Thank you for commenting

Thank you for commenting on my article. I also have an economic background. I am happy to answer any questions. Already i have discussed this with hundreds of people on internet message boards. Debate often was fierce and people sometimes became rude when they ran out of arguments. But also much good advice has been given to me. I will try to go into your comments.

"You are partially correct but the reason that 'no hoarding' works is simply the resulting greater 'velocity' of money."

First: try to see the real miracle in Wörgl. The money circulated 14 times faster and because it was backed by the Austrian Schilling, the money had the same value, and therefore real income rose 14 fold. Even if you are sceptical, this is a fact. If you are still sceptical, you must know that some of the greatest minds in history, like Albert Einstein, supported the idea. You can read that in my bio which is attached to the article.

"This can be accomplished without sacrificing credit. Credit and money lent at an interest rate arguably have also resulted in a growth economy and many more jobs."

Credit can result in growth above potential. Credit may create an economic boom, and therefore an economic bust. In the end the expansion of credit will destroy the economy. Credit is now destroying the US, the EU and the rest of the world. It is clear to see: US money supply is 15 trillion or so, while US debt is 50 trillion or so. Debt can never be repaid because money supply is not sufficient. 35 trillion is gone. Why is that? This is because of the charging of interest. Assuming the average interest rate is 5%, the 50 trillion of debt leads to 2,5 trillion of interest payments, which is 15-20% of US economic output.

To get an understanding of the issue, you can view the documentary "Money as Debt" on our current money system. It is also very entertaining. The documentary lasts 45 minutes and is viewable via the link below:

www.google.com - Money as Debt by Paul Grignon

You will be surprised how the system works, and also how utterly ridiculous it is. The documentary can be understood using only common sense.

"In fact, without credit the US would still be a weak nation. You can have both but the financial markets simply need to be tightly regulated. Our economy is failing now due to lack of regulation not the existence of credit and not because of lending at an interest rate. It is also failing because of the oligarchies that restrict competition and create a very inefficient market environment. Concentration of wealth at the top and a greater disparity between rich and poor slow the economy tremendously."

The more regulation you have, the more government intervention you need. In the end this will destroy the economy. Regulation and efficient markets simply do not go well together, because politicians are often paid for by special interests. If you dig deeper, and you are prepared to question all assumptions, you will find that all problems you mention are just symptoms of a hidden cause, the charging of interest.

"Exotic notions, such as no interest, are intriguing but do not offer a realistic solution. No lending at all would have the opposite effect in the long run."

Of course there will be lending in the natural economy. Zero interest is a very attractive proposition if prices fall. If the economy grows at 5% constantly, and money supply is constant, the real return on a 0% loan will be 5%. That is far better than in any traditional economy. You now get 3% at the bank while money supply grows at a rate of 15% or so.

If money supply is inflexible (fixed) and interest is 0%, banks always have to pick the best borrowers because there is no allowance for risk. This will prevent the economy from overheating when there is a sudden burst in demand for capital. This will also eliminate the bust that will eventually follow. This will also eliminate bad debt.

If the money supply does not increase, the growing wealth will lower the prices of goods and services and therefore the value of the loan will increase in real terms. This is an interest on capital, based on the growth of wealth of the society as a whole. Because the natural economy will be stronger than a traditional economy with interest on money, the return on money lent will probably be higher in a natural economy without interest than in a traditional economy using interest on money.

"The markets work well when they are competitive, that is what Adam Smith meant when he said 'free' markets. He meant free from the destructive effects of monopoly and oligopoly. Oligopoly is the greatest threat to the market and to our freedom. Milton Friedman changed the definition of the free market. He said that in order for a market to be free, the individuals in that market must be free to do whatever they want. That is an abomination of the free market theories of Adam Smith. We also have the problem of a downward sloping supply curve which began with manufacturing. In markets where the supply curve is downward sloping there needs to be serious regulation. Unfortunately, it is in these markets that corporations become the most powerful and influence legislators to keep their markets free from regulation. That type of freedom goes against the free market of which Adma Smitih wrote."

I do agree with Adam Smith completely. As you say, corporations become the most powerful and influence legislators to keep their markets free from regulation. Therefore, regulation will not work well, because politicians and regulators are not to be trusted.

Only the efficiency of markets can be trusted. The true revolution does not come from politics but from the efficiency of markets because natural economies are far more efficient. If traditional economies must compete with natural money economies for capital, they do not stand a chance as soon as the positive return on zero interest is discovered.

If you read again the quotes of the great scientists on www.naturalmoney.org, you may see that it is possible to have medicare, social security, renewable energy, lower taxes and still have a balanced budget. Because the knowledge is spread now, people will see this, and it will be tried. If it is a success, like it was in Wörgl, there is no chance of stopping this. The depression can be over in a matter of weeks, as the famous economist professor Irving Fisher stated. He is not a man to be ignored.

by Bart Klein Ikink (3 articles, 0 quicklinks, 0 diaries, 24 comments) on Wednesday, November 5, 2008 at 2:13:32 AM

Maybe I was not clear enough

I did think about it, but maybe i did not make it clear.

Silvio Gesell was a one of the greatest thinkers mankind has ever seen. He pointed out the right direction. But his thoughts have to be clarified and some minor errors have to be rectified.

Money does not deserve interest because money in itself is not productive. Capital can be productive, and if it is, it deserves interest. If money becomes a tool of power, it will disrupt the functioning of markets, creating a less efficient economy. Even though capital earns interest, this is not a problem, because of the money tax the money cannot be hoarded and extracted from the economy.

Maybe i am still not clear enough. I hope you will tell.

by Bart Klein Ikink (3 articles, 0 quicklinks, 0 diaries, 24 comments) on Wednesday, November 5, 2008 at 2:33:08 AM

There is a money far stronger than gold

From an engineering viewpoint, using systems theory, a natural money economy seems to be the most efficient market economy possible in the real world. If this is true, this has far reaching consequences. Societies implementing this system will not destroy capital but build capital constantly at maximum speed using full employment. Also those societies do not waste resources on financial activity or government intervention. Therefore those societies should be far more wealthy. As a result those societies become more powerful, and therefore natural money systems will replace all other money systems, maybe just because they are only natural. If this is true, banking interests will never succeed in preventing natural money from being introduced worldwide.

A government issuing natural money might be tempted to issue additional currency. But this is not a rational thing to do. First of all, tax income should increase because there is no inflation and money is circulating faster. So there is no rational reason to destroy the system that is bringing wealth. It simply does not make sense. Should the economy slow, and tax income diminish, which probably will not happen, the economy can be revitalised by raising the money tax. This has the same effect as issuing additional currency. Furthermore, if loans are guaranteed as a percentage of money supply, nobody can be harmed. Therefore, from a logical point of view, natural money is the most fundamentally sound money that can exist in the real world.

by Bart Klein Ikink (3 articles, 0 quicklinks, 0 diaries, 24 comments) on Wednesday, November 5, 2008 at 4:05:28 AM

Now it is different

In 1933 only a few people knew of this. They did not have internet and knowledge was only spread slowly.

Even more compelling is the fact that natural economic order is far more efficient. As this knowledge is spread, some governments will try this out, because of the profit motive or the desire for power.

If it is a success, others will copy it. If some do not, they will be forced. Natural economies will be stronger and suck away capital from interest economies, leaving interest economies to starve.

Now that is change you can believe in.

by Bart Klein Ikink (3 articles, 0 quicklinks, 0 diaries, 24 comments) on Wednesday, November 5, 2008 at 2:29:26 PM

Money is not easily to be defined

Aristotle already saw the dual nature of money:
- medium of exchange;
- store of wealth.

Those are conflicting uses. Store of wealth hampers the medium of exchange use. A simple solution is therefore: gold and silver should be a store of wealth and money should only be a medium of exchange. Therefore, gold and silver should not be money.

Maybe i should include this on my site. Anyway, it is not easy to define money, because there are so many forms of money. It is more easy to define money by its use.

by Bart Klein Ikink (3 articles, 0 quicklinks, 0 diaries, 24 comments) on Thursday, November 6, 2008 at 2:45:29 AM

Definition of money

I'd suggest reading Stephen Zarlenga's book, The Lost Science of Money, essentially a history of the concept and its various practical manifestations. From it I would venture to define money as, a token of wealth and unconditional means of payment whose value is defined by law.

by Jim Eldon (0 articles, 0 quicklinks, 0 diaries, 221 comments) on Thursday, November 6, 2008 at 7:29:29 AM

The book is already on my list

If i have the time, i will read it. I already knew of the book. For practical purposes, and for the time being, these definitions will be enough. I have added them to www.naturalmoney.org. Aristotle was a smart guy and he has thought about it long enough to make good observations.

by Bart Klein Ikink (3 articles, 0 quicklinks, 0 diaries, 24 comments) on Thursday, November 6, 2008 at 8:11:27 AM

The two remaining questions

Money tax will not result in inflation, because the money supply will be constant. As the economy grows, more products and services will become available and prices will fall.

The term "natural" is derived from the natural economic order. In general the term is free money, but this includes a wide variety of money types, and therefore it is very confusing to use that word.

The natural money is the search for monetary Holy Grail: the most optimal form of money in terms of efficiency.

by Bart Klein Ikink (3 articles, 0 quicklinks, 0 diaries, 24 comments) on Thursday, November 6, 2008 at 5:10:24 AM

Deflation

If the money supply is constant but industry and commerce is expanding don't you then have deflation? Shouldn't the money supply by increased to match the increase in total wealth in the economy? Something has to give, either the value of the currency or the quantity of it. See Mike Montague's Mathematically Perfected Economy thesis at perfecteconomy.com.

by Jim Eldon (0 articles, 0 quicklinks, 0 diaries, 221 comments) on Thursday, November 6, 2008 at 8:09:35 PM

In a natural economy deflation is no problem

In the current economic system deflation is a problem and people are scared of it. The reason why this is, is not very well known. It is because of credit contraction. Natural economy does not have credit, so it does not have credit contraction. Therefore deflation is no problem at all in the natural economy, because money is spread and circulating fast.

Logically, the size of money supply does not matter at all. Prices will adapt to money supply. There is an economic theory stating that. If you play a game of monopoly of 1930, with notes being far smaller than they are today, the game is exactly the same.

If you take this to the extreme, the world economy can easily thrive on a single dollar or euro, if it is broken up into parts small enough. You may buy a house for 0,00000000015 euro, if there are only a few euros around.

The real problem with money supply is, just like monopoly demonstrates, that the game ends when the winner takes it all. You can extend the game by printing more money and give it to the loosing players. Therefore it is better to prevent money from being accumulated so everybody has a fair chance of playing the game.

by Bart Klein Ikink (3 articles, 0 quicklinks, 0 diaries, 24 comments) on Friday, November 7, 2008 at 1:08:07 PM

More questions

If total wealth is continually increasing and the money supply does not change, then prices, i.e., the value of the currency, must change (prices come down=currency value goes up). But doesn't this create instability and uncertainty in the economy? Doesn't it make more sense to increase the money supply to equal total wealth of the system in order to keep the currency's value more or less constant? Also, what do you mean by "Natural Economy does not have credit"? There's no borrowing?

by Jim Eldon (0 articles, 0 quicklinks, 0 diaries, 221 comments) on Friday, November 7, 2008 at 3:30:46 PM

About expanding money supply

The falling of prices does not create uncertainty but the expansion of money supply does. You never know in advance how much banks and policymakers will expand money supply because of uncertainty about upcoming events and uncertainty about interpretations and reactions of banks and policy makers. This is exactly what market analists try figure out and make a living from because there is so much uncertainty about this.

It is also not very wise to try to keep prices constant for the following reasons:
1. It is very difficult to measure price inflation. You have lies, big lies and statistics. Therefore this is subject to manipulation by policy makers.
2. If there is no deflation, there no incentive to lend money at zero percent interest. This will destroy the economy.

There is of course lending in the interest free economy but there is no credit. All the money borrowed must be money lent. Therefore all money lent must be in savings accounts or deposits. Savers must accept the fact that their savings are locked up in some way.

by Bart Klein Ikink (3 articles, 0 quicklinks, 0 diaries, 24 comments) on Saturday, November 8, 2008 at 3:36:55 AM

Socialism is not the real answer

Even though socialism has something good in it, in the end it does mean the death of personal freedom, personal responsibility and independence. You cannot expect the state to care for your well being as politicians are easily corrupted and manipulated.

These were the words of Silvio Gesell:

The choice lies between private control and State control of economic life; there is no third possibility. Those who refuse to make this choice may, to inspire confidence, invent for the order they propose attractive names such as co-operation or guild-socialism, or nationalisation, but the fact cannot be disguised that all these amount to the same thing, the same abominable rule of officials, the death of personal freedom, personal responsibility and independence.

The proposals made in this book bring us to the cross-roads. We are confronted with a new choice and must now make our decision. No people has hitherto had an opportunity of making this choice, but the facts now force us to take action, for economic life cannot continue to develop as it has hitherto developed. We must either repair the defects in the old economic structure or accept communism, community of property. There is no other possibility.

It is immensely important that the choice should be made with care. This is no question of detail such as, for example, whether autocratic government is preferable to government by the people, or whether the efficiency of labour is greater in a State enterprise than in a private enterprise. We are here on a higher plane. We are confronted with the problem, to whom is the further evolution of the human race to be entrusted ? Shall nature, with iron logic, carry out the process by natural selection, or shall the feeble reason of man - present - day, degenerate man - take over this function from nature? That is what we have to decide.

It will be a solution

Calling interest good or bad is not the way i look at it. Interest has some systemic consequences that have to be examined. It is creating moral hazard and instability in the financial system. Therefore it is a systemic problem. That is explained in more detail on www.naturalmoney.org.

If you read the site, you come accross this:


Natural money promotes sustainable investment choices

When interest on money is charged, money in the future is worth less than money now. This has a major impact on investment choices. Interest promotes investments that are unsustainable and wasteful. If no interest was charged, sustainable investments would be more attractive.

For example: you want to build a house and you have the choice between a house of € 100,000 with a yearly energy cost of € 5,000 or a house of € 200,000 with a yearly energy of € 2,000. When the interest rate is 10 percent, the cost for a cheap house with high energy consumption is as follows: € 10,000 plus interest € 5,000 energy is € 15,000 per year. The expensive house with low energy costs: € 20,000 interest plus € 2,000 energy is € 22,000 per year. If you do not have to pay interest, the expensive house with low energy cost will be cheaper.

Without interest, sustainable investments will be more attractive. Therefore, it is a solution. If Egyptians could build pyramids, using this monetary system, you can imagine that we can make energy and food supplies sustainable and have the resources to work on birth control.

This is of course not only my opinion. This is common knowledge in the field of free economy theory. Also Bernaerd Litaer addresses this in his book "The future of money".

Good response, Bart.

At least regarding interest. I had sensed there was something wrong with interest for a long time--like most of my life--I mean, there is money just sitting on a table, doing nothing, and it is getting "larger" for the party who owns it, with "no one doin' nothing'."

Thus the fat get fatter, while the skinny guys like me run their tush off making more $$$ for them. No goods or services whatsoever come from the fat cat (which includes the paper-shuffling, arrogant, pompous bankers)!

I had put that line in my comment only because someone I respect told it to me and I couldn't refute it very well. Now I can. Thanks!

But there is still a disconnect between the real world, the laws of physics and biology, ecosystems, limited resources, the very planet we live on, and "the economy," which has roots in antiquity, when it made sense to trade clam shells for braided cloth, obsidian, or whatever.

We know more now and should be doing better. A hydrogen based economy may be coming whether we usher it in on purpose or not. It is the upcoming medium of energy exchange, and energy truly represents our latter day slaves.

Another but similar take may be found in Natural Capitalism, by Amory and Hunter Lovins and Paul Hawkins, a book hailed by the late David Brower as the best book of the century (I think it came out in 2000). Check Amazon or www.natcap.org for more info. You won't be able to put it down...

by Daniel Geery (26 articles, 87 quicklinks, 125 diaries, 806 comments) on Thursday, November 6, 2008 at 9:43:07 AM

We need a good monetary theory

In the Netherlands the same kind of organisations do exist, but they are only marginal, just like LETS. This is because the governments do not facilitate natural money systems.

The link between eco systems and renewable resources is also stated in free economy literature, so i did not have to invent this also. Because of the longer term focus of natural economy, and the massive extra wealth generated by the economic efficiency, these things become feasible.

The towns people in Wörgl had so much money, that they started to replant forests. The Egyptians spent their excess wealth on pyramids.

If you examine the Wörgl story, you can see that the existing system was just a hartbeat away from death in 1933. It was only the Austrian central bank blocking the introduction of scrip countrywide that was saving the system. If it was introduced in the rest of Austria, and it had the same kind of success, as it had in Wörgl, the 6 villages and the town, the rest of the world would have copied it within a few years.

A new Wörgl can happen again any moment now, because we are in the same type of crisis. What i did was trying to figure out what the best form of free money will be. If we know in advance what the most efficient type of money is, or we have already thought about this, we are better prepared for the things that probably will come.

The economic depression can be gone in a matter of weeks, if only the will is there to introduce scrip currency, according to professor Irving Fisher.

"The application of Gesell's principle of circulation of money will lead the nation out of the depression within two to three weeks. I am a humble student of this German-Argentine businessman."
Professor Irving Fisher, Yale University, America's greatest economist

Only spreading the knowledge will be enough to make this happen. That is what i am trying to do. If other people help me with this, it will happen.

by Bart Klein Ikink (3 articles, 0 quicklinks, 0 diaries, 24 comments) on Thursday, November 6, 2008 at 2:12:44 PM

Overpopulation and sustainability

I agree with Daniel - regardless of which monetary systems are used, there will more of everything to go around if we can reduce the population, right-sizing it to match the sustainability of the natural resources available. I teach in an area of NYC where some of my students have 6, 8 or more siblings...

The Worgl anecdote is worth thought and consideration, particularly for a new pilot experiment somewhere such as a closed community, town or small city with a closed-off enough economy.

But a similar element was put into place during the recent economic stimulus package where some stores offered extra buying power for redemption of stimulus checks.

I do like the idea of monetary instruments which lose some small percentage of value over time, encouraging quicker use. These notes could be put into circulation right alongside the current money.

by Gustav Wynn (70 articles, 52 quicklinks, 5 diaries, 338 comments) on Friday, November 7, 2008 at 10:08:15 AM

Overpopulation?

A few days ago i heard of a research which stated: "If everybody lived the way they do in the US, 5 earths would be needed." Efficiency can do a lot, see:


Taken from: Wikipedia - Human welfare and ecological footprints

Many developped nations are around the 2 mark. A natural economy will bring the wealth which makes it possible to make ecological footprints even smaller. Many developed countries are already near the 1 mark. This can also be achieved in the US.

So, i am not very pessimistic.

by Bart Klein Ikink (3 articles, 0 quicklinks, 0 diaries, 24 comments) on Friday, November 7, 2008 at 12:54:39 PM

Answer already given

The answer was already given earlier in the thread:


Natural money promotes sustainable investment choices

When interest on money is charged, money in the future is worth less than money now. This has a major impact on investment choices. Interest promotes investments that are unsustainable and wasteful. If no interest was charged, sustainable investments would be more attractive.

For example: you want to build a house and you have the choice between a house of € 100,000 with a yearly energy cost of € 5,000 or a house of € 200,000 with a yearly energy of € 2,000. When the interest rate is 10 percent, the cost for a cheap house with high energy consumption is as follows: € 10,000 plus interest € 5,000 energy is € 15,000 per year. The expensive house with low energy costs: € 20,000 interest plus € 2,000 energy is € 22,000 per year. If you do not have to pay interest, the expensive house with low energy cost will be cheaper.

Without interest, sustainable investments will be more attractive. Therefore, it is a solution. If Egyptians could build pyramids, using this monetary system, you can imagine that we can make energy and food supplies sustainable and have the resources to work on birth control.

This is of course not only my opinion. This is common knowledge in the field of free economy theory. Also Bernard Litaer addresses this in his book "The future of money".

by Bart Klein Ikink (3 articles, 0 quicklinks, 0 diaries, 24 comments) on Saturday, November 8, 2008 at 3:58:42 AM

Well,

So long as 'your leaders' don't want and insist on too many useless pyramids. But look at ours - arms, more arms, ever more arms, plus prestige this and that to feed the fat cats and reward friends and relations, rather than simply not spending, or spending as little as possible.

But why have money, its fictitious 'value' and its lending at all if you can do without it? The only people who need it are those who apparently think it is real enough for them evidently to want it all, and we know who those are, or should do by now. And that, clearly, is sick.

Maybe your version is preferable if compared to the outright rape of the rest and of the planet, but I maintain that your version, too, would encourage activity for the sake of activity in order to get rid of the money the more quickly and therefore 'efficiently' and cheaply. What I am saying is that we can do infinitely better without the existence of any kind of money - period. - Or haven't you, as an economist, considered that.

by Keith Pope (6 articles, 0 quicklinks, 2 diaries, 51 comments) on Saturday, November 8, 2008 at 4:42:09 AM

No money at all, probably will not work

I have heard the "no money" argument many times. But it is a type of communism: everybody adds to prosperity what he/she wants to, and takes what he/she needs. I have not seen a complete economy working like this, so i am quite doubtful it works in the long run. The Soviet Union in the end collapsed because of the power of markets working against it. SU was not very efficient, and the environmental damage there was even worse than it was in the west.

Natural money at least has working examples from history behind it, some successful experiments (Wörgl was not the only case) and some important economists and scientists getting the point (even Keynes, many years later).

As for resource consumption, it does not work the way you think. The system promotes building for eternity, as the pyramids show. Resource consumption will therefore diminish. Because of the 0 interest, there is a mega shift in investment to sustainability, making future wealth even greater. The current system leads to destruction of wealth in the end.

by Bart Klein Ikink (3 articles, 0 quicklinks, 0 diaries, 24 comments) on Saturday, November 8, 2008 at 5:10:20 AM

Half a mo

The people responsible for the 'ism' they called 'communism' also broke it as part of their overall plan, which is why a partially moneyless system in Russia did not work.

But humanity did well enough without money for almost all of its history except for the last five thousand years, with the last couple of centuries of outright plunder. And humanity would do much better now without it, particularly if the things of modernity are used beneficially for all, rather than just so many more efficient ways of eliminating others in the interests of personal greed. No?

by Keith Pope (6 articles, 0 quicklinks, 2 diaries, 51 comments) on Saturday, November 8, 2008 at 6:17:11 AM

Maybe it is the next stage in human development

I think humanity is not ready for this. But you never know what the future might bring.

by Bart Klein Ikink (3 articles, 0 quicklinks, 0 diaries, 24 comments) on Saturday, November 8, 2008 at 8:28:04 AM

Right

It is that, or it is intended to be goodbye for the majority of us - As unequivocally expressed by those who already manipulate our world via their puppets whom they nominate and fenagle into power, as we so clearly see.

Look at the past, and particularly over the recent centuries, and you will have to agree.

We can do better than this. And we have to do better than this.

by Keith Pope (6 articles, 0 quicklinks, 2 diaries, 51 comments) on Saturday, November 8, 2008 at 9:08:58 AM

Therefore we have to take the first step

Changing the monetary system is a first step if a society without money is to be realised. I cannot foresee that. I can only foresee the coming of the interest free economy.

by Bart Klein Ikink (3 articles, 0 quicklinks, 0 diaries, 24 comments) on Sunday, November 9, 2008 at 2:10:07 AM

Then

"Therefore we have to take the first step"

Then . . . . Quick . . . . . March!

by Keith Pope (6 articles, 0 quicklinks, 2 diaries, 51 comments) on Sunday, November 9, 2008 at 9:15:15 AM

Thanks

Thanks. I'll try. And will probably be rewarded with a bullet - Let's see.

Kind regards.

by Keith Pope (6 articles, 0 quicklinks, 2 diaries, 51 comments) on Monday, November 10, 2008 at 1:50:35 AM

The only thing we have to fear is fear itself

We are all mortal. Fear of death is fear of life.

by Bart Klein Ikink (3 articles, 0 quicklinks, 0 diaries, 24 comments) on Monday, November 10, 2008 at 6:55:18 AM