the plan for the future
7 October 2008 - 8 March 2014
The false debate
The economic problems of today have revived the controversy between capitalism and socialism. Both approaches have their limitations. Supporters of capitalism may argue that the problems are caused by government intervention in the markets. Proponents of socialism may contend that they are caused by too little regulation of the markets. Both arguments seem reasonable but they conflict.
The real causes are no correctly identified in this debate. The resources of the planet are limited and people in developing nations are willing to work harder for lower wages. As a consequence, people in developing nations may become richer and people in developed nations may become poorer.
The financial system may also contribute to those problems. Interest on money may cause wealth to concentrate as people who are short of money may need to borrow it at interest from people that have excess money. Some have argued that interest is a tax on poverty to the benefit of the rich as the rich moslty receive interest, while the poor mostly pay interest .
Interest on money
The following example demonstrates that interest on money is unsustainable in the long run. If someone brought a 1/10 oz gold coin to the bank in the year 1 AD, and the money remained there until the year 2000 AD, collecting a yearly interest of 4%, the amount of gold in the account would have weighing 6,000,000 times the complete mass of the Earth. The yearly interest would have been 240,000 times the complete mass of the Earth.
As long as the owner of the account just demands 4% interest, and does not require payment in gold, then the scheme can continue, at least in theory. The available gold can remain in the economy as a means of payment and the economy can remain operational. The owner of the account can use some of the interest to buy goods and services. It is impossible to pay off the debts as long as the account holder does not spend the money in the account.
Everyone may have to work for the account holder, who may be called a usurer or a parasite, to pay off just a small part of the interest. This can happen, at least in theory, because the monetary system works in this way. Nearly all money is created as a debt. Debtors in the aggregate can only repay their debts if savers spend the balances in their accounts. This is the principle of debt slavery, and it is a consequence of a scarcity of currency and interest on money.
Lenders can demand interest as money can be witheld from the economy without losing value, most notably if the money is gold. Lenders desire a compensation for the risks involved in lending out money. As a consequence there is a minimum interest rate. Below that rate there will be no money available for borrowing. Borrowers, and especially those that need money, do not have a similar bargaining power. They must always pay the minimum interest rate demanded by the lenders.
When interest is charged on a limited scale or over a short timeframe then those problems do not surface. Interest is an insidious process. Over time interest can reduce large numbers of people to a state of servitude to the money lenders. This is a long term development that transcends the life span of a human. It is often assumed that a flourishing economy depends on free people that make their own decisions, so interest on money may have been a reason why a number of civilisations have failed.
The issue of interest extends beyond money. By investing in general, the wealthy increase their wealth. The wealthy may be able to use more leverage than the middle class. Middle class people may have to be more cautious, as they may not be in the position to take large losses, while the poor cannot invest at all. Between 1980 and 2014, the Dow rose from 1,000 to 16,000, while in the US average real income declined and debts exploded.
How banks create money
The video Money as Debt (3:30 - 8:50) explains how banks create money by issuing credit. The current banking system emerged from the business of the goldsmiths. In the late middle ages, the goldsmiths had secure vaults to store their gold. Other people entrusted their gold to them for safekeeping. In return they paid a storage fee and received claim checks for the gold they deposited. The claim checks issued by the goldsmiths were used on the marketplace as if they were money. The paper money was more convenient so hardly ever did someone return the claim checks and demand gold.
The goldsmiths had another line of business, which was lending out gold at interest. When the paper money of the goldsmiths became widely accepted, borrowers also preferred paper money. As trade expanded, more people came to the goldsmiths for loans. Only a few depositors wanted to exchange their claim checks for gold so the goldsmiths came to the conclusion that they could issue claim checks against the gold of the depositors. As long as the loans were repaid, the depositors would not lose any money, while the goldsmiths could make a greater profit.
The source of those extra profits became known and depositors started to demand interest on their deposits. That was the beginning of banking. The bank paid a low interest rate on deposits that were lent out at a higher interest rate. As all issued claim checks were covered by gold, this is full reserve banking.
The demand for loans was rising fast but the amount of loans remained limited by the amount of gold in the vault. It then emerged to some goldsmiths that they could issue claim checks for gold that did not exist. As long as the claim check holders did not demand gold for their checks all at once, the scheme would work, and the goldsmiths could make far greater profits. This is fractional reserve banking. When the people realised that the goldsmiths had created claims on gold that did not exist, depositors started to demand their gold. In this way many goldsmiths ran out of gold and the claims they issued became worthless. This is called a bank run.
To make the system more stable, the practice of banking became regulated and central banks were instituted. If there was a bank run, then the central bank could come up with gold, and restore confidence. Over time the amount of credit expanded enormously because of economic growth, and the gold convertibility was ended. This provided more flexibility to central banks to issue more currency when banks needed this, and in this way bank runs became largely an item of the past. This flexibility however provided an incentive to build up more debt as savers only demanded interest and did not take their money out of the banks.
In a way fractional reserve banking accelerates debt expansion. This is the reason why the practice is controversial in some fringe economic and monetary theories. As soon as a new debt has been created, the credit becomes money which then can end up in another deposit account accumulating interest. Fractional reserve banking thus can make those problems worse as new debts can create new interest bearing deposits. Accumulated interest can make savings and debts go out of control and fractional reserve banking can speed up this process.
Lack of critical thinking
In 2006 FED leaders having the best economic data available seemed to have had no idea of what was looming less than two years off. They had no idea how serious the situation was . They had been warned but they ignored those warnings. Economists from the Austrian School of Economics and the Interest Free Economy predicted a collapse of the debt based financial system. As the Fed dominates the field of economics in the United States, criticism of the central bank has become a career liability for economists . It may explain why there is not much critical thinking on the current financial system.
Interest and economic cycles
Banks create money when a new loan is made. The money is destroyed when interest is paid or the loan is paid back. As long as the loan is not repaid, the borrower pays interest to the banks and the holders of deposits. If the holders of deposits do not liquidate their accounts, then there will never be enough money to repay the debts with interest, so not everybody can fulfil his or her obligations unless new debts are created. Periodically this leads to an economic crises when debts have to be written off, which contributes to economic cycles. Many economists however do not recognise the influence of interest on financial crises and economic cycles.
During a boom phase more credit is available based on rosy expectations of the future. During a bust phase less credit is available because of grim expectations of the future. The availability of credit can intensify the boom while the unavailability of credit can intensify the bust. During a boom phase interest rates rise, which sows the seeds for the bust as there is only a limited amount of currency units in circulation, while higher interest rates take more money away from debtors to creditors.
During a boom phase consumers are more willing to spend and to borrow for spending, while investors are more willing add leverage using credit. This can intensify the boom, creating shortages of materials and labour resulting in rising prices. Interest on money is an incentive for banks to lend money to leveraged investors during the boom. Banks can create money out of nothing, which enables them to fuel the boom. When the cycle turns into bust, investors start to reduce their leverage, which intensifies the bust, creating surpluses of materials and labour, resulting in lower prices.
The competition element
Money can bring out the worst in people and the love of money is seen as a root of all kinds of evil. Money tends to make people less compassionate . Money can cause unethical behaviour and crime. Interest increases competition for money as there is not enough money to repay debts with interest. It is a game of musical chairs and the ensuing shortage of money increases competition. Everybody has to work harder or has to be smarter than others in order not to be left out in the money game. Being smarter often implies deceiving others, while working harder often equals to destroying the living conditions humans depend on.
The usury economic cycle
Debts as well as interest on those debts are a potential cause of economic cycles. On the other hand, economic cycles can also contribute to the buildup and contraction of debt. Periodically interest charged on debts may cause a reduction in demand as debtors have less free income to spend because they have to pay interest on their debts. This is the most clear if it is assumed that the amount of currency is fixed. The usury element is the growth of debts because of interest relative to the number of currency units, making it impossible to repay all the debts or even to pay the interest as long as savers accumulate balances on their accounts.
The usury economic cycle, as an economic cycle caused by interest on money thus may be called, may favour large scale operations. This can work as follows:
- If businesses use interest bearing debt, they need larger scale operations to achieve the same income level for the business owners because a part of the business income is going to the money lenders. In good times businesses can borrow money to expand their operations and there is a tendency to over invest.
- When a recession sets in, some businesses fail because demand falters or because there is no credit available. If a larger scale operation fails then it is often not liquidated but taken over at a lower price, which makes it cheaper for the new owners to operate.
- Smaller businesses that are more conservatively financed are at a disadvantage as a larger low cost competitor has arrived so more of them may fail than otherwise would have happened. The cycle may thus lead to an increase in scale that is not based on a real cost advantage but from a financial cost advantage.
- When the economy recovers a smaller number of larger scale businesses have survived. The usury economic cycle may then repeat again.
To some extent the functioning of markets seem to be perverted by cycles of leverage and liquidation. During the boom phase excess capital is created that may destroy capital that may otherwise be useful. This development can also be seen as innovation or creative destruction, but if it is not real innovation leading to better products or lower prices, there may be no real economic benefits on the aggregate. If jobs are eliminated and replaced by capital without creating a real cost advantage or product improvement, this may be a zero sum game or even a negative sum game.
The usury economic cycle is repeated so interest on money may favour large scale operations. The usury economic cycle may have caused the division of labour to go further than it otherwise would have done. It is a speculative proposition and it is highly constestable as many other issues also influence the economy of scale and busines profitability. The effect of the usury economic cycle favouring large scale operations may have been amplified by the free flow of capital and free trade as this created a competition of everybody against everybody on a world wide scale.
As a consequence dependencies may have escalated and people may have become less self sufficient. Before the middle of the twentieth century most people lived in villages that were largely self dependent. Henceforth more and more people live in cities and societies may have become more complex than they would have been without interest on money. Specialisation and economies of scale, which are important elements of economic development, have made human civilisation vulnerable, as many people may not be able to survive a collapse of the system.
As long as economic growth can keep up with the debt expansion, it is unlikely that the problems will grow out of control. In the current financial system there are a number of correction mechanisms that are operated by government and central bank bureaucrats. Those correction mechanisms are government spending, central banks setting interest rates, regulation of the banking sector and printing currency.
Government spending can be used to increase spending when the economy falters. Because there is interest on money, economic growth can depend on the expansion of debt. Governments may need to go further into debt when consumers and businesses are reluctant to take on more debt.
If the economy is faltering, because too little debt is added, central banks lower interest rates for consumers and businesses to encourage them to go further into debt. If the economy does well new debt is created in a faster pace, and central banks raise interest rates to curb debt growth, because money is created with the expansion of debt and an increase in money supply can result in higher prices.
There is also regulation aiming to stabilise the banking system, such as solvability and liquidity requirements. In recent decades an less regulated shadow banking system emerged that needed government assistance during the financial crisis.
When there is just too much debt in the banking system to get the economy back on track, central banks can print currency to buy up government debt and debts owned by the banks, so the government has more money to spend and banks have more room to create debts.
The dilemma of government intervention
If the government did not interfere with the economy and interest rates, markets could correct harshly with businesses going bankrupt, economic recessions and even economic depressions. In this process capital could be destroyed which could be useful if there was demand. The destruction of capital is a destruction of wealth. Since we live a democratic society, people may elect officials that promise to solve this issue and there may be a call for government intervention and regulation.
Government intervention may reduce the severity of economic recessions and economic depressions in the short term, but this can create bigger problems long term, namely expanding debt on which interest must be paid. The economist Keynes, who promoted government intervention only considered the short run, and he noted that in the long run we are all dead.
Government intervention can help inefficient politically connected businesses to remain in operation. The demand created by the government often does not reflect the preferences of market participants. The expansion of government and the welfare state are to some extent caused by interest on money. Interest on money can increase poverty so the poor may become the majority. They may then elect people that look after their interests and many poor can become dependent on the state.
The financial system promotes senseless economic activities
The share of the financial sector in the economy has increased significantly in recent decades. Although the financial sector may be useful, it produces nothing, while the interest and credit cause financial instability. The financial instability creates opportunities for politically connected and informed people. Interest payments, and unproductive activities in the financial sector may have contributed to a reduction in the living standard. The US financial sector comprised only 10% of total non-farm business profits in 1947, but grew to 50% by 2010 .
The living standard in the US has declined after 1970. Many people did get into trouble due to predatory lending practises. Even in good economic times, there are a million personal bankruptcies per year in the US alone . Companies can get into trouble due to financing structures which may cause them to lay off people. These companies may have been viable if they had been more conservatively financed. To deal with the consequences of economic cycles caused by credit and interest, governments try to manage the economy and help the unemployed.
Forced economic growth
The way economic growth is measured ignores long term consequences such as the depletion of natural resources and the degradation of the planet. The current economic system based on exponential growth of human activities can lead to a collective suicide of humanity. Economic growth may not help most people In the United States the living standard declined after 1970 despite economic growth. Most of the new wealth has ended up in the hands a few oligarchs, while many activities in the financial sector are not beneficial for the real economy.
Interest on money makes debts increase over time. As a consequence, the economy needs to grow to support those debts. Many economic activities make little sense, and economic growth often equals to more resource consumption for non-essential activities. It may not be surprising that this did not bring more happiness. In 1950 per capita GDP in the United States was smaller than today, yet surveys of happiness and life satisfaction and other indicators of well-being have declined over the years .
The current financial system causes many problems
Interest on money causes a number of problems. The book Poor Because of Money from the Strohalm Foundation identifies a number of consequences of interest on money :
- There is a constant shortage of money because every euro put into circulation bears interest. Money is created under the agreement that more money is returned. Each individual may try not to be the victim of this game of musical chairs. This can result in a stiff competition, as well as looting of natural resources and human labour.
- Interest flows from the poorest people and areas of the world into the ever increasing financial sector. Many people are left behind impoverished and robbed from their means of exchange necessary to trade. Some money returns in the form of development aid, which offers an opportunity for corruption and this contributes to social dislocation.
- Interest represents a percentage of the borrowed amount that the borrower must pay to borrow the money. In the current monetary system additional debt must be created to pay for the interest and therefore debt increases exponentially like the amount of interest that must be paid. The opposite happens for credit. Savings accounts earn interest on top of interest.
- Currently more people live as slaves than in Roman times. Twenty seven million men, women and children currently are slaves. When people can no longer pay the interest on debts they end up as slaves. Entire families have become the property of a money lender. In many villages in India the only house made out of stone belongs to the money lender.
- In Western nations a new class of debt slaves is emerging. There is an entire industry that specialises in the art of tempting people to buy on credit. Often they have been lured into debt for unnecessary expenses they could not afford to pay. Now their houses are being foreclosed and they often have to pay high rates on their credit card debts.
The problems are compounding like interest. They may lead to a massive financial catastrophe. Easy solutions are not available, as interest is also the reward for capital to be employed, and cannot be avoided. Productive labour and enterprise should be rewarded and parasiting should be discouraged. There is no simple solution, but it may be possible to solve the problem of compound interest on money, spur economic growth, distribute wealth more evenly and to make the economy more sustainable.
Examples of interest-free money
Wörgl stamp scrip
On July 5, 1932, in the middle of the Great Depression, the Austrian town of Wörgl introduced a complementary 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 to carry them out. These projects included paving 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 money required a monthly stamp to be stuck on all the circulating notes for them to remain valid, amounting to 1% of the each note’s value. The money raised was used to run a soup kitchen that fed 220 families.
Nobody wanted to pay the monthly stamps so 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 but this offer was rarely taken up. Of all the businesses 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 key to its success was the fast circulation of the scrip money within the local economy, 14 times higher than the Schilling. This in turn increased trade, creating extra employment. At the time of the project, unemployment in Wörgl dropped while it rose in the rest of Austria. Six neighbouring villages copied the system successfully. The French Prime Minister, Édouard Daladier, made a special visit to see the 'miracle of Wörgl'.
In January 1933, the project was replicated in the neighbouring city of Kitzbühel, and in June 1933, Unterguggenberger 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 complementary currencies .
A significant part of the success of the Wörgl stamp scrip can be attributed to one-time effects, such as payment of taxes in arrears. This provided a short term stimulus, and it is unlikely that this effect would have been sustained in the long term . On the other hand, the Wörgl stamp script caused taxes to be paid that otherwise would not have been paid, and this part of the stimulus would have been sustainable. There have been other experiments with free money but few were as successful as Wörgl.
The Schwanenkirchen Wara
In the town of Schwanenkirchen in Bavaria the owner of a small bankrupt coal mine started to pay his workers in coal instead of Reichsmark. He issued a local script which he called the Wara that was redeemable in coal. The bill was only valid if a stamp for the current month was applied to the back of the note. This demurrage charge prevented hoarding and workers paid for their food and local services with the Wara.
Coal was a necessity and German Marks were in short supply so the currency became widely accepted. The use of this currency was so successful that by 1931 the so-called Freiwirtschaft (free economy) movement had spread through all of Germany. It involved more than 2,000 corporations and a variety of commodities backed the Wara. In November 1931 the German Central bank prohibited the use of the Wara .
The United States
In the United States Irving Fisher analysed the Wörgl case and published various articles about its success. More than 400 cities and thousands of communities all over the US started to issue emergency currencies, and many of them were stamp scrip. There was a movement to issue a stamp scrip currency nationwide. Senator Bankhead from Alabama presented a bill to the Senate on February 18, 1933 and Representative Petenhill from Indiana presented a bill to the House of Representatives on February 22, 1933.
The stamp scrips in the United States often had a high tax rate, sometimes 1 to 2% per week instead of 1% per month like in Wörgl. This undermined the confidence in the stamp scrip currencies. Irving Fisher approached the Undersecretary of the Treasury, Dean Acheson, to obtain support from the Executive branch for issuing stamp scrip. Acheson asked the opinion of one of his Harvard professors, who advised him that the system would work but that it would imply strongly decentralised decision making. President Roosevelt later prohibited any use of stamp scrip .
In 1956 a few people in Lignières-en-Berry started a revolutionary experiment. They issued vouchers of 100 French francs for 95 French francs. After four months the vouchers could be returned for 98 French francs. A notary saw to it that for each voucher 98 French francs were deposited into a bank account. If the vouchers were not returned, a stamp of 1 franc had to be bought to keep the voucher valid.
The money was attractive because there was three francs of profit to be made by buying vouchers for 95 French francs and returning them for 98 French francs four months later. By spending the vouchers for 100 Francs it was even possible to make a profit of five francs. People tried to spend the vouchers in the shops and the shopkeepers liked the currency because it brought them additional customers, while it never did cost them more than 2% because the vouchers could be returned for 98 French francs. The shopkeepers also preferred to use the vouchers for the payment.
Many people did not return the vouchers but bought the stamps to keep them valid. From the income of the stamps the cost of buying returned vouchers for 98 French francs could be covered. It did not take long before the currency of Lignières-en-Berry had replaced the French francs. The vouchers spread quickly and the French authorities were alarmed and the vouchers became prohibited .
The British island of Guernsey has issued its own currency, and by doing so, Guernsey has demonstrated that inflation is caused by banks charging interest on money. In her book Web of Debt, Ellen Brown wrote the following :
Defining Natural Money
It is not easy to define money by its properties because there are many forms of money. It is more easy to define money by its use. Aristotle already saw the dual nature of money: money is a medium of exchange and a store of wealth. Those are conflicting uses. The store of wealth role can obstruct the medium of exchange use. If money does not function properly as a medium of exchange then the economy can suffer and capital may be destroyed. If money is hoarded because as a store of wealth, this may lead to the destruction of capital, which is real wealth.
Natural Money is an attempt at finding the the most optimal form of money in terms of systemic efficiency. Natural Money is derived from the Natural Economic Order of Silvio Gesell . Money based on the Natural Economic Order is called free money, and Natural Money is a specific type of free money. Because of its alleged systemic efficiency, Natural Money may become the dominant type of money in the future, and nothing may stop this from happening, as it may lead to higer real interest rates.
The idea that banning interest on money could lead to higher real interest rates is the most remarkable feature of Natural Money. If this claims holds, there is no way of stopping the spread of Natural Money, and Natural Money will replace the current interest based financial system.
- there is a fixed amount of currency, making Natural Money inflation free;
- the issuing government issues a holding tax on Natural Money currencies, which may be 0.5% to 1.0% per month;
- it is not allowed to charge interest on loans denominated in Natural Money currencies;
- it may still be attractive to lend out money without interest, as the lender does not have to pay the holding tax;
- governments are not allowed to have deficits or debts as they may undermine the value of the currency or push up interest rates;
- banking, which is creating credit that can be used like money, should be a clearly separated and regulated type of business;
- banks can charge an intermediary fee to savers, resulting in negative interest rates on deposits that are better than the holding tax;
- central banks can provide credit to banks at an interest rate of zero, making it attractive for banks to hold reserves or borrow from other banks;
- other financial institutions can issue shares that reflect the value of their investments;
- local governments can issue local currencies that supplement national currencies to support the local economy.
Gold and silver
Gold can be stored without losing value so it does not make sense to lend gold without charging interest. If the economy does not well, interest rates will fall and the risk of putting money in the bank rises. At low interest rates it is more attractive to keep the gold at home or at least out of the banking system. This is hoarding because money is taken out of the economy. In the past this was a serious problem because hoarding made interest rates rise above the level the economy could support.
Hoarding money is sometimes safer than bringing it to the bank because banks can go bankrupt. Therefore people may be hoarding money for a rainy day. When more people do this simultaneously, money is removed from circulation, weakening the economy and the banks. When this happens, even more people will start hoarding money, because they expect times getting worse. This is a bank run and often this is the beginning of an economic crisis.
During the 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 and many people will be reduced to a state of servitude to the money lenders. Returning to gold and silver as money is also not practical. If gold were chosen as money now, many people would exchange their servitude to the banks for servitude to the gold hoarders, which includes governments and central banks.
Hoarding money is not the same as saving money. Saving money and bringing money to the bank is good for the economy because the bank can lend out the money for productive investments. Gold and silver were chosen as money because they were a good store of wealth. People should have the option to buy gold and silver if they think that the financial system is unsound. By owning gold or silver it is possible to protect yourself against currency mismanagement. A simple solution is that gold and silver can be used as a safe haven and that money should be a medium of exchange only. Therefore gold and silver should not be money.
State money and Chartalism
Governments can create money so there is no need for governments to go into debt or to pay interest [+]. Researchers at the IMF have argued that if nations regain sovereign control over their money supply, there will be no more banks runs, and fewer boom-bust credit cycles. Central banks would take full control over the money supply and banks would have to act as intermediaries that depend on obtaining outside funding before being able to lend. The IMF plan will bring a lot of power into the hands of the state [+].
Chartalism or Modern Monetary Theory (MMT) states that money enters circulation through government spending. Taxation is employed to establish the fiat money as currency, giving it value by creating demand for it in the form of a private tax obligation. An ongoing tax obligation, in concert with private confidence and acceptance of the currency, maintains its value. Chartalism also states that private net saving is only possible if the government runs budget deficits [+]. In reality private savings do not require government deficits and government deficits can reduce the value of the money.
Valuation of the Natural Money unit
The value of money depends on convertibility and money supply. Convertibility means that money must be exchangeable for goods, services and other money units. This is a matter of trust. The money supply and velocity determine the value of the money units. Money supply itself is not important but changes in money supply can result in monetary inflation or deflation. Money supply changes and economic growth are the determinants of price inflation over the long term. The idea that money supply itself is not important goes against conventional economic wisdom. To demonstrate that money supply is not important for the economy, you can play Monopoly with an older version of the game. The bank notes have smaller denominations but the game is exactly the same.
Prices adapt to the available money supply so if there is no reason to change the money supply. Keeping money supply constant will reduce uncertainty and increase trust in the monetary unit. When you lend your money for any period of time, the same value should be paid back at the end. The guarantee of value is essential when there is no interest to compensate for inflation. Additional provisions may be needed to guarantee the value of loans.
Loans can be valued in the following ways:
- As a part of the money supply (for example: 0,00000001% of money supply). Because money supply is known to the public, this could easily be calculated.
- As a basket of goods and services. This will cover the loan in the case the financial system changes. The basket of goods and services should be paid in cash when the loan matures. These baskets should include a wide range of goods and services, in order to prevent price fluctuations of individual goods and services or manipulations of prices of individual goods and services, from affecting the value of the loan.
Keeping money supply constant is possible because loans should be matched by savings so there will be no money creation. There is no need for a debate about what money supply should be and how much it should grow. Without interest on money the economy will do well when the money supply is constant. Austrian School economists too think that money supply does not have to grow for the economy to grow [+].
With interest on money, a fixed money supply will lead to economic crises because compound interest is infinite [+]. The imbalances caused by interest have to be corrected from time to time. Only without interest it is possible to have a constant money supply without crisis. There is no need to create money in the Natural Financial System so governments and banks should not be able to create money. Money should only be created after a decision by the citizens in a referendum.
Economic growth will lower prices in a Natural Economy [+]. It is better not to back the money with gold or any other commodity. Doing this introduces the need for additional purchases of the used commodities, creating an excess reserve of gold or the used commodities. The value of the Natural Money currency should not be fixed to an interest bearing currency, such as the euro or the US dollar. The exchange rate should be determined by markets. During a transition period it may be necessary to have a fixed exchange rate between the Natural Money currency and an interest bearing currency. This requires the Natural Money currency to be backed by a reserve of interest bearing currency like it has been done in Wörgl, Austria [+].
It is possible to back all municipal, state and provincial by the national currency. If a municipality, state or province issues currency, the currency units must be backed by national currency units. The proceeds of the holding tax will go to the municipality, state or province. The advantage is that all currency units have the same value, but there is one important disadvantage. National currency mismanagement will affect municipal, state and provincial currencies.
If all interest bearing currency units are to be converted into Natural Money, then the value of those currency units will drop in value initially. The money will circulate faster so less money is needed to sustain the economy and the excess money supply will have a one time price and wage inflationary effect. After some time the value of the Natural Money currency will stabilise and start to rise when there is economic growth.
Interest is an allowance for risk so interest introduces risk in the financial system. This risk appears on the balance sheets of financial institutions and can become a systemic risk. People, organisations and countries that have troublesome debt levels can borrow more if they are willing to pay higher interest rates, which further erodes their capacity to repay. If there was no interest on money, debtors cannot borrow more than they are able to repay. Consequently debtors must reorganise their finances in an earlier stage. Because of the usury economic cycle, booms and busts alternate. During the boom phase, individuals and corporations take on more debt. During economic downturns the perception of risk changes and debts are liquidated, which further intensifies the economic downturn.
With Natural Money there will be less systemic risk in the financial system for the following reasons:
- A ban on charging interest will reduce the risk that lenders are willing to take.
- Debts cannot grow out of control because of interest charges.
- The balance sheets of corporations and individuals will be less leveraged.
- Risky projects will be financed with equity instead of loans.
- The constant flow of money within the economy caused by the holding fee will reduce the risk of economic downturns.
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 short term thinking. If no interest was charged, long-term investments would be more attractive [+]. The following example comes from Poor Because Of Money from Strohalm.
The example shows that without interest charges there is a tendency to select long-term solutions, so interest makes long-term solutions less economical. If interest rates are negative, future income would be preferred even more. This must also be true on a larger scale. It may help to explain why natural resources, such as rainforests are squandered for short term profits. Consequently, interest on money promotes a short term bias in economic decisions.
Natural Money stabilises the economy
With Natural Money governments and financial institutions do not create money. Governments levy a holding tax on the money and return this money into circulation by spending. Any form of cash, both in accounts and in the form of bank notes, is subject to the holding tax. Loans are created with existing money that is in savings accounts. Even though the money cannot be lent at interest, people will lend money because the money keeps its value and the holding tax can be evaded in this way.
There will always be money available for borrowing by credit worthy companies and people. Interest on money is forbidden so there is no reward for taking high risks. This will lead to less unwise lending and borrowing that can destabilise the economy.
Should the economy weaken, which is unlikely because no money is withdrawn from circulation by interest payments, the economy can be strengthened by raising the holding tax. A higher holding tax can improve the economy but if the holding tax is too high, this will undermine the confidence in the currency.
People who are unable to pay back a loan will not get a loan. This is in their own interest and in the interest of society at large. It is better to assist needy people in other ways than lending money. Trustworthy individuals and companies can get a loan easily if needed because there is sufficient employment.
The optimal holding tax rate is around 0,5% to 1% a month. Lower holding tax rates may not give a good stimulus or give to little incentive for lending without interest. Higher holding tax rates can undermine the confidence in the currency.
The effect of a stable economy is that risk is reduced. This will also reduce the opportunities to profit from information differences on risk. Risk perceptions depend on available information, markets are amoral and traders tend to exploit the information advantages they have over others [+]. Reduced overall risk means that informed traders have less opportunities to prey on the uninformed public, which results in an improved economic efficiency as less people can make money with parasiting on others.
Natural Money and employment
Natural Money can lead to sufficient employment if it is combined with a basic income. The holding fee on money creates a constant stimulus. Examples in the past have shown that a holding fee can generate extra employment [+]. If taxes on labour are low while taxes on fossil fuels are high, energy use will be substituted by labour and this can create even more employment.
There will be less need for bureaucracy, management, communication, consultancy, trade and technology because these occupations are less needed when affairs are less complex and the division of labour is reduced [+]. In the Natural Economy less work will produce the same prosperity so people must be prepared to work less and give others an opportunity to acquire an income. A basic income makes this possible [+]. Jobs will be less demanding and work related stress will reduce [+].
Natural Money will be abundant
The holding fee makes Natural Money not scarce but abundant. Bills are paid instantly or even in advance were possible. It is attractive for businesses to lend money without interest to reliable clients because the holding tax on cash can be avoided in this way. The chance of being short of money will be greatly reduced.
Mortgage payments will still exist in the Natural Financial System. Because there is no interest on money, every payment will reduce the balance of the mortgage. Natural Money will not be not scarce but abundant, so less people will get into financial trouble. The economy will do well so there is sufficient employment. Money will be more easy to attain by labour or doing business. For reliable people and businesses it will be easy to borrow money at zero percent interest.
The holding fee on money will assure that trade imbalances are corrected in a short timeframe. An exporting country will spend the foreign currencies it received and will not hoard them. For each import something will be exported. If a country has not enough exports, it will need to replace imports with locally produced goods and services. In the current financial system imbalances can persist, and those imbalances tend to escalate over time because countries in deficit have to pay interest on their debts.
A holding fee on money will make international trade work based on comparative cost advantages like David Ricardo explained in his book On the Principles of Political Economy and Taxation. A relative cost advantage between countries will result in balanced trade as the currencies will not be hoarded because of the holding fee. A country that has a trade deficit will see its currency drop until exports match imports. Currently some countries run large current account deficits for a long period of time because of carry trades based on interest rate differentials and exporting nations hoarding currencies of importing nations.
Current account deficits destroy productive capital of importing nations. This is a process of reverse economic development resulting in a third world economy. Complete industries have been wiped out in the United States because the US dollar was propped up by high interest rates and currency hoarding by exporting nations like China and Japan. This created useless capital in China and Japan. Those countries produced goods and services for US dollars that will prove to be worth less in the future as the United States has too little productive capital to support the value of its currency.
In the past tariffs have been used to defend national industries. There is no magic formula for determining what tariffs on what products are needed or justified, so decisions on tariffs will often be arbitrary and political. The consequence will be that the advantages of trade between nations will diminish, that people will be paying more for foreign products than needed, and that employment may not improve because the effect of stimulus can still leave the country. Tariffs may also be an incentive for fraud and smuggling.
Natural Money can increase the reward for labour
Natural money will eliminate the cost of interest and hence reduce the cost of capital. Because the economy will be more stable with Natural Money, the risk of doing business will also be lower. Consequently the reward that capital requires to be employed will be lower. Natural money will also reduce international wage competition, and combined with a basic income Natural Money can also provide income security. This means that the portion of national income paid out to labour can rise.
A Natural Economy needs less regulation and government
In a stable economy capital is not destroyed by lack of demand for products and services that are useful. More people can have work so there is less need for government assistance for people without income. With Natural Money sustainable investment choices are rational economic decisions so the government does not need to encourage them. The economy will do well by itself so the government does not need to interfere. People will have to work less because the same level of prosperity can be achieved with less work [+].
The Natural Financial System needs less regulation because:
- Banning interest on money and the creation of money will reduce risk taking within the financial system. This will make the financial system more stable. Financial instability is often used by professional traders to profit at the expense of the general public.
- Shorting of stocks and derivatives will be banned. Derivatives are not needed in the Natural Financial System. Derivatives were introduced to cope with the instability within the interest based financial system. Shorting stocks has no value for markets and it creates an interest in bringing down companies [+].
Hoskins noted in his book War Cycles, Peace Cycles that one of the consequences of interest on money is higher taxes. He contends that taxation is needed to keep the money circulating and to prevent inflation and deflation due to hoarding or over-printing [+]. The Wörgl experiment demonstrated this as the tax on money did make the money circulate faster. If there is a holding tax on money then the government does not need to prop up the economy by additional spending.
Role of the banks with Natural Money
In the Natural Economy banks can have two business models: traditional banks and participating banks. Traditional banks can supply loans at a fixed rate and they can offer fixed rates to savers. Participating banks can participate in businesses and their business model is similar to Islamic finance. The income of a participating bank depends on the profits made in the businesses they participate in. Participating banks cannot offer fixed rates to their participants. If the participations do well then participant accounts in participating banks can offer positive yields but those accounts may also be subject to losses. Traditional banks have a low risk profile while participating banks have a high risk profile. Whether or not both business models can be offered by one bank remains to be seen.
Traditional banks have to comply to the following rules:
- Traditional banks can not invest for their own profit and risk money that has been entrusted to them. They can only lend money without charging interest.
- Account holders can hold money in current accounts on which the holding tax is levied. Current accounts will be used for money needed in the short term.
- Account holders can also use deposits or savings accounts. Traditional banks can lend this money to others without interest. Deposits or savings accounts can be attractive because those accounts are not subject to the holding tax and the value of the money is not eroded by inflation. Depositors pay a fee to the bank for mediation costs. Traditional banks will offer different types of savings accounts and deposits. The most restrictive accounts have the lowest mediation fees.
- Traditional banks are prohibited to charge interest on money lent. This eliminates risk in the financial system because otherwise banks may be tempted to take on risky loans.
- Traditional banks can only charge mediation costs to the saver and not to the borrower. Otherwise the bank may be enticed by high fees to take on risky loans. Fees on loans are interest.
- Traditional banks cannot create money. Money in the current accounts cannot be used for lending. Only money in savings accounts and deposits can be used for lending.
- Traditional banks have limited funds and will select the least risky borrowers. This will help to prevent economic booms and busts from occurring.
Participating banks have to comply to the following rules:
- Paticipating banks invest for their own profit and risk money that has been entrusted to them. Particpating banks provide equity. They cannot lend money.
- Participating banks can only offer participation accounts and current accounts. They cannot offer mortgages, loans and savings accounts.
- Money in the current accounts cannot be used for business investments. Only money in participation accounts can be used for business investments.
- Participating banks take more risks and returns on participation accounts fluctuate. On average participation accounts should have a positive return.
- Instead of providing mortgages, participating banks may participate in buildings and houses and assume (partial) ownership.
- People that have participation accounts take business risk and participation accounts may be subject to considerable losses.
The following rules apply to both types of banks:
- Money in current accounts should not be part of the bank capital, so there should be no risk of loss on money in current accounts.
- The (local, state or national) government issuing the Natural Money currency levies a holding tax on the money. The banks holding the money collect the holding tax and send to proceeds to the government issuing the currency.
In the economy money does not flow at a constant rate and this makes the economy operate at a less efficient level. The underlying cause is not the available amount of money or the circulation rate as such, because prices can adapt to a specific amount of money and circulation rate. Disruptions only occur when the available amount of money or the circulation rate change. Consequently, if the flow of money could be made more stable then the economic system could become more efficient.
Two issues affect the stability of the flow of money. First, money does not depreciate. Money can be hoarded because money represents undifferentiated spending power. If money depreciated then hoarding money would be less attractive. Second, because money does not depreciate, interest on money is unavoidable. This increases the deficit of the economic agents that already have a deficit and it increases the surplus of economic agents that already have a surplus.
The economy can be seen as a system like the human body. All parts of the system need each other to operate properly. Imagine that money flowing in the economy is like blood flowing in the body. It does not make sense that a kidney is saying to the liver: "This is my blood you may borrow it at interest." It also does not make sense for body parts to rake a hoard of blood because there might be no blood flowing in the future.
The soundness of Natural Money
Governments are tempted to issue additional currency but with Natural Money there will be less incentive to do so. With Natural Money printing additional currency is not needed. Tax income increases because money is circulating faster. Should the economy slow and tax income reduce, which is unlikely to happen, then the economy can be revitalised by raising the holding tax. This has the same effect as issuing additional currency. To boost confidence, savings and loans can be guaranteed as a percentage of money supply.
With a basic income there is sufficient employment in the Natural Economy. Without interest there is no compensation for high risks so only people that are trustworthy will be able to borrow money. If people cannot afford to pay for their necessities and cannot borrow money then it is better to give them what they need. It is in their own interest that people cannot borrow money for things they cannot afford.
Money supply can be constant and there is a maximum compensation for risk, which is avoiding the holding tax by lending out money at 0% interest. Consequently banks choose the best borrowers. This will prevent the economy from overheating when there is a sudden burst in demand for capital. This will also prevent the bust that will eventually follow.
If the money supply is stable then the growth of capital will lower the prices of goods and services and the value of loans will increase in real terms. This is an interest on capital based on the economic growth of a nation. It is likely that there will be a positive return on lending money without interest. The Natural Economy will be stronger than an economy based on interest so returns in the Natural Economy will be higher. If interest based economies must compete with Natural Money economies for capital, they get into trouble as soon as the positive return on zero interest is discovered.
Because prices go down in the Natural Economy, the price of productive assets will also fall over time. This forces the owners of those assets to use them in a productive way. Letting those assets idle costs money. This will bring all productive assets to use and it will reduce opportunities to speculate, which is holding assets to make money on price inflation.
Introducing Natural Money maylead to more economic growth, but it will be economic growth of a different type. Growth in the Natural Economy will be sustainable and increase overall wellbeing as social needs are better addressed. Economic growth in the Natural Economy is not destructive. According to the research of Strohalm, economic growth will follow a natural curve instead of an exponential curve. At the same time there will be a higher level of prosperity and well-being [+].
Even though there will be economic growth in the Natural Economy, the exponential growth in materials consumption will end. Production means such as machines will be used longer, thus creating those production means will bring more prosperity. Products will be recycled more, creating more purchasing power. An item that is recycled five times can have the same value as five produced items. With limited resources more wealth can be created in an interest-free economy than in the interest based economy. People may have to work less but the extra leisure time can be seen as increased prosperity.
Periodic debt forgiveness
In The Bible once in seven years a Sabbath Year was introduced in which debts were forgiven (Deut. 15:1-18). Once in the fifty years there was a Jubilee (Lev. 25:8-55). In the Jubilee every man could return to his possession while the land had to be redeemed. The Bible also banned interest [+]. The periodic debt forgiveness in The Bible was not unique as Mesopotamian royal edicts cancelled debts, freed debt-servants and restored land to cultivators who had lost it under economic duress [+].
It is often argued that periodic debt forgiveness and a ban on interest charges will deprive people from needed credit. When there is a holding tax on money this will not happen. The absence of a risk premium in the form of interest and periodical debt forgiveness will refrain potential creditors from letting debtors go too far into debt. It is also in the interest of the borrowers not to borrow more than they are able to repay. The absence of interest and the introduction of a recurrent debt forgiveness can be helpful in curtailing unwise lending.
The freedom advocated by the Covenant Code of Exodus, the septennial year of release in Deuteronomy and the Jubilee Year of Leviticus were concrete legal practises freeing rural populations from debt servitude and the land from appropriation by foreclosures. It is reasonable to assume that those concepts will work well today. The creation of debt under a system of interest can be considered as fraud because new debts are needed to pay off the interest on existing debts, making debts grow exponentially. The current financial crisis can be considered as an endgame of a system of fraud by usury [+].
Money and interest on money have had a profound impact on historic developments but the impact of money and interest on history has never been adequately analysed. With the theory of Natural Money it is possible to put some historical developments into a new perspective. A number of those developments are:
- How could the Egyptian civilisation last for more than 2,000 years?
- How did Athens in Greece become a powerful city in antiquity?
- Why did Rome collapse?
- How did Western Europe become predominant during the Middle Ages?
- What caused the conflict between Capitalism and Socialism?
- What is the underlying cause of Wold War I?
- What is the underlying cause of Wold War II?
- Why is there a Clash of Civilizations?
Joseph in Egypt
The Bible contains a story about the Pharaoh having dreams that he could not explain. The Pharaoh dreamt about seven fat cows being eaten by seven lean cows and seven full ears of grain being devoured by seven thin and blasted ears of grain. Joseph was able to explain those dreams to the pharaoh. He told the Pharaoh that seven good years would come and after that seven bad years would follow. Joseph advised the Egyptians to store food in large storehouses. They followed his advice and built storehouses for food. In this way Egypt survived the seven years of scarcity (Gen. 41:1-45).
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 grain receipts for money and had built a sophisticated banking system based on this money . Farmers bringing in the food received receipts for grain. Bakers who wanted to make bread, brought in the receipts which could be exchanged for grain. According to the Bible, Joseph took all the money from the Egyptians (Gen. 47:14-15). This may have prompted them to invent an alternative currency.
It did not take long before the grain receipts were accepted as money. The degradation of the grain and mice eating from it, caused the value of the receipts to decrease steadily over time. This stimulated people to spend the money. The grain receipt system lasted for many centuries. It made sense to store food to provide for hard times. The actions of Joseph may have created this system as he allegedly proposed the grain storage and took all the money from the Egyptians. When Joseph came to Egypt, the country had already passed its zenith and the time of the building of the great pyramids was centuries earlier.
A few centuries later, during the reign of Ramesses the Great, Egypt became again a leading power . Some historians suggested that the wealth of Egypt during the reign of Ramesses the Great was built upon the grain financial system . The grain money remained in function in Egypt after the introduction of coined money around 400 BC until it was finally replaced by the Roman currency. The money and banking system were stable and survived for more than a thousand years without collapsing, possibly because the storage fee made people more willing to lend out money without charging interest.
The fall of Rome
A number of historians investigated the fall of Rome and consequently a number of theories have been proposed to explain this historic event [+]. From the Natural Money perspective, economic theories are the most relevant. In the fifth century the Roman historian Vegetius pleaded for a reform of the weakened army. The Roman Empire, and particularly the military, declined largely as a result of an influx of Germanic mercenaries into the ranks of the legions. This led not only to a deterioration of the standard of drill and overall military preparedness within the Empire, but also to a decline of loyalty to the Roman government in favour of loyalty to commanders.
There was a slump in agriculture and land was withdrawn from cultivation. High taxation on cultivated land was probably to blame. Another factor may have been the debasement of the currency that led to inflation. The debasement could been caused by interest on money, as the usurers may have amassed most of the gold and silver in the Roman Empire. Price control laws resulted in prices that were significantly below their free-market levels. The artificially low prices led to a scarcity of food. Together with increased taxation and oppressive laws, this led to a decrease in prosperity. In the Decline and Fall of the Roman Empire Edward Gibbon wrote:
Taxation was spurred by the expanding military budget, which was the result of the barbarian invasions and the use of mercenaries. Two centuries later the Eastern Roman Empire managed to survive the invasion of Arabs by introducing local militia that were not paid from the treasury but from local revenues [+]. Over time the ranks of the militia were filled with local people that had an interest in defending their own land.
Roman money was based on gold and silver. Contrary to the Egyptian corn receipts, this money could be hoarded and moved abroad. This meant that when the Roman Empire started to decline, money disappeared from circulation. This reduced trade and impaired the economy. Because of this, and the barbarian invasions, the government was permanently short of funds. This caused the debasement of the currency and the rise of taxes, which further burdened the Roman economy. In the end the invading barbarians have been seen as liberators.
Solon's economic reforms
Around 500 BC agricultural output in Greece was not able to keep up with increasing population. Because of interest charges, mostly paid to city people, the debt load for farmers had gotten out of hand so that many of them could no longer pay their debts and were forced into slavery. Farms became the property of rich city people who did not understand farm work, while slavery did not contribute to the productivity of agriculture.
Harvests declined and the people in the cities were threatened by famine. Solon realised that a healthy countryside is a countryside without debts. Farmers who understand the business of farming must make their own decisions. The farmer's ambition to improve himself is indispensable for a vital countryside. Solon introduced drastic measures eliminating all existing debts [+]. To avoid the expansion of new debts, a limit was also set to the rate of interest and the accumulation of land.
Solon also did set a moral example. He identified greed as having negative consequences for society. The modesty and frugality of the rich and powerful men of Athens may have contributed to the city's subsequent golden age. Solon, by being an example and by reforming legislation, may have established a moral precedent [+].
The rise of Europe
End of money
After the Roman Empire collapsed Europe fell back into a dark period called the Middle Ages. Money ceased to exist as gold and silver disappeared from circulation. Europe was fragmented and most of the time there was no central power structure. Not much is known about money in the early Middle Ages. The people of the Middle Ages were deeply aware of the temporality of human life. Charging interest was strictly forbidden and people felt morally obliged not to do this.
The ban on charging interest did not hamper economic development. Europe had to start at a very low level and 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 around the year 1100, there were so many resources to spend on this long war that the Western Europeans could battle the Muslims for centuries on their own ground, keeping long supply lines of thousands of kilometres, while the conquered land was not profitable.
Fiat and scrip currencies
In the second half of the Middle Ages some lords started to issue fiat and scrip money. The fiat money had a value because they could be used to pay taxes. Apart from making money legal tender, taxes can give value to money issued by governments. The scrip money was valid for a limited period of time. After that period the the money had to be returned to the ruler who exchanged it for new money that also was valid for a limited period of time. During the exchange a tax was levied. The actual value of the scrip currency decreased slowly during the period it was valid and was the lowest just before the tax was due.
An example of a fiat currency is the tally stick introduced by King Henry the First around 1100. Henry introduced sticks of polished wood, with notches cut along one edge to signify the denominations. The stick was then split full length so each piece still had a record of the notches. The King kept one half for proof against counterfeiting and spent the other half so it could circulate as money. Only tally sticks were accepted by Henry for payment of taxes so there was a demand for them. This gave people confidence to accept tally sticks as money.
The tally sticks remained in use until the early nineteenth century. In 1834, after the tally sticks had been decommissioned, they were used as fuel for the heating stoves of the Houses of Parliament. They burned so well that the fire spread quickly and destroyed both Houses of Parliament.
An example of a scrip currency is the brakteaten [+]. The brakteaten was used in Europe between 1150 and 1350 and brought a lot of prosperity. Brakteaten coins were silver plaques called back by the local authorities from time to time and then reissued with a new image. During reissuing a tax was levied that amounted to a holding tax. At first the currency was only reissued when a new ruler came to power. Later on the silver plaques were called back on a regular basis. Rulers started to abuse the currency and holding taxes reached 6% per month. For the citizens this burden became to heavy so they started to prefer gold and silver as money.
Gold and credit
In the late Middle Ages, from the thirteenth century onward, the money supply was greatly increased by goldsmiths who created money by lending out money they did not have in deposit. They invented fractional reserve banking which greatly stimulated trade. This gave an additional boost to the European economy [+].
The European economy started to run in a higher gear. Fractional reserve money became an important driving force for the exploration and exploitation of the rest of the world by Europe in the centuries that followed. The expansionist drive satisfied the interest payments on the increasing debt load, and in this way the interest based financial system gradually took hold of Europe.
Over the years the influence of banks gradually increased. Bankers have influenced wars, revolutions and political developments by financing parties in conflicts [+]. Central banks emerged, partly because the system of interest on money is inherently unstable, and partly because of political activities of bankers. Central banks were introduced to regulate the banking business and to prevent bank runs, but they also could generate a profit for private interests running the central banks.
Socialism and Communism
During the Industrial Revolution the world's average per capita income increased but in the nineteenth century most people did not feel that they profited from those developments. Many independent artisans lost their job and income. There was resistance. The Luddites were a social movement of British textile artisans in the nineteenth century who protested, often by destroying mechanised looms, against the changes enforced by the Industrial Revolution, which were leaving them without work and destroying their way of life.
Factory owners became rich but the workers remained poor. The social conditions of the nineteenth century gave rise to Marxism. According to Marxist theory workers were exploited because the value of their work was higher than the wages they received from the factory owners. Marxists thought that the surplus value of the labour turned up as profit for the factory owners. They did not see that capital enhances the productivity of labour and needs to be rewarded for that. Marxist analysis lead to the conclusion that capitalism oppresses the proletariat, the inevitable result being a proletarian revolution.
Marxism has not been able create a society that suited the needs of workers better. Socialism takes away the incentive for working hard and taking risk. Consequently, less work gets done and the available resources are not used to fulfil the needs of people. The end result is often that most people remain poor. Over time the conditions of workers in the capitalist societies improved while those in communist countries lagged behind. Another problem arises with redistributing income as it increases the tax burden of the middle class.
The Marxist analysis still points at the fact that the accumulation of capital results in an unequal distribution of wealth. The game of Monopoly demonstrates that this process is destructive in the end. At some point a few people possess all the means of production while the impoverished masses have no money to buy the products. As demand collapses, factories close and capital is destroyed. Marxists call this the crisis of Capitalism [+]. The core of Marxist analysis is still valid today as CIGA Shelly pointed out on Jsmineset.com:
The conflict between Capitalism and Socialism or between free markets and government intervention has dominated the political debate for more than a century. The underlying causes of the exploitation, which are interest on money and inheritances, have not been identified by most politicians and economists. This situation harms both business owners and workers [+]. Many people feel that the distribution of wealth in the current economic system is unfair or inefficient. Because interest on money and credit favour large scale operations and the accumulation of capital into the hands of a few, they are the underlying causes of the inevitable collapse of Capitalism predicted by Marxists [+].
After Adolf Hitler rose to power Germany issued debt free government money based on human labour [+]. Within two years unemployment had disappeared and the country was back on its feet. Germany had a stable currency, no debt, and no inflation, at a time when millions of people in the United States and other Western countries were still out of work and living on welfare. The national restoration programme of Nazi-Germany started with public works. Projects earmarked for funding included flood control, repair of public buildings and private residences, and construction of new buildings, roads, bridges, canals, and port facilities.
One billion bills of exchange, called Labour Treasury Certificates were issued to cover the cost. Millions of people were put to work on these projects and the workers were paid with the Treasury Certificates. The workers then spent the certificates on other goods and services, creating more jobs for more people. Economist Henry C.K. Liu wrote the following about Germany's remarkable transformation:
The success was based on balancing the rewards for labour and capital and economic stimulus. Germany managed to restore foreign trade although it was denied foreign credit and was faced with an economic boycott abroad. The lack of foreign credit and the boycott meant that the effects of the economic stimulus remained within the borders of the country because Germany could not buy foreign goods and services on credit. Nazi-Germany demonstrated that it is possible to rebuild an economy on the national level while being cut off from international finance and trade.
By 1936 Germany ran out of foreign currency reserves and this proved to be a turning point for the German trade policy. Hjalmar Schacht was replaced by Hitler's lieutenant Hermann Göring, with a mandate to make Germany self-sufficient to fight a war within four years. Under Göring imports were slashed. Wages and prices were controlled. Dividends were restricted to six percent on book capital. And strategic goals to be reached at all costs were declared: the construction of synthetic rubber plants, more steel plants and textile factories [+].
Interest and war
World War I
World War I has been caused by a number of factors, such as the rise of nationalism, the system of alliances, arms races and military planning, imperial and colonial rivalry for wealth and power and economic rivalry in industry and trade. Most historians agree that economic factors played a significant role in the rivalry between nations before World War I. In the years before 1914 the final conquests in Africa were made and further colonial expansion had become impossible. European colonial expansion started around 1450 and its main driver had been the fractional reserve interest bearing money invented by the goldsmiths [+].
It may not be a coincidence that World War I started just after further colonial expansion became impossible. The tensions that were building before 1914 probably have been fuelled by economic stress caused by the growth imposed by interest on money. It is reasonable to assume that interest on money and fractional reserve banking have been important underlying causes for World War I. Possibly they have been most important underlying causes.
According to G. Edward Griffin and Rothbard bankers have played an important role in the entry of the United States in World War I. European governments started issuing war bonds. England and France selected the House of Morgan in the U.S. to act as their sales agent for the bonds while American big business started to work for the Allied cause. If the allies would lose then the allied bonds were going into default. The US Treasury could make direct grants to the Allies but only if the U.S. entered the war. After the United States entered the war, the Allies credits were extended so the loans to Morgan could be to paid off. In this way the Morgan was saved.
World War II
Interest on money and fractional reserve banking have also been important underlying causes for World War II. World War II had not been possible if Adolf Hitler had not risen to power. This happened for a number of reasons. They can be summarised as follows:
- The Peace Treaty of Versailles was humiliating for Germany and a direct consequence of World War I. Interest on money and fractional reserve banking have been important underlying causes for World War I.
- The economic hardship and the Great Depression are often seen as important causes for the rise of Adolf Hitler. Economic cycles and economic depressions are caused by interest on money and credit in the fractional reserve banking system [+].
- Anti-Semitism in Germany also helped Adolf Hitler. The charging of interest by Jews and banking with interest have been important causes of anti-Semitism [+].
As the United States had a negative trade balance for decades it became impossible to keep the US dollar on the gold standard. In 1971 the United States unilaterally terminated convertibility of the US dollar into gold. The US dollar could remain its reserve status, partially because oil was traded in US dollars. The American Empire depends on the US dollar being accepted as a reserve currency. It is by the US dollar reserve status that the oligarchs ruling the United States can exploit the resources and labour of other nations for their political goals and profits. It is often argued that the United States is waging wars in the Middle East to support the reserve status of the US dollar [+]. The Iraq war started after Saddam Hussein had made the move to accept euros instead of US dollars for oil.
The latest American sanctions are aimed at shutting down Iran's central bank. It is possible that monetary considerations and the reserve status of the US dollar has influenced decisions to start wars in the Middle East. The Central Bank of Libya was 100% state owned. Gaddafi was ousted at a time he was planning an all-African currency for conducting trade. He also planned to quit selling Libyan oil in US dollars, demanding payment instead in gold-backed dinars. France was the first country to support the Libyan rebels and its leader Nicholas Sarkozy called Libya a threat to the financial security of mankind [+]. One of the first acts of the Libyan rebels was to create a new central bank [+]. According to Ellen Brown, Libya challenged the supremacy of the dollar and the Western banks like Iraq under Saddam Hussein. Alex Newman made the following observations:
The Clash of Civilizations (World War III)
The Clash of Civilisations can be seen in a wider context. Economic expansion and interest bearing money disrupted communities and destroyed cultural values all over the world. Tens of millions of people were killed in the process, such as the indigenous people of America. The wars caused by interest on money killed tens of millions more. The Clash of Civilisations is also cover for resource wars as the insatiable demand for natural resources like oil in the interest based economy is a driver for wars like the one in Iraq [+].
In the end interest on money destroys all cultural values and civilisations. As long as the cultural values being destroyed and the people being killed were in third world countries, most people in the West did not care. Now the influx of immigrants starts to threaten Western societies and Western values. The economic expansion brought a large number of Muslim immigrants to Western Europe. In the 1960's and the early 1970's labour was in short supply. If there had been no interest on money, economic expansion would have been confined within the limits of the available resources, and the large influx of immigrants into Europe would never have occurred.
Superior efficiency can enforce change
In the following twelve steps it is explained how Natural Money can help to create a more efficient economy:
1. It is not allowed to charge interest on Natural Money.
2. There is a tax on holding Natural Money. This is not a tax on wealth, so shares, real estate and money lent, are not subject to this tax.
3. Banks and governments are not allowed to create Natural Money so inflation will stop.
4. The holding fee on Natural Money is an incentive to use the money for investment, consumption or lending without interest.
5. Because interest is also an allowance for risk and no interest can be charged on Natural Money, the following will happen:
- Money will only be lent to reliable people and companies.
- Less money will be lent and more money will be directly invested in equities and real estate.
6. There will be fewer economic crises as Natural Money will be spent or invested directly and there will be fewer debts.
7. There are fewer economic crises so the economy grows more steadily.
8. As the economy grows steadily, while no additional Natural Money is created, prices will fall.
9. There will be sufficient business activity and work so we can live without fear for economic crises.
10. Improved economic growth causes zero percent Natural Money loans to have real returns that are better than returns in the interest based financial system.
11. If Natural Money is applied somewhere, it will cause a capital flight to the interest free economy because of the higher returns.
12. This will force the rest of the world to adopt Natural Money.
Markets will enforce the change because of a capital flight from the interest based economy to the Natural Economy. The improvement in returns in the Natural Economy may not always be higher return rates per se, but it can also consist of better risk reward ratios. To make it work this way, no more currency should be issued after the introduction phase. The Natural Money currencies should float against interest bearing currencies in a free market so they can rise in value.
Crucial for starting a Natural Money based economic zone, sufficient people and businesses must accept the money for payment. The government accepting the money for tax payments will improve the chance of success. If Natural Money is legal tender, and the only money allowed for payment, success is nearly certain.
It can create a powerful economy
It is possible to rebuild an economy destroyed by debt with Natural Money. Natural money can create a powerful economy within a short timeframe. The introduction of Natural Money will have implications that are difficult to foresee. These consequences can be both favourable as unfavourable. In any case the introduction of Natural Money will be an economic revolution the world has never seen before. This should be done with a great understanding of the concept, with great care, and without compromise.
From an engineering viewpoint using systems theory the Natural Economy seems is the most efficient market economy possible. This has far reaching consequences. Societies implementing this system will not destroy capital but only build capital. Those societies do not waste resources on financial activity or government intervention. Those societies will be more prosperous. Natural Money will replace all other forms of money and banking interests will not succeed in preventing Natural Money from being introduced worldwide.
Natural Money can be chosen by a group of people deliberately. It can be selected in an unconscious process like in ancient Egypt. It can be enforced by rulers like in Europe in the Middle Ages. Natural Money can be used on a small scale, a large scale, or even worldwide. Natural Money can be used in a democracy but it can also be used in a totalitarian state. Natural money assumes only economic freedom but this does not mean political freedom. Even though government intervention in the economy is not needed, Natural Money does not require a specific size of government. The extra wealth created by Natural Money can flow to the citizens, but it can also flow to the state. Natural Money is not good or bad in itself but only a powerful concept.
Stimulating local trade
Currently a producer such as a farmer only gets a small portion of the price for which a product is sold in a supermarket. Farmers and small producers have little bargaining power versus large supermarket chains. If products could be produced and sold locally then both producers and consumers could get a better price. This will greatly improve the efficiency of the economy. Currently the number of local currencies is growing [+], and they can be helpful in areas that are hit by the economic crisis such as Greece [+].
It is possible to issue national Natural Money currencies only, but this will not support local decision making. States and municipalities can issue their own currencies that circulate along with the national currency. If they come into existence, those currencies can be used for payments within the state or the municipality. People will be inclined to spend the local currencies first because they can only be used locally. This will stimulate local trade at the expense of long distance trade [+].
Local currencies have the following advantages:
- They promote local trade and create employment in the local community.
- Local production will replace centralised production which makes the economy more energy efficient.
- Local currencies will generate tax income for local governments.
- Local currencies give local communities more possibilities to handle their own affairs, making a central government less needed.
Transactions done in local currencies may not need to have the full legal status of a business transaction. Those transactions can have the legal status of neighbours helping each other just like the transactions in a LETS system. Current legislation favours large scale centralised production because of the risk of litigation and the investments that are needed to comply with legislation. The community issuing the currency should determine which regulation applies on transactions in the local currencies. The national government can set a framework of guidelines and minimal requirements for transactions in local currencies.
There is a possibility of currency confusion as there could be up to one million currencies world wide if all municipalities issue their own currency. On the other hand most people will only use the currency of their own community, state and country and will use no more than three to five. Still this is more than most people are used to and this may cause confusion. Over time people will become accustomed to multiple currencies. It will be difficult to create fixed exchange rates between the currencies unless there is a requirement to back local currencies with the national currency.
Some limitations of a Natural Money are:
- There are less funding options. There is no compensation for the risk of loans not being repaid. Companies can raise capital by issuing shares or by borrowing money without interest. Only companies that are credit worthy will qualify for loans. Other companies will need to attract capital by issuing shares until they are credit worthy enough to be able to borrow money without interest.
- Businesses that need flexible financing will have to allocate capital in advance by issuing shares or borrowing money. This will introduce additional costs because of the holding tax on money. This cost can be passed on to the customers because all companies in the same business should be in the same situation.
- Natural Money does an appeal on the rational mind. The drive for people to get rich without working is eternal. A purely rational man would never participate in a lottery or a pyramid game. Yet there are many people doing just that.
With Natural Money it is not possible insure loans because this introduces a moral hazard. The insurance fee is a form of interest. It is possible to insure collateral if it is not money in any form. Bonds pose a problem. Bonds can be issued at 0% but if the credit quality of the issuer deteriorates, the value of the bond goes down. This means that there could be a positive interest rate on the bond. In such a situation the organisation issuing the bond should be forced to attract additional capital or to reorganise its finances.
There is danger that interest will be reintroduced in some way. People will wonder why the borrower does not have to pay a compensation or why the owner of the money should pay a fee. Any commission a borrower pays is interest. Interest can manifest itself in different forms. Without good legislation and enforcement, possibilities will be stretched and irresponsible risk taking in the financial system can come back.
Questions about money supply and debt
If money supply is constant, will it be possible for the economy to grow?
Prices will adapt to the available money supply. This can be demonstrated by the game of Monopoly. If you take a sixty years old game of Monopoly, there is less money available than in a more recent game. Increasing the money supply a hundredfold does not change the game when prices also rise a hundredfold. This is also true in the real economy. If the money supply rises then prices will also rise.
The value created in the economy is not dependent on the money supply. Most economists mistakenly believe that the money supply should be managed. A constant money supply is not a problem if the financial system is sound. A strong increase or decrease of the money supply can be harmful to the economy. The Natural Financial System is based on sound monetary principles because there is no interest on money. Consequently, the money supply in the Natural Financial System can be constant.
Why can the economy collapse if debt is not increasing?
Interest payments result in expanding debts an a debt collapse is inevitable as the following example demonstrates:
If someone has money in the bank and if it remains there forever, then an ever increasing amount of debt is needed to pay for the interest on the money. Interest on money results in a choice between debt expansion or a monetary and economic collapse.
Is it not better to introduce a gold standard to curb the growth of debt?
With gold or silver being money, the existence of interest on money cannot be avoided because gold and silver can be stored. For this reason, it is not possible to raise a holding tax on the money. There will be no incentive to lend money without interest. If we return to the gold standard the monetary system will evolve into a situation like we have now because people do not accept that banks go bankrupt and that there is a process of creative destruction with strong economic growth alternating with recessions and depressions. The gold standard will not lead to a economic order that is stable.
Why is it that the problems in the interest based financial system come to light right now?
If economies grow then leverage can make interest work positively for the economic development, because the extra growth above the interest adds to prosperity. That we see in emerging economies, but also in many European countries in middle of the last century. Once the economy turns into a mature phase, economic growth becomes a mere statistical fiction. The growing debt will become a drag on the economy.
In 1971 the link between gold and money, which over the years had become increasingly detached, was completely deserted. Financial innovations have since then created the possibilities for debt to grow further. This did not seem a problem for a long time. Now debts have become so large that many people get into financial trouble and the interest based financial system is at risk.
Questions about money without interest
May capital earn interest?
Capital should earn interest otherwise there will be no incentive to employ it. Only interest on money should be forbidden and money should not be capital. Gold and silver are capital because it takes effort to mine precious metals so gold and silver cannot be lent without interest. Fiat money is not capital as it requires little effort to produce. For this reason fiat money is not capital and does not need interest.
Is money without interest money for free?
In the current financial system banks and governments can create money with little effort. This is money for nothing. The value of loans reduces over time because of price inflation. Natural Money is not for free because the money supply is constant. The borrower has to pay back the same value. If the economy grows then the value of the loan increases. The interest based financial system penalises savers when interest rates are low and borrowers when interest rates are high.
How does a ban on interest reduce excessive risk taking?
Since there is no allowance for risk money will only be lent money to credit worthy people and businesses. Furthermore, without interest payments the credit worthiness of borrowers will not be eroded. Because of the holding tax on money, there are no booms and busts. It is less likely that borrowers get into trouble because changing economic conditions.
Is a saver worse off without interest?
The interest rate the bank pays to savers is often lower than the price inflation rate, and nearly always lower than the growth of money supply. When the value of money is not eroded by printing of money, savers will be better off with zero percent interest in most cases. In the Natural Economy economic growth increases the value of money so there is often a real return on money without interest.
Is a borrower worse off without interest?
If the interest rate on the loan is lower than the inflation rate, a borrower will be worse off without interest. This is usually not the case as most loan rates are higher. In recent years interest rates for high quality mortgages have been low. Often they have been lower than the increase in money supply.
Interest rates in Japan are near zero percent. Does Japan have Natural Money?
The interest rates in Japan are low but this is not Natural Money. About 20 years ago, the banking system in Japan had been inflated by credit. Since then interest rates have been around zero percent to prevent a collapse of the monetary system. For the same reason interest rates in the United States and Europe have been low in recent years.
Do Islamic countries have Natural Money?
Charging interest is forbidden for Muslims, like it was for Christians. Islamic banks take a share of the profit of the companies they invest in and depositors get a share in the profit of the bank. Islamic banks do not lend money at interest but invest in the operations of their customers. Islamic banks do not provide loans at zero interest.
Questions about banking with Natural Money
Should banks be nationalised?
Banks have a special role in society because they are keepers of the financial system. With Natural Money banks must not be able to use money entrusted to them for investing. They must use all funds to make loans without interest. Banks can do this for their own risk. Banks should get an compensation for the risk of loans not being repaid. Depositors will pay for this compensation. Banking for profit is possible with Natural Money so banks can be private companies.
Are savings safe with Natural Money?
The Natural Economy will be stable. Bankruptcies and bad debt are rare. When certain loans cannot be repaid, depositors may loose some of their money. As there are less economic crises with Natural Money, it is less likely that a bank will become insolvent. Liquidity issues may occur more often when banks are smaller. This may mean that deposited money can be locked in a savings account until loans are repaid.
Should a government protect national businesses and employment from international competition?
Competition from abroad is not the cause of the financial crisis nor is it the true cause of unemployment. The free flow of money in international financial markets is causing crisis and unemployment as countries can manipulate currency rates in order to sustain unbalanced trade. With Natural Money international trade will be balanced as the holding tax on money will make it unattractive to hold currency reserves.
When trade is balanced then the stimulus of the holding tax will remain within the borders of the country. It is also possible to have a basic income as countries do not have to fear international competition. Consequently there will be sufficient employment and income security for the citizens.
Will Natural Money make international trade more difficult?
It is more difficult to have deficits or surpluses on the current account for a longer period of time. When a country pays another country in Natural Money for goods or services, the other country is encouraged to lend out the money or use the money for investment or consumption in the issuing country.
It is possible to have an international currency unit, which can be based on all Natural Money currencies in circulation. The holding tax rate of the international currency unit can be a weighed average of the holding tax rates of the underlying Natural Money currency units. The proceeds of the holding tax will go to the governments issuing the Natural Money currencies. There may be a surcharge on the international currency unit for international organisations like the United Nations.
Questions about the transition to Natural Money
Is a transition to Natural Money possible?
It is possible to start up local Natural Money currencies. If they are a success then more local Natural Money currencies will be set up and countries will become interested in introducing Natural Money on a national scale. Change will come when the problems are serious and when successful examples have demonstrated that Natural Money is the way out of the current crisis. The stakes are high so the power that be will try to block the reform.
How can a transition to Natural Money take place?
There are two approaches to the transition to Natural Money: gradual and big bang. During a big bang approach all balances are converted to Natural Money currencies after a political decision. A big bang will require a large effort in a short period of time. People have to be informed and businesses have to adapt their administrative systems in this short period. A big bang is risky as it is difficult to address issues that emerge during the transition.
In a gradual approach Natural Money currencies spread and replace interest bearing currencies for payment. During the initial phase Natural Money currencies are backed by interest bearing currencies and there is a fixed exchange rate between them. During the gradual approach issues can be addressed when they emerge and this provides the flexibility to make the process of transition as little disruptive as possible.
The introduction of Natural Money may undermine confidence in the interest based financial system and consequently banks may fail. The government may be forced to take over the administrative systems of the banks in order to let payments continue without disruption. The government may also be forced give a guarantee on deposits. A debt forgiveness may also be executed but this issue may also be addressed after the transition.
How can deposits and debts be converted into Natural Money?
All debt denominated in fiat currency is not worth more than the currency itself. As money is converted to Natural Money, deposits and debts will also be converted to Natural Money. After the conversion debts will be interest free while depositors will pay a compensation to the bank. Deposits are not subject to the holding tax and the compensation paid to the bank will be a fraction of the holding tax so deposits will still be attractive. If the transition is gradual then debts and deposits must be transferred to Natural Money in the same pace.
Why do governments encourage debts of consumers and businesses?
To keep the economy growing, debts have to grow. Deposits grow because rich people can save money and receive interest on this money. If deposits grow while now new debts are made then the money supply decreases and this weakens the economy. Debts have to grow otherwise the economy collapses and the interest on the debts cannot be repaid.
Is a holding tax on money a tax on the rich?
The holding tax on money is not a tax on capital. Stocks, real estate and money lent are not subject to this tax. The holding tax on money is aimed at keeping the money in circulation, so the economy will not falter. The purpose of the holding tax is not to redistribute money.
Is inflation not a holding tax on money?
Inflation is not the same as a holding tax on money. Apart from fluctuation in supply and demand for goods and services, inflation is caused by increasing the money supply, even though this link is not always directly visible. Inflation is a stealth tax on money and many people are not aware of this.
With Natural Money the money supply does not grow but money is taxed directly, which makes the taxing visible. The holding tax will also stimulate people to circulate the money. Inflation does not have the same effect unless the inflation rate is high. High inflation can undermine the confidence in the money.
Why do religions condemn interest on money?
The Bible and the Quran state that interest on money is forbidden [+]. The Jews wrote this rule down in the Old Testament. In Islam interest is forbidden. Christianity also condemned charging interest on money. Based on the evidence it is likely that God sees charging interest as one of the most gravest sins.
What is the relation between interest and mass migration?
Economic refugees are coming to rich countries in increasing numbers. The driver behind mass migration is the difference in wealth between rich nations and poor nations. Interest on debts made it difficult for poor countries to reduce their debt burden. Poor countries have lured into debts to create profits for the oligarchs [+].
In his book War Cycles Peace Cycles Richard Hoskins argues that interest on money causes migration. According to Hoskins the consequence of having a debt/usury-based monetary system is a declining birth rate. When interest compounds debt over time, due to the lack of enough money to pay the existing debts, the debt-plagued native population stops reproducing due to the high cost of living.
This in its turn leads to the influx of foreign peoples. Hoskins states that mass immigration is an absolute necessity for any interest based system since new money must always be borrowed into existence. Immigrants represent new debt-free borrowers and bank customers [+].
What is the relation between interest and war?
When an economy collapses because the interest on debt can no longer be paid, the following scenarios can unfold:
- A war can be started to obtain access to new markets so the economy can grow to sustain more debt and interest payments.
- It is possible that a war will be started to ensure that the financial collapse will be attributed to the war and not to the banking system and interest payments.
- It is possible that a war is started to increase inflation by printing money. This eliminates debt and generates new economic activities.
- A chain reaction of bankruptcies may emerge as the economy goes into a depression. Many people will become dissatisfied. The leaders of a country may then look for an enemy to draw away the attention of the public from the economy.
In his book War Cycles Peace Cycles Richard Hoskins argues that a consequence of having a interest based economy is war. According to Hoskins wars are typically fought as a desperation measure to stimulate an economy suffering from the effects of deflation, which is a consequence of interest on money. Wars tend to have the effect of providing a short-term stimulus to the economy since new money has to be borrowed into existence in order to fight the expensive battles while industry is provided an excuse to begin operating at full capacity again. This is followed by a "peace" phase of non-aggression, completing an idealised cycle of approximately 50 years. Hoskins identifies his War/Peace Cycle with the 50-year "Jubilee Cycle" mentioned in the biblical book of Leviticus. Without interest bearing debt there could be no such cycle [+].
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2. Fed’s image tarnished by newly released documents, Zachary A. Goldfarb, Washington Post, 2012: http://www.washingtonpost.com/business/economy/greenspan-image-tarnished-by-newly-released-documents/2012/01/12/gIQAvh0mtP_story_1.html; backup copy: http://www.naturalmoney.org/fedimagetarnished.html
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5. Financial services - Wikipedia (as on 28 October 2013): http://www.naturalmoney.org/financialservices.html; current version: http://en.wikipedia.org/wiki/Financial_services
6. Financial Markets, Lecture Notes, Coursera: http://www.naturalmoney.org/financialmarkets.html#0302
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9. Laboratory readings: Wörgl's Stamp Scrip – The Threat of a Good Example?, Martin Oliver, Newciv.org, 2002: http://www.newciv.org/nl/newslog.php/_v105/__show_article/_a000105-000002.htm; backup copy: http://www.naturalmoney.org/example.html
10. A Free Money Miracle?, Jonathan Goodwin, Mises.org, 2013: http://www.mises.org/daily/6336/A-Free-Money-Miracle; backup copy: http://www.naturalmoney.org/freemoneymiracle.html
11. History of Money, 1930 – 1933, Mindcontagion.org: http://www.mindcontagion.org/money/hm1930.html; backup copy: http://www.naturalmoney.org/mc-historyofmoney-1930.html
12. Scrip / France, Barataria.org: http://www.naturalmoney.org/stampscrip.html
13. Web Of Debt, Ellen Hodgson Brown, Fifth Edition
14. The Natural Economic Order Third Edition, Silvio Gesell, 1919, translated by Philip Pye M.A.: http://www.silvio-gesell.de/en/neo/index.htm
5. A Strategy for a Convertible Currency, Bernard A. Lietaer, ICIS Forum, Vol. 20, No.3, 1990: http://www.itk.ntnu.no/ansatte/Andresen_Trond/finans/others/interest-free-money.txt; backup copy: http://www.naturalmoney.org/convertiblecurrency.html
6. Ramesses II - Wikipedia (as on 3 September 2013): http://www.naturalmoney.org/ramesses2.html; current version: Ramesses_II
7. This was mentioned on Discovery Channel or National Geographic but I was unable to recover the source