 a year. If I exceed this sum and touch the capital, an annual expenditure of $360 would in ten years exhaust my savings, whereas with $22,000 I can for ten years spend $2,200 a year.

The old notion that gold and interest facilitate saving was a fallacy. Interest renders saving impossible for the majority of mankind; with interest at zero everyone will be able to save, whereas formerly only exceptionally efficient workers or those possessing exceptional courage to face privations were able to practice this bourgeois virtue.

For rentiers the conditions are reversed, if the rate of interest falls to zero. Since their property no longer yields interest, and since, as non-workers, they gain no advantage from the rise of wages resulting from the elimination of interest, they are forced to live on their capital until it is exhausted. The contrast between a saver and a rentier is great. When the workers save, the interest must be found out of their work. Savers and rentiers are not colleagues, but adversaries.

In return for the privilege of drawing interest on my $3,024 savings I must pay $18,976 ($22,000 less $3,024) interest to the rentiers !

Rentiers may deplore the decline of interest, but we savers or saving workers, on the contrary, have every reason to rejoice. We shall never be able to live on interest, but we can live comfortably to the end of our days on our savings. We shall leave our heirs no perpetually-welling source of income, but is it not provision enough to bequeath economic conditions that will secure them the full proceeds of their labour ? Free-Land and Free-Money double the income of the worker, so by the mere act of voting for the introduction of these two reforms I have bequeathed my offspring the equivalent of a capital bearing interest equal to my former wages.

And again, let us not forget that if saving is a virtue that should be preached, unreservedly, to all men, it ought to be possible for all men to practice this virtue without injury to anyone and without destroying the harmony of economic life as a whole.

Now, in the economic life of the individual, to save means to do much work, to produce and sell much, and to buy little. The money taken to the savings bank is the difference between the money received from the sale of our own produce and the money we paid in purchasing the produce of others.

But what must happen if everyone brings produce worth $100 to market, and buys produce for only $90 - that is, if everyone wishes to save $10. How can this contradiction be resolved, how can all men be enabled to save ? The answer is given, the contradiction is resolved, by Free-Money. Free-Money applies the Christian maxim: whatsoever ye would that men should do to you, do ye even so to them. It says: If you wish to sell your produce, buy the produce your neighbour wishes to sell. If you sold for 100, buy for 100 in return. When everyone acts in this manner, everyone will be able to sell his whole produce and to save. Otherwise savers mutually deprive one another of the possibility of carrying out their purpose." (

Critique of Demurrage

Key thesis by "Greg": Interest exists because of the underlying conditions, not just from monetary design:


"Interest is the price paid for the use of borrowed money. Money itself does not pay interest...this is money functioning as stored of value, value lent by one party and borrowed by another that can be exchanged for productive assets. The need for borrowing implies scarcity. Therefore we can infer that interest is truly the price paid for accelerated access to scarce resources. Like all prices, an interest rate is a market signal that enables efficient allocation of these scarce resources - in this case resources being allocated through time, between consumption and investment. This analysis implies two preconditions for the existence of interest:

  • Scarce resources
  • Varying temporal preferences for consumption

Critically, these preconditions refer not only to the monetary system but to the constituents of the economy itself - its productive capabilities and the psychology of its participants. A monetary regime intended to eliminate interest would have to resolve at least one of these conditions in the economy itself."


"This (demurrage) proposal only addresses the currency system without resolving the economic conditions that lead to interest. It seeks to "design" currency without reference to the characteristics of the underlying market it must serve as a proxy for. Whereas the gift economy creates compatibility with new types of abundant value creation, demurrage currency emulates a world of scarce resources - becoming more scarce (depreciating) over time.

Given that our current monetary system exhibits behavior quite similar to proposed dumurrage currencies, we can speculate as to whether such a system would in fact provide a "disincentive against hoarding money." What we observe currently is that people do avoid hoarding cash...but instead of circulating that money they transfer (hoard) their savings into investments - assets that serve a productive function and appreciate over time. The net result is that inflation (demurrage) does nothing to discourage the accumulation of wealth, which is presumably the true goal of demurrage proponents.

What does this mean for interest in future monetary systems? Interest will persist so long as scarce resources persist and market participants endeavor to shift their consumption of those resources through time. Interest will diminish in importance to the degree that productive abundance facilitates a shift away from transactional currency altogether." (


"The examples used by Rushkoff and others like him all come from societies where financial investments are not available. These are societies where there are only two choices - consumption or saving. In modern society we have a third option - investment...and investment provides a financial return because it uses scarce resources in the present to produce more scarce resources in the future.

Once securitized investment enters the equation the demurrage logic breaks down. A market participant who previously had to choose between consumption or depreciating savings, now chooses between consumption, depreciating savings or appreciating investments. This choice simply shifts hoarding in currency to hoarding in investment products. This is exactly what we experience today, inflation (depreciating currency) does not lead to accelerating consumption; instead it leads to investment in inflation protected assets." (


An example of Demurrage: Worgl


"The greatest success stories of complimentary currencies are in picking up ravaged communities and helping to get them on their feet. A primary example that Lietaer and Kennedy cite is the Worgl, a currency created by a small Austrian town during the great depression. The town of Worgl had high unemployment and lacked the money to pay for its normal infrastructure services, so they killed two birds with one stone by printing a local currency they could pay people to do civic work with, and which could only be used in the local area. They also made the value of the currency time-decaying (or "demurring", as it's properly called) by 12% per year, which caused people to spend it rapidly--increasing the "velocity of money", which in a sense multiplies the amount of money in the community. In about one year, Worgl dropped its unemployment rate by 25% and increased public-works investment by 220%, while the rest of Austria slid further into depression. The experiment was only stopped because the Austrian government was worried that its control over the national money system would be threatened. Today in the Brazilian favela of Palmeira, a local currency called the Palma is helping to lift the residents out of poverty; it is working much more slowly than the Worgl did, but it does not circulate as much because its value does not demur over time."

Freicoin: a p2p-based demurrage currency

Freicoin is a peer-to-peer (P2P) currency based on the accounting concept of a proof-of-work block chain used by Satoshi Nakamoto in the creation of Bitcoin.

Unlike Bitcoin, Freicoin has a demurrage fee that ensures its circulation and bearers of the currency pay this fee automatically. This demurrage fee was proposed by Silvio Gesell to eliminate the privileged position held by money compared with capital goods, which is the underlying cause of the boom/bust business cycle and the entrenchment of the financial elite, and has been tested several times with positive results.


0% interest, forever

Freicoin's parameters are carefully chosen to eliminate the basic interest component of investments, called the liquidity premium by economists. Usurious non-zero basic interest distorts the free market, incentivises poisonous greed, excess, and short-term thinking, and perpetuates a vicious cycle of boom/bust recessions.

Sustainable investments

Zero basic interest encourages sustainable investments, as long-term investments tend to be, by removing the time preference implicit inflationary (U.S. Dollar, Euro) or deflationary (Bitcoin) currencies. When business is conducted in Freicoin, participants value present and future holdings equally, and favor sustainable processes.

Stable long-term value

Demurrage forces freicoins to circulate at deliberately high rates. Separation of money's roles as store-of-value and medium-of-exchange allows money to flow when it is needed, in good times and bad. Our careful selection of governing parameters creates a currency whose value is stable with neither price inflation nor deflation." (

More Information

  1. The original Free Money proposal by Gesell
  2. Introduction at The Transitioner
  3. Eisenstein's chapter on The Currency of Cooperation, which cites several historical examples of demurrage currency systems

Key Books to Read

The Monetary Reform Reading List, by Thelma Weeks

For further reference I would recommend the following books by authors who were present or prepresented at the workshop:

1.' Interest and Inflation and Free Money', Margrit Kennedy, the second edition ISBN 0-9643025-0-0 (1995) available from Seva International, Okemos, Michigan: It sets out the problem as it was first conceived by her. ( Silvio Gesell published his major work in German in 1918 called ("Natural Economic Order")

2.'The Little Earth Book' - James Burger ISBN 1-901970-23-X, available from Alastair Sawday Publishing UK. Tel: +44 (0)1275 464891 begin_of_the_skype_highlighting              +44 (0)1275 464891      end_of_the_skype_highlighting Fax: +44 (0)1275 464887 Email: [email protected] This skilfully illustrates the link between the destruction of our planet (environment and resources)and the link to the monetary system. You will find the ideas/theories of many of the participants to the conference briefly explained in this delightful little book with references to the complete texts.

3.'The Ecology of Money', Richard Douthwaite, (Schumacher briefings 4 ISBN1 870098 81 1).

4.'Transforming Economic Life', James Robertson, (Schumacher briefings 1 ISBN 870098 72 2)

5.'New Money for Healthy Communities', Thomas Greco

6.'The Future of Money', Bernard Lietaer, available through This recently published book is not represented in the Little Earth Book and presents a clear, intelligent and easily understandable overview of the present system and its challenges. It introduces the concept of a global currency, the Terra, for co-operative exchange. The book was launched in the House of Commons; see Positive News Spring 2001.

7.'Beyond Globalization', Hazel Henderson (1999) ISBN 1-56549-107-6, Kumarian Press - for the New Economics Foundation.

8.'Recreating Money', Joseph Huber and James Robertson, London 2001

These books offer encouraging reading - even though awareness is created about all the issues that should concern every human being. For the first time I feel that there is a solution in sight and that there are ways in which we can contribute to the outcome - in time or after the event of a collapse. If nothing else we can all help to create awareness of the existing issues and the solutions for when the world needs them and before anything else we can deal with our own emotional blocks around money and abundance consciousness!!!!!!