Demurrage

= 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:

Definition

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." (http://en.wikipedia.org/wiki/Demurrage_(currency))

Description

Demurrage-based currencies

URL http://www.ascentofhumanity.com/book/7-02-The_Currency_of_Cooperation.html

"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."

Discussion

The two main planks of currency reform, explained by Thelma Weeks:

URL = http://www.margritkennedy.de/english/articles/thelma.html

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.

Examples

An example of Demurrage: Worgl

URL = http://www.worldchanging.com/archives/003575.html

"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."

More Information

The original Free Money proposal by Gesell

Introduction at The Transitioner

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 Fax: +44 (0)1275 464887 Email: alastair@sawday.co.uk 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 www.amazon.com: 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!!!!!!