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In the future there will be no interest on money

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Banks have a maturity transformation function because savings and loans tend to have different maturities. On average savings with a shorter maturity are transformed into loans with a longer maturity, which is inflationary insofar savings are liquid. In theory it is possible move any positive balance on a current account to a savings account and supplement any negative balance on this current account with money from the same savings account. There is little difference between such an arrangement and fractional reserve banking. The real problem is that money in current accounts is subject to the same risks as savings so putting money in a savings account is not purposefully accepting the risks of banking and being rewarded for this.

The boom-bust cycle would still exist when loans are made out of savings, simply because compound interest is infinite in the long run. During the boom phase there tends to be excessive optimism and high interest rates seem to be justified by future incomes, but those high interest rates also precipitate a bust. Lowering interest rates tends to extend the boom phase and possibly makes the bust worse. This is an important insight from the Austrian business cycle theory. The Austrian School also stresses the importance of purposeful action by individuals. Putting money in a savings account should imply accepting the risks of banking in order to receive a higher return, otherwise moral hazard may pervade the financial system.

Many proponents of the Austrian School of Economics favour a gold standard. The value of gold depends on its rarity, attraction and monetary qualities. Its value does not depend on the trustworthiness of an issuer. Over the ages gold has retained its value while other currencies did not. The problem with using gold as money is that it makes interest on money inevitable as gold does not depreciate. Gold is an excellent store of value and it is prudent to have a certain amount of gold and silver in case the currency system fails. Gold will always be a substitute for money. A possible introduction of Natural Money currencies will not change that.

Community currencies and National Socialism

The community currencies movement and National Socialism have remarkably similar views on the economy. The community currencies movement seeks to reassert local control over economic life and money using local interest free currencies. The movement alleges that the requirements of international markets, and most notably interest, cause economic suffering. National Socialism tries to do the same on the national level and also sees interest and international finance as the main culprits of economic suffering. Trade between nations is based on mutual exchange, otherwise capital controls may be needed to balance international trade.

The economies of scale and unrestrained international trade have downsides, such as the depopulation of the countryside, mom and pop stores being replaced by larger retail chains and Internet stores. By introducing closed circuits of money circulating on the local or regional level, the community currencies movement seeks to reduce the pressure of competition in order to help a middle class of smaller local and regional labourers and entrepreneurs.

Both ideologies try to curb the freedom of movement of capital and want to break free from the international financial system that is considered to be parasitic in order to make the community or nation more self-determined. The community currencies are backed by labour and often have a holding fee that provides a stimulus. The government of Germany in the 1930's issued a currency backed by labour and spent it on rearmament and public works to provide a stimulus. In the Austrian town of Wörgl a community currency enjoyed a considerable success.

This approach can have merits during an economic crisis. It needs capital controls or an exchange fee to discourage external trades. The Wörgl success was inflated by deferred tax payments. People that were unable to pay their taxes previously were able to pay them in the community currency, giving the town council money to provide an additional stimulus. This effect would be reduced after all taxes due had been paid off. The economic success of Germany in the 1930's was mostly caused by spending on rearmament. If all the money had been spend on public works instead, it may have resulted in the construction of useless roads and buildings.
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Socialism and Marxism

According to Marxist analysis there is a class conflict within capitalism between labourers and wealthy businesspeople. Marxists contend that modern highly-productive production methods and private ownership leads to private appropriation of the surplus value of labour (profit) by a small minority of private business owners. It will lead to social unrest between the two classes, culminating in a social revolution. The outcome of this revolution would be the establishment of socialism, which is based on cooperative ownership of the means of production [25].

Profits tend to reflect the risk of doing business. Excess profits are likely to lead to more competition and a higher demand for labour, which lowers the prices of products or increases the price of labour. An unequal distribution of wealth can lead to discontent and revolution. Socialists argue that free markets without government intervention will lead to an unequal distribution of wealth, while proponents of free markets contend that government intervention creates profit opportunities for politically connected business owners. Poverty and the unequal distribution of wealth have multiple causes, for instance culture and education.

Insofar an unequal distribution of wealth is a reflection of differences in contributions to society, this may be desirable because it is beneficial overall. In certain situations acquired wealth does not reflect a contribution to society, for example with inheritance and financial innovation. People inheriting a large estate did not do so because of their economic value. Most financial innovations probably were mostly beneficial to a small group of informed people. They were often schemes to dupe less informed people or to exploit the consequences of interest on money such as financial instability.

Steady state economics and de-growth
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The degrowth movement is based on ecological economics and anti-consumerist and anti-capitalist ideas. It advocates for the downscaling of production and consumption, arguing that over consumption lies at the root of long term environmental issues and social inequalities [26]. The development of steady state economics is a response to the observation that economic growth has limits, given its consequences such as climate disruption, widespread habitat loss and species extinction, consumption of natural resources, pollution, urban congestion and an intensifying competition for remaining resources [27].

The main driver of unsustainable economic growth is interest on money. The hidden consequence of interest is that people tend to prefer being rich now to surviving the future. This is similar to preferring 20,000 loafs of bread today above one loaf of bread every day the next 20,000 days. A negative nominal interest rate will discount future income at a higher price while a positive nominal interest rate will discount future income at a lower price. As exponential growth cannot be sustained, negative real interest rates on money may be needed in the future. This is feasible with a demurrage on the currency.


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I was born in a village in the East of the Netherlands and have lived in this region as a child. I studied Business and Information Technology and Philosophy of Science, Technology and Society in Enschede, which is also in the East of the (more...)

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Wow! Interesting concept. I see this as one valid... by Paul Repstock on Saturday, Sep 28, 2013 at 1:05:34 PM
One reader mentioned in a message that the powers ... by Bart Klein Ikink on Sunday, Sep 29, 2013 at 1:33:56 AM
This has almost already happened.  Interest r... by Joe Miller on Sunday, Sep 29, 2013 at 5:04:43 PM
If you have a mortgage or credit card debt, you st... by Bart Klein Ikink on Monday, Sep 30, 2013 at 2:16:38 AM
During the 1930s Depression, which was a monetary ... by Derryl Hermanutz on Sunday, Sep 29, 2013 at 8:32:29 PM
The main assertion is that the proposed system is ... by Bart Klein Ikink on Monday, Sep 30, 2013 at 2:30:44 AM