Sacred Economics: Money, Gift, and Society in the Age of Transition (28 page)

Suppose I have twelve loaves of bread, and you are hungry. I cannot eat so much bread before it goes stale, so I am happy to lend some of it to you. “Here, take these six loaves,” I say, “and when you have bread in the future, you can give me six loaves back again.” I give you six fresh loaves now, and you give me six fresh loaves sometime in the future.

In a world where the things we need and use go bad, sharing comes naturally. The hoarder ends up sitting alone atop a pile of stale bread, rusty tools, and spoiled fruit, and no one wants to help him, for he has helped no one. Money today, however, is not like bread, fruit, or indeed any natural object. It is the lone exception to nature’s law of return, the law of life, death, and rebirth, which says that all things ultimately return to their source. Money does not decay over time, but in its abstraction from physicality, it remains changeless or even grows with time, exponentially, thanks to the power of interest.

We associate money very closely with self. As the word “mine” implies, we see our money almost as an extension of our selves, which is why we feel “ripped off” when it is taken from us. Money, then, violates not only the natural law of return, but the spiritual law of impermanence. Associating something that persists and grows over time with a self that ages, dies, and returns to the soil perpetuates an illusion. Though we all know better, we imagine somehow that by adding wealth we add to ourselves and can gain the imperishability of money. We store it up for old age, as if we could thereby forestall our own decay. What would be the effect of money that, like all other things, decays and returns to its source?

We have attached an exponentially growing money to a self and world that are neither exponential nor even linear, but cyclic. The result, as I have described, is competition, scarcity, and the concentration of wealth. The answer to the question I posed earlier, “What has gone wrong with this beautiful idea called money, which can connect human gifts and human needs?” comes down in large part to interest, to usury. But usury itself is not some isolated phenomenon that could have been different if only we’d made a wiser choice somewhere down the line. It is irrefrangibly bound to our sense of self, the separate self in an objective universe, whose evolution parallels the evolution of money. It is no accident that the first highly monetized society, ancient Greece, was also the birthplace of the modern concept of the individual.

This deep link between money and being is good news because human identity today is undergoing a profound metamorphosis. What kind of money will be consistent with the new self, the connected self, and a world in which we increasingly realize the truth of interconnectedness: that more for you is more for me? Given the determining role of interest, the first alternative currency system
to consider is one that structurally eliminates it, or even that bears interest’s opposite. After all, if interest causes competition, scarcity, and polarization, then might not its opposite create cooperation, abundance, and community? And if interest represents the proceeds from the ancient and ongoing robbery of the commons, might not its opposite replenish it?

What would that opposite look like? It would be a money that, like bread, becomes less valuable over time. It would be money, in other words, that decays—money that is subject to a negative interest rate, also known as a demurrage charge.
¹
Decaying currency is one of the central ideas of this book, but before I lay out its history, application, economic theory, and consequences, I would like to say a bit about the term “decay,” which I have been advised to avoid due to its negative connotations.

Why does “decay” seem negative, and “preservation” a virtue? This attitude arises again from the story of Ascent, in which humanity’s destiny is to transcend nature; to triumph over entropy, chaos, and decay; and to establish an ordered realm: scientific, rational, clean, controlled. Complementary to it is a spirituality of separation, in which a nonmaterial, eternal, deathless, divine soul
inhabits an impermanent, mortal, profane body. So we have sought to conquer the body, conquer the world, and arrest the processes of decay. Unfortunately, by so doing we also arrest the larger process of which decay is part: renewal, rebirth, recycling, and the spiraling evolution toward more vastly integrated complexity. Thankfully, the stories of Separation and Ascent are drawing to a close. It is time to reclaim the beauty and necessity of decay, both in our thinking and in our economics.

Early forms of commodity-money, such as grain, cattle, and the like were certainly subject to decay: grain spoils, cattle age and die, and even farmland reverts to wilderness if left untended. There have also been metallic money systems that approximated the phenomenon of decay by incorporating a kind of built-in negative interest rate. A crude example of such a system was in wide use in the Middle Ages in Europe’s
Brakteaten
system, in which coins were periodically recalled and then reminted at a discount rate.
²
In England, Saxon kings recoined silver pennies every six years, issuing three for every four taken in, for a depreciation rate of about 4 percent per year.
³
This effectively imposed a penalty on the hoarding of money, encouraging instead its circulation and investment in productive capital. If you had more money than you could use, you would be happy to lend it, even at zero interest, because your coins would decrease in value if you held them too long. Note that the money supply didn’t necessarily shrink as a result of this system,
since the lord would presumably inject the difference back into the economy to cover his own expenses. This negative interest on money was thus a kind of a tax.

The pioneering theoretician of negative-interest money was the German-Argentinean businessman Silvio Gesell, who called it “free-money” (
Freigeld
), a name that I will adopt in his honor. The system he proposed in his 1906 masterwork,
The Natural Economic Order
, was to use paper currency to which a stamp costing a small fraction of the note’s value had to be affixed periodically. This effectively attached a maintenance cost to monetary wealth. Like any physical commodity, such money “goes bad” (at a rate determined by the value of the stamps required to keep the currency valid). For example, if a dollar bill required a one-cent stamp every month to stay valid, it would depreciate at an annual rate of 12 percent.
⁴

Gesell arrived at the idea of demurrage-charged currency from a different direction than I have. He was writing in an era when almost no one questioned the desirability of economic growth, and visionary though he was, Gesell never doubted (as far as I know) the capacity of the earth or technology to accommodate it forever.
⁵
His primary concern was to remedy the inequitable and unjust distribution of wealth in his time, the unprecedented poverty amidst unprecedented abundance. This he attributed to a huge unfair advantage held by the possessors of money: they possess a “hoardable commodity that is at the same time the money medium.” Other commodities (except possibly land) are not hoardable in the same way that gold or other currency is: they rot, rust,
or decay; are subject to theft or obsolescence; incur storage and transport costs; and so on. He wrote,

But today, as in Gesell’s time, money
is
preferred to goods. The ability to withhold the medium of exchange allows money holders to charge interest; they occupy a privileged position compared to holders of real capital (and even more so to those who sell their time, 100 percent of which disappears each day it goes unsold).
The result is an increasing polarization of wealth because everyone essentially pays a tribute to the owners of money.

A corollary to Gesell’s point is that it is unfair for us to pay simply for the means to make exchanges. Gesell believed that the simple desire to make an exchange should be enough. If I have something to offer that you need, why should we have to pay for the means to give and receive it? Why should you have to pay for the privilege of receiving a gift? This is one of the ways in which Gesell’s money deserves the moniker “free.” As we shall see, a credit system based on depreciating currency allows zero-interest loans. While we must still repay loans, no longer must we pay for them. In that sense, money becomes free.

Gesell advocated currency decay as a device for decoupling money as a store-of-value from money as a medium of exchange. Money would no longer be preferred to physical capital. The result, he foresaw, would be an end to the artificial scarcity and economic depression that happens when there are plenty of goods to be exchanged but a lack of money by which to exchange them. His proposal would force money to circulate. No longer would the owners of money have an incentive to withhold it from the economy, waiting for scarcity to build up to the point where returns on real capital exceed the rate of interest. This is the second reason for calling it “free-money”:
freed
from the control of the wealthy, money would circulate freely instead of coagulating in vast, stagnant pools as it does today.

Gesell saw the interest-bearing property of money as a brake on prosperity. As soon as goods become so abundant that returns on capital investment go lower than the minimum rate of interest, the owners of money withhold it from investment. The money to perform transactions disappears from circulation, and the familiar
crisis of overcapacity looms, with its paradoxical accompaniment of scarcity of goods for the vast majority of people.

The money system in 1906 was quite different from that of today. Most currencies were still, at least in theory, backed by precious metals, and there was nothing like the vast expansion of credit over the monetary base that we have today. Indeed, Gesell viewed credit as a substitute for money, a way for businesses to conduct transactions in the absence of currency. But today credit and money are nearly identical. Current economic theory sees the use of credit as money as a positive development, in part because it allows the money supply to expand or contract organically in response to the demand for a medium of exchange. However, as we have seen, interest-bearing credit not only responds to, but also compels, the growth of the money economy. Moreover, in its present form it is no less subject to scarcity than was money in Gesell’s time.

Although virtually unknown through the second half of the twentieth century, Gesell’s ideas enjoyed a wide following in the 1920s and 1930s and came to influence prominent economists such as Irving Fisher and John Maynard Keynes. Fisher promoted Gesell’s ideas vigorously in the United States, and Keynes offered uncharacteristic praise, calling him an “unduly neglected prophet” and his work “profoundly original.”
⁷
In the turmoil following World War I, Gesell was even appointed Minister of Finance of the ill-fated Bavarian Republic, which lasted less than a year. In the 1920s,
a stamp scrip currency—the
wara
—issued by a friend of Gesell’s, circulated in Germany, but there as elsewhere it took an economic depression to launch it in earnest. Whether in collective life or personal, real change rarely comes in the absence of crisis.

In 1931, a German coal mine operator decided to open his closed mine by paying his workers in
wara
. Because he also agreed to redeem the scrip for coal, which everyone could use, local merchants and wholesalers were persuaded to accept it. The mining town flourished, and within the year at least a thousand stores across Germany were accepting
wara
, and banks began accepting wara-denominated deposits.
⁸
This put the currency on the radar screen. Feeling threatened, the German government tried to have the
wara
declared illegal by the courts; when that failed, it simply banned it by emergency decree.
⁹

The following year, the depressed town of Wörgl, Austria, issued its own stamp scrip inspired by Gesell and the success of the
wara
. The Wörgl currency was by all accounts a huge success.
¹⁰
Roads were paved, bridges built, and back taxes were paid. The unemployment rate plummeted and the economy thrived, attracting the attention of nearby towns. Mayors and officials from all over the world began to visit Wörgl until, as in Germany, the central government abolished the Wörgl currency and the town slipped back into depression.

Both the wara and the Wörgl currency bore a demurrage rate of 1 percent per month. Contemporary accounts attributed to this the very rapid velocity of the currencies’ circulation. Instead of generating interest and growing, accumulation of wealth became a burden, much like possessions are a burden to the nomadic hunter-gatherer. As theorized by Gesell, money afflicted with loss-inducing properties ceased to be preferred over any other commodity as a store of value. It is impossible to prove, however, that the rejuvenating effects of these currencies came from demurrage and not from the increase in the money supply, or from the economically localizing effect of a local currency such as the Wörgl.