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Natural Money: The most efficient monetary system

May 20, 2009 - October 19, 2009


Introduction

We live in an economic system that is very inefficient. In times of crisis many companies go bankrupt because there is no demand, even though they make useful products. Many people will become unemployed, so demand falls back even further. Governments and central banks intervene, which disturbs the functioning of markets. This enables inefficient companies to remain in business when they benefit from government intervention and the intervention in the financial system by central banks.

The fundamental cause of economic inefficiency is usury, which is the charging of interest on money. The following example demonstrates that interest on money is unsustainable and leads to crisis:

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 been 3.6 * 10^31 kilograms of gold. This is 1.9 * 10^27 cubic metres of gold weighing 317 times the complete mass of the Earth.

An ever increasing amount of debt is needed to pay for the interest on the money. At some point this leads to crisis. During an economic crisis capital is destroyed. Destruction of capital is no problem when a company does not make useful products. However when a company does make useful products, capital destruction is inefficient because the destroyed capital has to be rebuilt when the crisis is over.



The solution

Money is power more than anything else. Therefore issues regarding money should be handled with the greatest amount of understanding possible. Founding a democracy using the separation of powers also known as trias politica, which divides the estates in an executive, a legislative, and a judiciary branch, without addressing the issues of money correctly, leads to a concentration of money power in the financial sector and governments that undermines democracy. People and markets can never be free if there is a concentration of power in the financial sector and governments. Therefore the financial sector and governments should be regulated in such a way that they have a positive impact on wealth and that money does not dominate the destiny of humanity.

The central question is: Should the fate of a nation or the world be determined the people or by the bankers? In other words: Should a nation or the world be governed by the people through their elected representatives or by an unelected financial elite?

It is possible to achieve a much greater prosperity, with maximum capital growth without inflation, large debts, economic crises, unproductive government intervention and the unproductive part of the financial sector. Natural selection will ultimately determine the most efficient economic system, despite the political power structures that still exist at this moment. The investigation of alternatives and dissemination of knowledge will accelerate this process, but the ultimate outcome will not change.

Natural Money is the most efficient monetary system that will therefore become the dominant monetary system of the future. Natural Money will result in constant economic growth at maximum potential and will therefore make other monetary systems obsolete. Natural Money has the following characteristics:
- a holding tax, which amounts to 0.5% to 1.0% a month;
- a complete ban on usury, which is charging interest on money;
- a money supply that is constant;
- a complete ban on credit, which is creating money out of nothing.

The basic concept of Natural Money can be explained using the following 12 steps:

1. Interest on money should be banned. Return on capital is a good thing, and should not be abolished.
2. Raise a tax on money. This is not a tax on wealth, so shares, real estate and money lent, are not taxed.
3. Do not create more money, so there will be no monetary inflation.
4. Because there is a tax on money, people will soon use the money to invest, to consume or to lend without interest.
5. Because on money lent, no interest may be charged:
- money will only be lent to reliable people and companies.
- less money will lent and more money will be directly invested in equities and real estate.
6. Therefore there will never be an economic crisis, because money is spent directly and there are no bad loans.
7. Because all money is directly used for investment or consumption, the economy grows steadily at maximum potential and there is full employment.
8. The financial sector is largely superfluous. That is a good thing, because this sector produces nothing and destabilises the economy.
9. Governments also need much less to interfere with the economy.
10. As the economy grows constantly at maximum speed, and because no more money is created, prices will fall. Therefore loans with zero percent interest will have a return that is probably higher than the interest rate you will get at the bank now. The money lent will be worth more when the loan matures.
11. If one country chooses to apply this system, it will attract capital from other countries since the return of loans with zero percent interest rate is higher than the yield on interest in other countries. Therefore, all other countries will need to do this, if one country has changed its money system in this way.
12. Now everyone can achieve economic freedom. There will always be work for employees and there will always be customers for viable businesses. Nobody is deeply in debt.



Natural Money in history

The miracle of Wörgl

There are a number of successful examples of the introduction of money with a holding tax. Wörgl is the best known example. During the Great Depression, the Austrian town of Wörgl made economic history by introducing a complimentary currency. The mayor Michael Unterguggenberger had a long list of projects he wanted to accomplish, but there was hardly any money with which to carry them out. Rather than spending the 40,000 Austrian schillings in the town’s coffers to start these projects off, he deposited them in a local savings bank as a guarantee to back the issue of a type of complimentary currency known as 'stamp scrip'. The Wörgl currency required a monthly stamp to be stuck on all the circulating notes for them to remain valid, amounting 1% of the each note’s value.

Because nobody wanted to pay what was effectively a hoarding fee, everyone receiving the notes would spend them as fast as possible. The 40,000 schilling deposit allowed anyone to exchange scrip for 98 per cent of its value in schillings. This offer was rarely taken up though. 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 scrip within the local economy, 14 times higher than the Schilling. This in turn increased trade, creating extra employment. At the time of the project, Wörgl was the only Austrian town to achieve full employment. Six neighbouring villages copied the system successfully. In January 1933, the project was replicated in the neighbouring city of Kirchbuhl, and in June 1933, two hundred Austrian townships were interested in adopting the idea. At this point the central bank panicked and decided to assert its monopoly rights by banning complimentary currencies. The people unsuccessfully sued the bank and later lost in the Austrian Supreme Court. It then became a criminal offence to issue 'emergency currency'.


Joseph in Egypt

Money with a holding tax was first introduced when Joseph was viceroy of Egypt. When the pharaoh had dreams about seven fat cows being eaten by seven lean cows and seven full ears of corn being devoured by seven thin and blasted ears of corn, Joseph explained the dreams to the pharaoh. He told the pharao that seven good years would come and after that seven bad years would follow. Joseph advised the Egyptians to store food on a large scale. They followed his advise and built storehouses for food. In this way Egypt survived the seven years of scarcity.

What is less known, because it is not recorded in The Bible, is that the storing of food resulted in a financial system. The historian Friedrich Preisigke discovered that the Egyptians used corn receipts for money (see also: Bernard Lietaer - A strategy for a convertible currency). Farmers bringing in the food, got receipts for corn. Bakers who wanted to make bread, brought in the receipts, which could be exchanged for corn.

Because Joseph took all the money from them (Gen. 47:14-15), the Egyptians had to invent an alternative currency. Therefore it did not take long before the corn receipts where generally accepted as money. Because of the degradation of the corn and mice eating it, the value of the receipts was steadily decreasing. This enticed people to spend the money fast.

The situation in Egypt was similar to the situation to Wörgl during the Great Depression, where money effectively ceased to function. The corn receipt system in Egypt remained there for more than 1,500 years. It did not collapse in the end but was forcibly replaced by Roman money when the Romans took control over Egypt. Therefore this monetary system must have been very stable and satisfactory.



Effects

With the use of Natural Money all kinds of problems we face now can be solved. Natural Money will have the following effects:
- Natural Money can help to save the Earth and nature by promoting sustainable investment and recycling;
- Natural Money can help to free people and countries from debt slavery;
- Natural Money can help to end unemployment without government intervention;
- Natural Money can help to create a stable economy without crisis which does not need government or central bank intervention;
- Natural Money can help to end senseless economic activities in the money system which destroy the economy;
- The introduction of Natural Money will result in a dramatic rise in government income which makes it easy to lower taxes and address the social problems that now exist in society.

Natural Money economies will perform better than all other kinds of economies. This will attract investment capital and will force all other economies to adopt the Natural Money system.



Stimulating local trade

States and municipalities can issue their own currencies that circulate along with the national currency. If they come into existence, those currencies should only be used for payments within the state or the municipality issuing the currency. 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 therefore generate 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 the central government less needed.



Quotes

Silvio Gesell outlined the theory of Natural Money in the Natural Economic Order. Many famous economists and scientists saw the enormous potential of Natural Money:
- "I thoroughly enjoyed Silvio Gesell's brilliant style. The creation of money that cannot be hoarded will lead to a different and more real kind of property."
Professor Albert Einstein, Nobel Prize Winner
- "Gesell's name will be a leading name in history once it has been disentangled."
H.G. Wells
- "The application of Gesell's principle of circulation of money will lead the nation out of the depression within two to three weeks. I am a humble student of this German-Argentine businessman."
Professor Irving Fisher, Yale University, America's greatest economist
- "I believe that the future will learn more from the spirit of Gesell than from that of Marx."
John Maynard Keynes
- "Gesell's work will initiate a new epoch in the history of mankind."
Prof. Dr. B. Uhlemayr
- "Gesell's discoveries and proposals are of the greatest importance for centuries to come."
Dr. Theophil Christen, eminent mathematician and physicist, Berne



More information

The following information can be found on the Naturalmoney.org website:
- The Natural Money theory in detail can be found here: http://www.naturalmoney.org/full-theory.html.
- A conversion plan to the Natural Money economy can be found here: http://www.naturalmoney.org/conversionplan.html.
- A design for the Natural Money financial system can be found here: http://www.naturalmoney.org/finsectordesign.html.
- A plan for creating a sustainable future with the help of Natural Money can be found here: http://www.naturalmoney.org/buildfuture.html.
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