Monetary Scarcity

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= It matters hugely that the current monetary system is based on artificially creating scarcity. Today's situation is paradoxical: an abundance of speculative money, but unavailability where it is needed.


The Problem

Bernard Lietaer on the artificial scarcity of the present money system

"For a bank-debt-based fiat currency system to function at all, scarcity must be artificially and systematically introduced and maintained." When a bank extends a loan, the borrower must pay it back with interest, which he competes with everyone else to procure from the limited amount of still-to-be-created money. Governments and their central banks must exercise careful control—through interest rates, margin reserve requirements, and, most important in the present era, purchase or sale of government securities on the open market—over the rate at which this new money is created, a difficult balancing act between tightness, which creates more scarcity, intensifies competition, and leads to bankruptcies, layoffs, concentration of wealth, and economic recession, and looseness, which creates less scarcity, higher inflation, and increased economic activity, but at the risk of runaway inflation and complete currency collapse. In order to prevent the latter eventuality, money must be kept scarce, consigning its users to perpetual competition and perpetual insecurity. (

Bernard Lietaer, on `98% of money streams being speculative'

"Your money's value is determined by a global casino of unprecedented proportions: $2 trillion are traded per day in foreign exchange markets, 100 times more than the trading volume of all the stockmarkets of the world combined. Only 2% of these foreign exchange transactions relate to the "real" economy reflecting movements of real goods and services in the world, and 98% are purely speculative. [...] Unless some precautions are taken soon, there is at least a 50-50 chance that the next five to ten years will see a global money meltdown, the only plausible way for a global depression."

Source: Bernard Lietaer's book, `The Future of Money', cited in

The Solution to Monetary Scarcity?

Greg Martin explains the basic idea behind Monetary Reform, in particular the ideas of Silvio Gesell:

"Basically Gesell proposed a fundamental change to the way money works; instead of collecting interest money should loose value or depreciate over time. Someone who holds a depreciating currency will want to spend it while it still has most of its value. This compulsion to spend will force money to circulate, making it easier to earn money as well.

Depreciating currency is also a fairer type of currency. Usually the person selling something is at a disadvantage to the person who has money. This is because goods are perishable, they go out of fashion and out of date. Money has none of these characteristics; it will be worth the same tomorrow as it is today. For this reason the person with money can afford to wait until the seller agrees to lower his prices. Depreciating currency places both buyer and seller on an equal footing because they both possess something that looses value over time. One does not have a bargaining advantage over the other."


Sylvio Gesell on `why money should rot'

"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."

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Interview with Dr. Bernard Lietaer by Tracy Fernandez Rysavy:

  • TRACY: You’ve also said our current money system, automatically builds in a scarcity factor. Can you explain that?

BERNARD: To understand the reason how scarcity is created, one has to understand the way money is created. Money is created through bank debt. When you go for a mortgage through a bank, they give you $100,000 to buy a house and basically send you out into the world to bring back $200,000 in the next twenty years. The first $100,000 is principal, and the second is interest.

When the banks create the money, they don’t create the interest. They send you into the world to compete with everybody else to get the second $100,000 that never was created and bring it back to them. So if we’re in a world with zero-growth population, goods, services, and money, the problem would be obvious. You would feel it. The way we do not feel it is that there is growth in population, there is growth in production, and growth in money. So basically what you’re doing when paying interest is pay someone else’s principal . Fundamentally, everybody has to compete against everybody else. If you don’t succeed, you lose your house or whatever other collateral was used to obtain your loan.

I have a story that I call the "11th Round Parable." I learned the story in Australia, so I’m setting it in the Australian Outback, in a little village where people don’t know about money. Every week they gather, and people bring hams, chickens, and eggs and barter and bargain with each other.

Then one day, a gentleman comes with a very fancy hat and very shiny shoes, and he observes the market. At one point, he sees a farmer trying to carry 12 chickens around the market to exchange them for a ham—and the farmer is obviously having trouble doing that. So the man starts laughing.

The wife of the farmer says, "Hey, stranger, do you know a better way of getting around with the chickens?"

And the man says, "I don’t know about chickens, but I know a better way of doing all this."

"Oh, really," she says. "What would that be?"

"See that tree in the corner?" he asks. "I’m going to sit under that tree. One of you bring me a big cow skin, and I will prepare something. Bring every family together, and I will explain it to you."

He goes to the tree, and they bring him the skin. He cuts nine little rounds in that skin and puts a fancy little seal in each of those rounds. He gives ten rounds for every family. One round is equal in value to a chicken. So now the villagers can carry those rounds instead of the chickens.

Then he says, "I’ll come back next year and sit under the same tree. I want everyone to bring 11 rounds. The 11th round is the token of appreciation for the improvement that I’ve made possible in your community."

The farmer’s lady asks, "Where will the 11th round come from?"

He says, "You’ll see, you’ll see, you’ll see. Don’t worry."

Do you know what’s going to happen?"


More Information

See also the reading list at Currency Reform - Books