Charles Eisenstein wants to devalue your money to save the economy

Charles Eisenstein

Author Charles Eisenstein has a modest proposal to keep rich people from hoarding all the cash and free up capital for the rest of us. Photo: “Occupy Wall Street — The Revolution is Love.”

Imagine if you had a warehouse full of bread that would go stale in three days. You’d want to get rid of it as quickly as possible. Of course, you wouldn’t try to sell it at premium prices. Instead, you’d want to hold a liquidation sale. Or, maybe even not go through the bother of trying to sell it at all — just give it away. In that way, you’d earn both gratitude and favors that you could call in later. In a sense, giving away all your bread would become an investment in social capital.

Or, consider the linguist who asked an indigenous hunter from Brazil’s Piraha tribe why, when he felled some big game, he threw a big feast, letting his guests eat up all the meat in one orgy of indulgence, instead of thriftily drying the meat to save it for the future? In response, the hunter laughed and replied, “I store meat in the belly of my brother.”

Charles Eisenstein, author of Sacred Economics: Money, Gift, and Society in the Age of Transition, told me these two stories in a recent interview as a way to illustrate how wealth can reside in human relationships rather than merely be stored up goods or in their proxy — money.

Nature and relationships

The last two centuries stand out from the rest of human history for the dominance of money as a medium of exchange. “Most of our ancestors didn’t use money very much, not for food, shelter, clothing, or entertainment. All these were done by people helping each other out in the family or extended family,” Eisenstein told me.

In the past, only a small part of the population, mostly merchants, handled money on a regular basis. Now, nearly everybody needs money just to buy daily necessities.

Ever since the Industrial Revolution, the marketplace has expanded from a sideshow into the world economy’s main event. “The monetized realm has grown, converting nature into products and relationships into paid services until there’s almost nothing left to convert anymore,” Eisenstein told me.

We can’t cut down more forests or increase the fish catch. What’s less recognized is that the social space to convert relationships into services has almost reached its peak too. We pay for almost everything, even the most intimate things, like cooking meals. People hardly sing anymore — we pay for our entertainment. There’s almost no community left, community being a group of people who share gifts. You look at your neighbor driving out of his garage in his car and you might say hi, but behind that there’s a view that you don’t need each other.

Aside from the anomie and alienation this creates for people, the problem is that peak nature and peak relationships are together slowing growth and starving the economy.

Our economy cannot function without growth because most money is not printed by governments, as people usually imagine, but is instead loaned into existence by central banks and commercial lenders, who can loan out ten dollars or more for every dollar they’re required to have in their vaults. In effect, then, a lender creates new money with every loan.

And the whole point of making loans is to earn interest for the lender.

But for the borrower, interest obliges her to pay back more than she borrowed. And to earn the money to pay back the principal plus accumulated interest, the borrower will need to create goods and services. Multiply that out across the whole economy, and it becomes an imperative for economic growth.

“Without growth, debt increases faster than income and wealth and the whole system crashes. Before that, you get polarization of wealth income and unemployment,” Eisenstein said, aptly describing today’s plutocratic rule by the top 1%.

So, since all national currencies, whether the dollar or the Euro or the Yuan, allow lenders to earn interest, the whole economy becomes addicted to economic growth. As long as we continue to let banks create our money through their loans, we’ll all have to keep creating more goods and services, thus despoiling the Earth and exploiting each other just to stay above water.

If we don’t, we’ll all wind up like Greece.

Like inflation, only better?

William Jennings Bryan

A century ago, ordinary Americans weren’t afraid of inflation. Instead, they supported William Jennings Bryan who demanded “soft” money that would decrease in value over time and make debts easier to pay.

Financial elites have done well indoctrinating the ordinary citizen about the dangers of inflation, with stories of the horrors of double-digit price increases under Ford and Carter or hyperinflation in 1920s Germany or 2000s Zimbabwe.

Today, it’s hard to imagine that many ordinary Americans in the late nineteenth century, especially farmers, actually clamored for more inflation as a way to reduce the burden of their debts. That’s why their champion, populist William Jennings Bryan, famously denounced inflation-resistant hard currency as a “Cross of Gold.”

Like a modern-day Bryan, Eisenstein wants money to decline in value. But for him, it’s as much about saving the Earth from predatory economic growth as it is about saving the farm from the bank.

“The problem with money is this growth imperative that converts everything into itself. And we’re reaching the peak of that,” Eisenstein explained. “It’s not about ‘sustainable growth,’ which is an oxymoron. And it’s not about finding some way to keep the growth system working. It’s about reclaiming life from money. It doesn’t mean eliminating all money but instead taking back certain realms, the natural and social commons, away from money.”

And to do that, Eisenstein proposes a new-and-improved kind of money: negative-interest currency. Essentially, it would be money that spoils.

With today’s money, you can park it in a CD and just sit back and watch the interest compound. That encourages rich people to hoard money. But with negative-interest currency, any saved money would depreciate at a fixed rate, perhaps 2% annually, unless it were lent out (at no interest) to start new businesses or pay for something else useful. Built-in depreciation would discourage hoarding by creating a hot-potato effect, where people want to get money out of their hands as soon as possible before it starts to lose value. As Eisenstein explained to me:

Negative interest is a different kind of money system. For example, it could involve a liquidity tax or charge on reserves in the Fed or central bank system. If banks hold onto their money as they do today, their money would slowly shrink in value. So would your checking account. So it gives you an incentive to lend your money, even at zero interest. Thus, you can have money circulate without an imperative for growth…It amounts to a slow-motion debt forgiveness, kind of like inflation in that it works to the benefit of debtors and against the interest of creditors. For those of us living paycheck-to-paycheck, it would have little effect except to help us to pay back debts more easily.

But if you want money that goes down in value, doesn’t inflation already do that?

With today’s real inflation rate closer to 8% rather than the official 2% or 3% claimed by the Consumer Price Index on the one hand, and loan interest rates near zero on the other, it might seem like the US dollar has already become a negative-interest currency.

The difference between inflation and demurrage is complex, but the best simple explanation I could find was from the fine folks at Wikipedia: “Both inflation and demurrage reduce the purchasing power of money held over time, but demurrage does so through fixed, regular fees while inflation does so through expansion of the money supply through the actions of a central monetary authority distributing the new issue of currency.”

In other words, the US dollar inflates unpredictably under the influence of the Fed and the big banks acting in their own interests, while a local currency with demurrage is under local control and managed predictably to boost the local economy.

Neither a shitty deal nor a New Deal

By intentionally putting the brakes on economic growth, negative-interest money might discourage the kind of Wall Street speculation that crashed the economy in 2008, which was summed up so aptly by Senator Carl Levin (D-MI) quoting an internal Goldman Sachs memo that frankly assessed one particular bad investment the firm was pushing on its clients: “A shitty deal.”

Woergel local currency

Wörgel, Austria scrip with demurrage stamps. Though the town’s local currency successfully discouraged hoarding, the Austrian Central Bank scotched the scheme in 1933. (Click to enlarge)

After the last big banking collapse, during the Depression, a so-called demurrage currency was actually tried in the blighted and heavily indebted town of Wörgl, Austria from 1932-33 to create what Eisenstein called an “economic miracle” that other areas sought to emulate.

These included dozens of towns in the United States that had already printed emergency local scrip to keep their economies moving during forced bank holidays. According to Eisenstein, some communities were preparing to follow a plan for local no-interest currencies from economist Irving Fisher. But as part of the New Deal compromise with the big banks who feared that Fisher’s plan would take power out of the hands of Wall Street, in 1933 President Roosevelt outlawed all local currencies and instead offered a massive, centralized program of public works.

As in the 1930s, today rich people and corporations are hoarding massive amounts of savings — more than $3 trillion — waiting for an opportunity to earn higher returns in the future. At the same time, small businesses and working families remain starved for capital. To break this logjam, Eisenstein thinks that now is the right time for localities to start printing their own interest-free money with depreciation built right in.

The powers-that-be continue to tell us that recovery is just around the corner. But fewer and fewer Americans are comforted by these hollow assurances, which for Eisenstein, represents a failure of the magic power of the elites over the people.

“The Fed cutting rates doesn’t seem to work anymore. When magic stops working it means the substructure of agreements, the deep myths underlying the interpretation of symbols are wearing thin.”

Walking away from Rome

Oklahoma City scrip

Oklahoma City’s “non-interest bearing” scrip was one of dozens of local emergency currencies printed across the U.S. in the face of 1930s bank closures. (Click to enlarge)

If enough localities opted out of the dollar zone by starting their own local currencies, then pretty soon Wall Street and Washington could just be talking to each other with nobody else listening. The rest of us would be too busy trying to keep our money circulating in our own towns.

But there is a sticking point. If a negative-interest currency encourages us to spend rather than save, how can we be sure consumers will spend their money only on things that are good for people and the planet? What’s to keep people from continuing to buy SUVs or Walmart clothes from sweatshops in China?

There’s another rub. If bankers and the president shut down local currencies in the thirties, why will today’s banksters and their captured president be any more willing to let American communities print demurrage money that would allow them to defect from the growth economy?

“The elites can barely hold it together right now. Stuff they would’ve happily squashed a generation or two ago is now just passing beneath their notice, partially from the dynamic of complex systems, which, as they get more complex also get harder to maintain,” Eisenstein told me.

Each investment in additional complexity gives you diminishing returns and eventually zero returns and then things fall apart. The elites can’t be bothered to squash everything. Also, the shift towards an ecological consciousness is happening everywhere, even among the elite…They’re having personal crises, they’re quitting their jobs, they’re defecting or else they’re just not really enthusiastic about doing what they’re supposed to do. And sometimes they’ll allow something they really shouldn’t allow if they want to maximize central control.

Interested? Learn more by watching the video teaser for Sacred Economics.

— Erik Curren, Transition Voice

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  1. Auntiegrav says

    “Negative Interest Money”? WTF?
    God, I love economists. They are so hilarious. As Wendell Berry put it, “You will never find an economist to tell you there are too many economists.”
    If you want to reduce the economy, then make it expensive to consume things. Don’t magically inflate away the value of money. Simply put all overhead costs (including all fees, fines, prisons, environmental agencies, etc.) into a sales tax. People make their decisions based on money in a capitalist system. If you want them to make morally correct decisions, they have to have the information placed exactly where the decision is made. That means the true cost must be represented at the point of purchase.
    Banks do not “loan money into existence”. This is the fault in almost every reasoning about money. When a loan is created, the borrower promises to burn up resources IN THE FUTURE to create the money now (plus some additional resources for the ‘privilege’ of instant gratification).
    There is no magically created money out of thin air. The air does get thinner, but that’s because of all the people who promised to burn oil to pay back the loans that enslave them to the banks.
    When the government creates debts, it multiplies the effect of resource consumption because the government has to create a bureaucracy to manage it and only taxes at a certain rate (say 25%), so a government loan requires the enslavement (by force) of 4 times (for this example) as many people burning up enough resources to be taxed at 25% to pay back the government loan.
    The problem is that nobody seems to even THINK about WHAT the people are doing to create the money. Leadership doesn’t care if they’re making toxic chemicals, chrome plated aluminum wheels (solidified electricity) or whether they are nurturing the land to be able to grow food in the future. The latter is actually discouraged because it takes money out of the present Economy in favor of a future economy (antithetical to American Interests).
    There needs to be an amendment to the constitution which grants the rights of life and property to all FUTURE citizens, so that we stop stealing from them without paying for it.
    This is the best part: “If enough localities opted out of the dollar zone by starting their own local currencies, then pretty soon Wall Street and Washington could just be talking to each other with nobody else listening.”
    No. Washington would send out police to confiscate all local currency operations. They’ve done it before.
    If you want Change, keep it in your pocket. Learn to live as though money doesn’t exist, because that’s where we are headed when the printing presses make it worthless.

    • says

      I would love to see changes in the Constitution or in Washington to value the ecosystem more, and we should work on them through the political system, realizing that it will be a slow process that will require the patience of Job.

      Meantime, I also like the Transition approach of starting to be the change you want to see in you local community. And I actually think it’s plausible that much of America could pull back from the dollar zone gradually over time, without getting squashed by Wall Street and Washington.

      Eisenstein makes the point that perhaps the elites might have to behave differently this time. Under FDR, they still had their act together enough, even in the Depression, to kill local currencies. But in the near future, perhaps after a shock to the economy bigger than the thirties or 2008, elites may have bigger fish to fry, like saving their own wealth, to worry about us peasants in the hinterlands. In that case, maybe much of America, starting with small towns and rural areas, could gain more and more autonomy from the centrally managed growth economy.

      • Auntiegrav says

        Yes, a good response, Eric.
        Gaining autonomy is as simple as choosing to barter rather than exchange money, and choosing to just buy less and grow or make more of the necessities. (Becoming engaged in living needs.)
        The wealthy who work to protect their wealth without consideration for the masses just don’t get it. The only thing that makes their wealth “wealth” is that someone else wants to have it. Once people choose to not want it, it becomes worthless.
        Supply and demand. Get rid of demand and the supply becomes a warehouse full of tulips.
        Everything being done right now by Wash. and Wall St. is based on increasing demand for crap that people don’t need. As Carl Levin would say, “A shitty deal”.
        This is the basis of lowering interest rates to get people to build drywall shantytowns that they can’t reach without petroleum-powered cars.
        The PTB created the consumer economy deliberately to get rid of the extra production capacity built during WWII. Ever since then, they have been shoveling the same kind of economic thinking down our throats with the NYTimes and WSJournal, and people keep buying it until they are so overtaxed and indebted and worn out physically that they just can’t buy any more junk (perpetual growth reaches old age and ill health).
        The economists have failed to be economic. There is no natural basis for what they are paid for: justifying policies that increase consumption.

    • Tree Fitzpatrick says

      Auntiegrav, your comment demonstrates that you are completely ignorant about how money is created by the Federal Reserve, which, does, indeed, make money out of thin air. Do a little research, read Zarlenga’s book on money. The Federal Reserve is privately held, altho many uninformed people believe it is part of the government. The Fed Reserve, in my opinion, deliberately fosters this lack of knowledge. A group of rich private men own it and they literally create money out of thin air. They create debt, like magic, like out of thin air. Learn your facts.

      • Auntiegrav says

        When the Fed prints money “out of thin air”, it is based on the perception that that money will be able to hold its value. The value of the money is based on whether it can buy something. The Fed, when it adds volume to the money supply, does not add any wealth. When people borrow money (because of the low interest rates), they are taking wealth that they PROMISE to create in the future to pay back the loan and moving it from the future to the present.
        Yeah, you’re right. I’m sorry. I’m COMPLETELY ignorant of what your idea of money is. Wealth, on the other hand, is not necessarily money. You need wealth for money to work. You don’t need money for wealth to work. Money accelerates the process of trade. Trade is based on things that are value-able. Value is determined by the future usefulness of a thing. Usefulness depends on someone being able to use it. Money is useful only as long as there is something valuable (supply and demand) to use it for. Printing money does not increase the value of a nation’s people or infrastructure, but debt allows them to take it from their future selves and appear to have resources that don’t exist yet.
        The bank didn’t make you buy the house because it lowered interest rates. You promised to create the wealth in the future to get the house now, and the lower interest rates convinced you that you weren’t putting as heavy a chain around your own neck.

  2. says

    I greatly admire Charles’ work and his support for community currencies, however there is one key point where I think that he is on the wrong track, and that is his call for negative-interest money. I know this idea well, because negative-interest local currencies was the principal focus of my Master’s thesis, and at the time I thought they were a good idea. However, in light of what I have learned since, I no longer believe in the need for negative-interest money.

    Negative-interest money makes sense, but only in the context of a type of money that is treated as (artificially) scarce “stuff”. When money is something that is in limited supply and people must compete for it, it makes a lot of sense to hoard it whenever possible, spending as little as possible and only lending it out at interest. It is the competition for scarcity money that leads to our addicition to growth and our anti-social economic behaviour.

    However, what if money were not seen as “stuff” at all, but rather as a form of information? In that case, money is never scarce, but always sufficient to the needs of the parties transacting. It’s like a score. If I want to buy a paid of shoes from you, my account goes down by the value of the shoes, and yours goes up by a corresponding amount. We have literally just created the money that we need. If money is seen as information, it no longer makes any sense to try to force people to spend money through negative-interest. If someone does not choose to spend their information-money, that is not a problem for the rest of society, because the rest of society is not dependent on any one person’s “money-score” changing or being redistributed in order to have sufficient means of exchange.

    The “money-as-information, not-as-stuff” viewpoint is what we call Open Money, and has been primarily developed by the 30-year community currency veteran and pioneer Michael Linton. See to learn more about this revolutionary but under-propagated theory and practice of money.

    • Auntiegrav says

      Thank you. I think of money as a tool for trade. We lose track of the validity and usefulness of the things being traded, and instead focus on the pricing and manipulation of perceptions of value through pricing. Far too many do not understand that price is not the same as value, and that prices are manipulated at will with very little change of information about supply and demand. The flow of money is largely based on perceptions of perceptions (hence the derivatives games), rather than actual resources or human physical needs.

  3. levi civita says

    Negative interest on hoarded money is wealth tax, and it is not new. For example, Islam has a 2.5 percent tax on all stagnant (hoarded) wealth.

  4. says

    Jct: There’s nothing as stupid as changing the value of your poker chips to pay for operations expenses when you could be taking a rake-off on transactions or a session fee and keep your tokens a stable measure of value. Guess Charles Eisenstein doesn’t know there’s nothing as stupid as demurrage. Only morons or moles push it with LETS service charge timebanks on the horizon.

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