the plan for the future
November 4, 2008 - May 20, 2009
Author: Bart klein Ikink
We live in an economic system that is very inefficient. The consequences of these inefficiencies are clearly visible in the form of the credit crisis. Many companies will go bankrupt because of lack of demand, even though they make useful products. Many people will become unemployed, so demand falls back even further. Governments and central banks are intervening, which disturbs the functioning of markets. This enables inefficient companies to remain in business when they benefit from government intervention and the intervention in the financial system by central banks.
Now we are at the point that the authorities have taken over most banks. In the future the state will place banks under strict supervision, so that the state will decide who gets money and who does not. This is the global communist revolution of October 2008.
It is possible to achieve a much greater prosperity, with maximum capital growth without inflation, large debts, economic crises, unproductive government intervention and the unproductive part of the financial sector. Natural selection will ultimately determine the most efficient economic system, despite the political power structures that still exist at this moment. The investigation of alternatives and dissemination of knowledge will accelerate this process, but the ultimate outcome will not change. The most efficient economic system is, I believe, a variant of the economy of the natural order, which was first described by Silvio Gesell.
In this article I will show in 12 short steps how the economy of the natural order will work. Then I will give a real world example of the economy of the natural order, showing that it works as described. Then I will illustrate the strength of the economy of the natural order, using examples from history. On www.naturalmoney.org the theory is described in detail.
The charging of interest is the way to slavery. This is because people may be hoarding money for a rainy day. When more people do this simultaneously, money is removed from circulation, weakening the economy. When this happens, even more people will start hoarding money, because they expect times getting worse. This is the beginning of an economic crisis. Many people will lose their income, and if they do not have money, they must borrow money against interest for unavoidable expenses such as food. As a result, the situation becomes even worse.
Abolition of interest is the way to freedom. Free people are more productive than slaves. Abolition of interest will therefore lead to greater prosperity.
The 12 steps
The following 12 steps will lead to freedom and wealth:
If you do think this will not work, you are wrong. It has been tried and it worked very well.
The miracle of Wörgl
In the past, money systems without interest on a small scale existed in various forms and many were successful. They still exist today. The success of natural money will depend heavily on the rules of the system. The most stunning success story is the Wörgl currency (see also: The New Civilization Network - Wörgl's stamp scrip: The threat of a good example).
On July 5th 1932, in the middle of the Great Depression, the Austrian town of Wörgl made economic history by introducing a complimentary currency. Wörgl was in trouble and was prepared to try anything. Of its population of 4,500, a total of 1,500 people were without a job and 200 families were penniless. The mayor Michael Unterguggenberger had a long list of projects he wanted to accomplish, but there was hardly any money with which to carry them out. These projects included repaving the roads, streetlights, extending water distribution across the whole town, and planting trees along the streets.
Rather than spending the 40,000 Austrian schillings in the town’s coffers to start these projects off, he deposited them in a local savings bank as a guarantee to back the issue of a type of complimentary currency known as 'stamp scrip'. The Wörgl currency required a monthly stamp to be stuck on all the circulating notes for them to remain valid, amounting 1% of the each note’s value. The money raised was used to run a soup kitchen that fed 220 families.
Because nobody wanted to pay what was effectively a hoarding fee, everyone receiving the notes would spend them as fast as possible. The 40,000 schilling deposit allowed anyone to exchange scrip for 98 per cent of its value in schillings. This offer was rarely taken up though.
Of all the business in town, only the railway station and the post office refused to accept the local money. Over the 13-month period the project ran, the council not only carried out all the intended works projects, but also built new houses, a reservoir, a ski jump, and a bridge. The people also used scrip to replant forests, in anticipation of the future cash flow they would receive from the trees.
The key to its success was the fast circulation of scrip within the local economy, 14 times higher than the Schilling. This in turn increased trade, creating extra employment. At the time of the project, Wörgl was the only Austrian town to achieve full employment.
Six neighbouring villages copied the system successfully. The French Prime Minister, Eduoard Dalladier, made a special visit to see the 'miracle of Wörgl'. In January 1933, the project was replicated in the neighbouring city of Kirchbuhl, and in June 1933, Unterguggenburger addressed a meeting with representatives from 170 different towns and villages. Two hundred Austrian townships were interested in adopting the idea.
At this point the central bank panicked and decided to assert its monopoly rights by banning complimentary currencies. The people unsuccessfully sued the bank and later lost in the Austrian Supreme Court. It then became a criminal offence to issue 'emergency currency'.
Unterguggenberger was opposed to both communism and fascism, championing instead what he referred to as 'economic freedom'. Therefore, it was deeply ironic that the Wörgl experiment was first branded 'craziness' by the monetary authorities, then a communist idea, and some years later as a fascist one.
The town went back to 30% unemployment. In 1934, social unrest exploded across Austria. In 1938, when Hitler annexed Austria, he was welcomed by many people as their economic and political saviour.
The 1920's had already seen a scrip currency called the 'wara' in the German town of Schwanenkirchen. This saved the town's economy and kept a coal mine operating. It started circulating more widely, and became part of a movement called 'Freiwirtschaft' (Free Economy), based on the ideas of the economist Silvio Gesell.
Central to Gesell's ideas was the use of a hoarding fee of the kind used in Wörgl (technically known as 'demurrage'). The soundness of such an idea was affirmed by John Maynard Keynes in his 1936 work 'General Theory of Employment, Interest and Money'.
The success of the Wörgl currency inspired the well known American economist Irving Fischer to write an article which was published nationwide. Many towns copied the idea. The Americans however used a far higher tax rate (2% a week instead of 1% a month) which undermined the confidence in the stamp scrip currencies. President Roosevelt abandoned the idea completely in the New Deal. It is therefore very important to implement stamp scrip the right way, otherwise it will become a failure.
Perhaps the most groundbreaking feature of demurrage is that it is intrinsically anti-inflationary. Whereas conventional currencies are devalued by increasing money supply to sustain the ever growing interest payments on debts, the demurrage currency is anti-inflationary because money supply does not increase. Economic growth then leads to lower prices.
The present short-term focus of investments, and the consequent lack of long-term vision are exacerbated by interest-driven currency devaluation that, from a profit perspective, reduces the appeal of longer-timescale projects. The use of a demurrage currency gives an edge to those working for sustainability, because a rate of return is achieved simply by lending out money. When money is repaid (remember these are non-interest currencies), it will have increased in value owing to the money saved by having avoided paying the monthly demurrage fees. This has the potential to enable investment in highly beneficial but economically marginal activities such as earth repair.
Natural Money in history
Using the concept of natural money, I will try to explain some historic facts, which puzzled historians for a long time. Some intriguing historic questions are:
1. How could Western Europe become so powerful during the Middle Ages? They were backwards at the beginning, annihilated by Black Death, and still came out on top.
2. How could the Egyptian civilisation last for more than 2,000 years?
3. Why did Rome collapse? They had the greatest civilisation and military organisation at the time.
Although the explanation is speculative, and not proven, there is some logic in it.
The rise of Europe
When the Roman Empire collapsed, Europe fell back into a dark period, called the Middle Ages. Money ceased to exist, because gold and silver disappeared out of circulation. Europe was very fragmented and in general there was no central power structure. Some local lords issued scrip currencies. Those currencies were valid for a limited period of time. After that period, the people holding the currency, had to return it to the ruler and a tax was levied. Those new units were also valid for a limited period of time. The actual value of the unit decreased slowly during the period and was the lowest just before the tax was due.
Not much is known about money in the Middle Ages. What is known however, is that the people of the Middle Ages were deeply aware of the temporality of human life. Memento mori was the motto of the people in the Middle Ages. This means: remember the day that you will die. The charging of interest was strictly forbidden and people felt morally obliged not to do this. Therefore, the people of the Middle Ages were inclined to spend their money fast.
If we assume this worked like in Wörgl, we may assume that Europe was building capital at maximum speed using full employment. Europe had to start at a very low level. Also, the local lords waged many wars that were destroying capital. But wealth steadily increased, faster than on any other part of the planet. When the crusades started, there was so much wealth to spend on a useless war, that Europeans could battle the Muslims for centuries on their own ground, keeping long supply lines, while the conquered land was not profitable. After that, Black Death annihilated about one third of the population, but only one century later, the exploration and exploitation of the rest of the world by Europe had begun.
Joseph in Egypt
In the Bible there is a story about a pharaoh having dreams about seven fat cows being eaten by seven lean cows and seven full ears of corn being devoured by seven thin and blasted ears of corn (Gen. 41:1-45). Joseph explained the dreams to the pharaoh. He told the pharao that seven good years would come and after that seven bad years would follow. Joseph advised the Egyptians to store food on a large scale. They followed his advise and built storehouses for food. In this way Egypt survived the seven years of scarcity.
What is less known, because it is not recorded in The Bible, is that the storing of food resulted in a financial system. The historian Friedrich Preisigke discovered that the Egyptians used corn receipts for money. Farmers bringing in the food, got receipts for corn. Bakers who wanted to make bread, brought in the receipts, which could be exchanged for corn. It did not take long before the receipts where generally accepted as money. Because of the degradation of the corn and mice eating it, the value of the receipts was steadily decreasing. This enticed people to spend the money fast.
The corn receipt system lasted for many centuries. It made sense to store food to provide for hard times. If we assume this worked like Wörgl, we can assume that also Egypt was building capital at maximum speed using full employment. When Joseph came to Egypt, the country had already passed its zenith. This currency remained in function in Egypt until it was replaced by the Roman currency during the late Ptolemaic period. The introduction of natural money may have enabled Egypt to remain a stable civilisation for another 1,500 years. The Egyptian civilisation lasted for more than 2,000 years, far longer than any civilisation ever.
The fall of Rome
Rome lasted only 700 years. The money system was based on gold and silver. In the beginning Rome was able to expand, and therefore capital could grow faster than interest charges. But after 400 years the expansion was over, and slowly growing debt was becoming a drag on the economy. The government was permanently short of funds. The value of money was constantly devaluated. The military was also badly funded, and therefore other people could invade Roman lands. Debt was destroying Rome.