Money is an extraordinary invention. It enables exchange and cooperation between people on a vast scale, as long as trust can be maintained. Because our planet is now practically full with the impacts of human activity, debt based money, with its compulsion for growth, is now a problem. Other forms of currency that don't have this problem are described here.
The difference between a demurrage charge and an interest charge is that interest is a demand for money in addition to the principal, while demurrage is a charge subtracted from the currency itself. While both are fees for having money, the difference in the impact the fees cause is immense.
Demurrage can be applied in a number of ways, but in essence, it means that if you are paid $100 today and use it right away, you have $100 of purchasing power. If you hold on to it for a month, you would have to pay a “parking fee” of $1, and if you hold on to it for another month, the fee would rise to $2 and so on. Obviously, this is an incentive for you to spend your money sooner rather than later.
Demurrage changes the nature of the monetary system in a number of significant and beneficial ways. Primarily, that currency would no longer be suitable for storing value. In long-term storage, the “parking fee” would reduce your holding to nothing. To receive the full value from one’s income, it would have to be spent within a short while. When it is spent, the people receiving it would also want to spend or invest it as soon as they could. Over and over, the currency would be spent at the first practical opportunity, employing people at each step along the way.
As the saying goes, “Money is like manure. It’s not good unless it’s spread about.” Demurrage currency is structurally suited for
circulation rather than for collecting in piles. The tendency for such a monetary system to stimulate employment is, in itself, a good reason to consider adopting it.
When long-term well-being is thoroughly integrated into economic policy, investment institutions would be focused exclusively on maintaining the world within sustainable bounds. If one wanted to save for the grandchildren’s education, for example, one could invest in such institutions, and they would organize truly beneficial productive work. There are countless things we can do to improve the world around us so that, over time, our security and the opportunities available will be as good or better than at present. Even small amounts of savings could preserve their value through such arrangements.
Most people in those days were farmers. After harvest, they would put
their grain into storage and receive, in exchange, pieces of pottery called
“ostraca,” upon which was inscribed the volume of grain they had
deposited and the date of delivery. The farmer could trade the ostraca for
other goods or services, and anyone could go back to the storage depot and
return the ostraca for the amount of grain it indicated, less a fee to cover
the cost of storage and loss to rodents. The ostraca, which have been uncovered in Egypt by the thousands, were, in effect, a commodity based currency that was traded throughout the population. The grain storage fee was a demurrage charge. Because the storage fee increased with time, those who received ostraca were inclined to invest, rather than hold on to it. Monuments that last forever were one expression, and for the common folk, irrigation systems and other land improvements were others. The productivity so inspired gained Egypt a reputation as the “breadbasket” of the ancient world, a status it enjoyed until the Romans forced it to adopt their monetary system, complete with interest charges. Since then, Egypt has been a “third world” country.
From about 1050 to 1300 AD, several demurrage-type currency systems
existed throughout Europe. In Germany it took the form of “brakteaten”
currency. This currency consisted of silver plaques that were issued by the
local lords, recalled from time to time and reissued in a somewhat thinner
form, effectively creating a demurrage charge. Rather than hoarding this
literally shrinking currency, people invested in durable things. Notable
among these were the grand cathedrals, almost all of which were constructed during that time. In addition to being places for worship, community gathering and festivities, these cathedrals were destinations for pilgrims. A city or town with a grand cathedral attracted pilgrims, and like tourists today, pilgrims would stay in local accommodations and buy local produce. In France, the city of Chartres still earns substantial revenues from people coming to see its cathedral, 800 years after it was completed.
Lietaer points out that not only were most of the great cathedrals built during this time, but records show that mills and other assets were maintained at high levels of upkeep, and the quality of life of common laborers was also very good. Perhaps, relative to their times, better than today.
Demurrage in the 20th Century
Not all examples of demurrage currencies are from pre-capitalist times. In 1930 the owner of a bankrupt coal mine in Germany maintained opera tions by paying miners with “wara,” a local “stamp scrip” backed by coal. The scrip, as monetary notes are sometimes called, had squares on the back where the current month was stamped to keep the money valid. A small fee was charged with each stamp to cover the associated storage costs of the stored commodity. Miners were able to buy their food and other necessities with wara, and the idea spread rapidly throughout the depressed country. By the latter part of 1931, wara were in use throughout Germany. Over 2,000 corporations were cooperating by accepting and paying out wara, and a variety of additional commodities were added to coal to back up the currency. Unfortunately, the German Central Bank asserted its monopoly on money creation and had the experiment prohibited.
In 1932 Herr Unterguggenberger, mayor of the Austrian town of Worgl, decided to do something about the 35 percent unemployment of his constituency (typical for most of Europe at the time). He convinced the town hall to issue 14,000 Austrian shillings’ worth of “stamp scrip,” which were covered by exactly the same amount of ordinary shillings deposited in a local bank.Lietaer speculates, “We will never know for sure whether Hitler would have been propelled to power if the people of Germany had been allowed to continue to solve their problems from the ground up and find employment and dignity in their own communities.” He wonders, “Would it not have been worth letting them try?”
After two years, Worgl became the first Austrian city to achieve full employment. Water distribution was generalized throughout, all of the town was repaved, most houses were repaired and repainted, taxes were being paid early and forests around the city were replanted. It is important to recognize that the major impact of this approach did not derive from the initial project launched by the city, but instead had its origin in the numerous individual initiatives taken in the process of recirculating the local currency instead of hoarding it. On the average, the velocity of circulation of the Worgl money was about 14 times higher than the normal Austrian shillings. In other words, on the average, the same amount of money created 14 times more jobs.
More than 200 other Austrian communities decided to copy this example, but here again the Central Bank blocked the process. A legal appeal was made all the way to the Supreme Court, where it was lost.
Lietaer and co-author Stephen Belgin reveal much more about the institution of money in their book Of Human Wealth: New Currencies for a New World. For more information see ofhumanwealth.com and complementarycurrency.net.
Experiments with locally issued, emergency currencies took place in the US as well. In the 1930s, 400 cities and thousands of
communities and organizations were issuing emergency currencies to enable citizens to trade while the federal currency regime was stagnant. Many of these were stamp scrip and worked so successfully that, in February 1933, bills were presented in the US Senate and the House of Representatives to issue a stamp scrip nationwide. Concerns were raised about how demurrage currency encourages decentralized decision-making. The issue was brought to the attention of President Roosevelt who soon after prohibited “emergency currencies” and
announced the New Deal, with its large-scale centrally directed
projects as a means of getting federal currency back into circulation.
Despite objections from central banks, there is merit to separating the measurement of value and trade functions of money from the storage of value function. Lietaer, who is clearly enthusiastic about such evolution in our trading medium, proposes
that we choose to develop money systems that will enable us to attain sustainability and community healing on a local and global scale. These objectives are in our grasp within less than one generation’s time. Whether we materialize them or not will depend on our capacity to cooperate with each other to consciously reinvent our money.
With all the options available for the creation of money, one can imagine an order whereby the fundamentals of civilization — sewer, water, education, health care and environmental protection — could be secured with interest-free money, where mushrooming fortunes could be kept in check with demurrage currency and where individuals could provide capital to someone else’s enterprise and draw a reasonable interest from the success of that enterprise.
The Bank of Canada was established to maintain the national money
supply. As mentioned above, Article 18 of its charter relates specifically to
situations such as Kingston’s sewer and water works, and other municipal,
provincial and federal infrastructure projects. The Bank of Canada can
manage such accounts as effectively as a private bank. Instead of
setting the interest rate to maximize profit, however, such friendly
loans can charge an interest rate sufficient to match inflation, plus
enough extra to maintain the municipality’s interest in repaying the loan. If all payments are made in an orderly fashion, when the loan is finally retired, the interest payments, minus inflation and management costs, could be returned to the municipality for the continued maintenance of the city’s infrastructure.
For 35 years after the Bank of Canada was established, it lent
money to Canada at nominal interest rates. Since the interest was paid back into the general revenue of the Canadian government, the portion of the nation’s spending that was financed by the Bank of Canada (around a quarter of the budget) was interest free. This arrangement financed much of Canada’s participation in World War II, and afterwards, built houses, roads, schools, universities and hospitals, started Medicare and initiated the Canada Pension Plan.
These things were the products of Canadian ingenuity and labor.
The interest-free money simply enabled Canadians to participate in creating the quality of life of which they were capable. They were good times: unemployment was low, inflation was low, interest rates were low, and public debt was low.
Whether through the workings of a central bank established to
nurture well-being in a country or through local communities creating currencies to accommodate trade among the residents, when money is put into circulation without an onerous interest fee, there is a far greater potential for creativity, trust and cooperation.