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= An economic proposal by Silvio Gesell to make bills lose their value gradually

There seems to be a consensus amongst monetary reformers that a key change would be the replacement of interest with the system of demurrage:




From the Wikipedia:

"Demurrage is a cost associated with owning or holding currency over a given period of time. It is sometimes referred to as a carrying cost of money." (



"Conceptually, demurrage works by freeing material goods which are subject to natural cyclic processes of renewal and decay from their linkage with a money that only grows, exponentially, over time. As established in Part 1 of this text, this dynamic is driving us toward ruin in the exhaustion of all social, cultural, natural, and spiritual wealth. Demurrage currency merely subjects money to the same laws as natural commodities, whose continuing value requires maintenance.

demurrage redefines money as a medium of exchange instead of being a store of value. No longer is money an exception to the universal tendency in nature toward rust, mold, rot and decay—that is, toward the recycling of resources. No longer does money perpetuate a human realm separate from nature. " (

2. Demurrage-based currencies


"As a matter of fact, there are money systems that encourage sharing not competition, conservation not consumption, and community, not anonymity. Pilot versions of such systems have been around for at least a hundred years now, but because they are inimical to the larger patterns of our culture, they have been marginalized or even actively suppressed. Meanwhile, many creative proposals for new modes of industry such as Paul Hawken's Ecology of Commerce, and many green design technologies, are uneconomic under the current money system. The alternative money systems I describe below will naturally induce the economies described by visionaries such as Hawken, E.F. Schumacher, Herman Daly, and others. They will also reverse the progressive nationalization and globalization of every economic sector, revitalize communities, and contribute to the elimination of the "externalities" that put economic growth at odds with human happiness and planetary health. Given the determining role of interest, the first alternative currency system to consider is one that structurally eliminates it. As the history of the Catholic Church demonstrates, laws and admonitions against interest are ineffective if its structural necessity is still present in the nature of the currency. A structural solution is needed, such as the stamp-scrip system proposed by Silvio Gesell in The Natural Economic Order. Also known as demurrage, Gesell's "free-money" (as he called it) bears a form of negative interest. Every week a stamp costing a tiny fraction (say 0.1%) of the currency's denomination must be affixed to it, in effect a "user fee" or a "maintenance cost"; another way to look at it is that the currency "goes bad"--depreciates in value--as it ages. If this sounds like a radical proposal that could never happen, it may surprise you to learn that Gesell's ideas were praised by no less an authority than John Maynard Keynes himself. What's more, the system has actually been tried out and it worked!

Although demurrage was applied as long ago as Ancient Egypt in the form of a storage cost for commodity-backed currency, the best-known example of instituted in the town of Worgl, Austria, in 1932 by its beloved mayor Uttenguggenberger. To remain valid, each piece of this locally-issued currency required a monthly stamp costing 1% of its face value. Instead of generating interest and growing, accumulation of wealth became a burden--much like possessions are a burden to the nomadic hunter-gatherer. People therefore spent their income quickly, generating intense economic activity in the town. The unemployment rate plummeted even as the rest of the country slipped into a deepening depression; public works were completed, and prosperity continued until the Worgl currency was outlawed in 1933 at the behest of a threatened central bank.

Demurrage has a number of economic, social, and psychological effects that are highly relevant to our discussion. Conceptually, demurrage works by freeing material goods, which are subject to natural cyclic processes of renewal and decay, from their linkage with a money that only grows, exponentially, over time. As established in Chapter Four, this dynamic is what is driving us toward ruin in the utter exhaustion of all social, cultural, natural, and spiritual wealth. Demurrage currency merely subjects money to the same laws as natural commodities, whose continuing value requires maintenance."


Good explanation by John Macleod:

"we can see our present form of money as unconscious, unscientific and a source of arbitrary power in free market exchanges. This arbitrary power is the ability to withhold it from the marketplace to gain advantage over suppliers and borrowers. It is the sole unit in economic transactions to be exempt from the second law.

In order to resolve this problem, let’s consider a scientific approach that would enable a money design that accurately reflected goods, life and the second law of thermodynamics:

- Determine the basket of commodities that are used in the global economy: x bushels of wheat, y barrels of oil and so on. Then determine the average storage costs for this global basket of goods needed to maintain them. Say, for example, we find that we find the average storage costs of this global basket are 5% per annum. We could then apply a 5% storage charge per annum for withholding money from the marketplace.

- This, in turn, would create level footing for exchanges as both money holders and suppliers of goods have equal compulsion to meet at the market. As a result, velocity of exchanges and liquidity would increase and in the long run most of the money supply will enter into circulation. This is because the fee would encourage the constant infusion of energy into money while acting as a penalty for money’s idleness.

- The increasing velocity and circulation of money would make it exponentially easier to manage money supply than today. Today, downturns in the economy lead to hoarding, which worsen the problems. In this new case, money would almost always equal demand leading to unprecedented economic resiliency.

- Because of the 5% charge for idleness, money in the future will take on greater value than the present. This would reverse the current trend, where money in the future is discounted in favor of the present. This would make interest free loans attractive to the lender as a means of planning for retirement. It would also create an economic orientation favoring longer term planning and projects that integrate the concerns of society as a whole. Such projects might include developing alternative energy sources, protecting rainforests, improving infrastructures, international development and providing outstanding education for our children.

- This storage fee, which originator Silvio Gesell called demurrage, would encourage everyone to spend what they need, and find other ways to ensure storage of wealth, such as capital investments, loans, etc. The money holder will now have total incentive to lend money for future return. In the long run this fee would internalize the incentive to lend and lead to the voluntary, long-term evaporation of interest. This in turn would release our compulsion for growth and over-competitiveness that interest propagates.

- The reward for long-term thinking would encourage the resurgence of quality and products built to last. This would make planned obsolescence inconceivable. Yet it would improve the position of producers and sellers because of the radical shift in the market dynamics. For the first time in history, buyers would have as much incentive to buy as they have to sell, meaning their position is considerably more secure and predictable." (


Gesell writes:

"Gold does not harmonize with the character of our goods. Gold and straw, gold and petrol, gold and guano, gold and bricks, gold and iron, gold and hides! Only a wild fancy, a monstrous hallucination, only the doctrine of "value" can bridge the gulf. Commodities in general, straw, petrol, guano and the rest can be safely exchanged only when everyone is indifferent as to whether he possesses money or goods, and that is possible only if money is afflicted with all the defects inherent in our products. That is obvious. Our goods rot, decay, break, rust, so only if money has equally disagreeable, loss-involving properties can it effect exchange rapidly, securely and cheaply. For such money can never, on any account, be preferred by anyone to goods.

Only money that goes out of date like a newspaper, rots like potatoes, rusts like iron, evaporates like ether, is capable of standing the test as an instrument for the exchange of potatoes, newspapers, iron and ether. For such money is not preferred to goods either by the purchaser or the seller. We then part with our goods for money only because we need the money as a means of exchange, not because we expect an advantage from possession of the money." (Gesell, Silvio. The Natural Economic Order, 1906. Trans. Philip Pye. Ch. 4.1)


Why demurrage is better than interest

Charles Eistenstein:

"Gesell's phrase, "... a monstrous hallucination, the doctrine of 'value'..." hints at another effect of demurrage—it makes us question the notion of “value.” Value assigns to each object in the world a number. It associates an abstraction, changeless and independent, with that which always changes and that exists in relationship to all else. It is part of humanity's descent into representation, the reduction of the world into a data set. Demurrage reverses this thinking and removes an important boundary between the human realm and the natural realm. When money is no longer preferred to goods, we will lose the habit of defining a thing by how much it is worth.

Whereas interest promotes the discounting of future cash flows, demurrage encourages long-term thinking. In present-day accounting, a forest that has the capacity to generate one million dollars a year every year into the foreseeable future is considered more valuable if immediately cut down for a profit of 50 million dollars. (The net present value of the sustainable forest calculated at a discount rate of 5% is only $20 million.) This state of affairs results in the infamously short-sighted behavior of corporations that sacrifice (even their own) long-term well-being for the short-term results of the fiscal quarter. Such behavior is perfectly rational in an interest-based economy, but in a demurrage system, pure self-interest would dictate that the forest be preserved. No longer would greed motivate the robbing of the future for the benefit of the present. The exponential discounting of future cash flows implies the "cashing in" of the entire earth as opposed to an immediate wholesale “liquidation” of our remaining resources.

Whereas interest tends to concentrate wealth, demurrage promotes its distribution. In any economy with a specialization of labor beyond the family level, human beings need to perform exchanges in order to thrive. Both interest and demurrage represent a fee for the use of money, but the key difference is that in the former system, the fee accrues to those who already have money, while in the latter system it is levied upon them. Wealth comes with a high maintenance cost, thereby recreating the dynamics that governed hunter-gatherer attitudes toward accumulations of possessions.

Whereas security in an interest-based system comes from accumulating money, in a demurrage system it comes from having productive channels through which to direct it – that is, to become a nexus of the flow of wealth and not a point for its accumulation. In other words, it puts the focus on relationships, not on "having". The demurrage system accords with a different sense of self, affirmed not by enclosing more and more of the world within the confines of me and mine, but by developing and deepening relationships with others. It encourages reciprocation, sharing, and the rapid circulation of wealth.

In today's system, it is much better to have a thousand dollars than it is for ten people to owe you a hundred dollars. In a demurrage system the opposite is true. Since money decays with time, if I have some money I'm not using right now, I am happy to lend it to you, just as if I had more bread than I could eat, I would give you some. If I need some in the future, I can call in my obligations or create new ones with anyone within my network who has more money than he or she needs to meet immediate needs. As

Gesell put it:

With the introduction of Free-Money, money has been reduced to the rank of umbrellas; friends and acquaintances assist each other mutually as a matter of course with loans of money. No one keeps, or can keep, reserves of money, since money is under compulsion to circulate. But just because no one can form reserves of money, no reserves are needed. For the circulation of money is regular and uninterrupted.

No longer would money be a scarce commodity, hoarded and kept away from others; rather it would tend to circulate at the maximum possible "velocity". The issuer would ensure stable prices (P) according to the equation of exchange (MV=PQ) by regulating the amount of currency in circulation (M) to correspond to total real economic output (Q). The same result could be achieved by linking the currency to a basket of commodities whose level corresponds to overall economic activity, as proposed by Bernard Lietaer.

The dynamics of a demurrage-based currency system ensure a sufficient amount for all. This is in contradiction to today's economy in which a surfeit of material goods is coupled with their grossly unequal distribution. Hence the deeper contradiction in which, on the one hand, there are hundreds of millions of people who are unemployed or engaged in trivial, meaningless jobs, while on the other hand there is much important, meaningful work left undone—highlighting a disconnect between human creativity and human needs. "With Free-Money demand is inseparable from money, it is no longer a manifestation of the will of the possessors of money. Free-Money is not the instrument of demand, but demand itself, demand materialized and meeting, on an equal footing, supply, which always was, and remains, something material." (

How Demurrage is linked to the restoration of sharing and gift economies

Charles Eisenstein:

"In a highly specialized, technological society, most of us need to perform exchanges to live. To do so we need a medium of exchange – money. Some people, noting this inescapable fact, can see no alternative but to return to a primitive society, to undo the millennia-long course of civilization, which they quite understandably view as an enormous mistake. The scenario changes if money is used to recreate rather than destroy the social relations of a hunter-gatherer. In those societies, when a hunter killed a large animal, he or she would give away most of the meat, dividing it according to kinship status, personal affection, and need. As with demurrage money, it was much better to have lots of people "owe you one" than it was to have a big pile of rotting meat, or even of dried jerky that had to be transported or secured. Why would you even want to, when your community is as generous to you as you are to it? Security came from sharing. The good luck of your neighbor was your own good luck as well. If you came across an unexpected large source of wealth, you threw a huge party.

A negative-interest currency is a step toward the gift economies of yore that strengthen and define communities. Describing Lewis Hyde's theory of the gift, author Jessica Prentice writes, "Part of the sacred/erotic energy of gifts is that the receiver cannot accumulate them—either a gift needs to be passed on, or another gift needs to be given so that the gift-giving energy keeps moving. Gifts are about flow, and they are meant to circulate."[9] This is a perfect description of free-money, which like a gift collecting dust in the closet loses its value when kept unused. Free-money reverses the compulsion to constantly expand and fortify the accumulation of the private, the realm of me and mine. Just as interest shrinks the circle of self until we are left with the alienated, mercenary ego of modern civilization, demurrage, the opposite of interest, widens it to reunite us with community and all humanity, ending the artificial scarcity and competition of the Age of Usury.

Demurrage recreates, in the realm of money, the hunter-gatherer's disinclination toward food storage or other material accumulation. It resurrects the ancient hunter-gatherer mentality of abundance, in which sharing is easy and natural, in which there is no mad scramble to enclose the world. It promises a return in spirit to the "original affluent society" of Marshall Sahlins, but at a higher order of complexity. It is not a technological return to the Stone Age, as some primitivists envision after the collapse, but a spiritual return. " (

Demurrage and Inflation

Ran Prieur:

"So how do we keep concentrations of wealth shrinking? The way it's been done historically is by setting up money itself to have built-in depreciation. This Charles Eisenstein chapter, The Currency of Cooperation, covers some examples. Another is the Brakteaten system. And several readers have argued that the same thing could be done with inflation, although I think their point was, "Inflation does the same thing as demurrage, inflation ruins economies, therefore demurrage is bad."

The difference is in the context. What we know as "inflation" is not a planned permanent mechanism to create negative feedback in wealth. It's a temporary unintended consequence of an economy designed to create positive feedback in wealth. Interest leads to runaway lending, which creates more and more imaginary money, which leads governments to print more money to keep up with it, so each piece of money is worth less. This is negative feedback, but it's not a negative feedback system. It's not an ocean of water, but water thrown on a fire, and it paradoxically increases the flames, as the money-concentration interests become desperate and extreme in their attempts to continue the "growth" that they feel entitled to." (

The two main planks of currency reform

Explained by Thelma Weeks:


First of all the proposals address two main problems within today's monetary system -

1. The right that Central Banks have to issue money at will, almost without restrictions and without any backing. This right, the uncovered loans and the ensuing interest will have to go.

2. The new system will no longer be built on growth. Without the burden of interest companies no longer need their customers to pay for their loan repayments (an estimated 30% on every article being bought in Europe). This will get rid of inflation and companies can concentrate on production that meets a real need.

The new financial system incorporates the numerous complementary currencies (approximately 5000 at the last count) to sustain the co-operative trade system, alongside the present currencies for competitive global trade. Complimentary currencies - currencies created and issued by co-operating people, used for exchange within a defined context and interest free - are to used wherever appropriate to stimulate local, regional and national trade. They are seen as especially useful to achieve specific aims in specific areas. A lot of these complimentary currencies already exist - e.g. air miles, bonus points barter schemes, LETS, Time Dollars and the Japanese National Health currency. It is further proposed that there is a demurrage (opposite of interest) for currency which is not in circulation('savings accounts') to encourage the use of currency as an active tool for trade and exchange. Money should have the same function in the societal body as blood has in the human body. When it gets stuck it causes problems. For that reason the demurrage has historically proved its viability. The new system will address many existing challenges in our society and have an immediate effect on poverty, starvation and inequality. Not to mention the damage to ecosystems. It will be part of the present emerging paradigm/consciousness shift from fear and insecurity to confidence and trust of a large part of humanity to implement these proposals. If everyone understands where the present system doesn't work and why and more importantly what it obstructs or undermines then we can all focus on the alternatives and the successful experiments that are already taking place and build on them.

Critique of Demurrage

Key thesis by "Greg": Interest exists because of the underlying conditions, not just from monetary design:


"Interest is the price paid for the use of borrowed money. Money itself does not pay interest...this is money functioning as stored of value, value lent by one party and borrowed by another that can be exchanged for productive assets. The need for borrowing implies scarcity. Therefore we can infer that interest is truly the price paid for accelerated access to scarce resources. Like all prices, an interest rate is a market signal that enables efficient allocation of these scarce resources - in this case resources being allocated through time, between consumption and investment. This analysis implies two preconditions for the existence of interest:

Critically, these preconditions refer not only to the monetary system but to the constituents of the economy itself - its productive capabilities and the psychology of its participants. A monetary regime intended to eliminate interest would have to resolve at least one of these conditions in the economy itself."


"This (demurrage) proposal only addresses the currency system without resolving the economic conditions that lead to interest. It seeks to "design" currency without reference to the characteristics of the underlying market it must serve as a proxy for. Whereas the gift economy creates compatibility with new types of abundant value creation, demurrage currency emulates a world of scarce resources - becoming more scarce (depreciating) over time.

Given that our current monetary system exhibits behavior quite similar to proposed dumurrage currencies, we can speculate as to whether such a system would in fact provide a "disincentive against hoarding money." What we observe currently is that people do avoid hoarding cash...but instead of circulating that money they transfer (hoard) their savings into investments - assets that serve a productive function and appreciate over time. The net result is that inflation (demurrage) does nothing to discourage the accumulation of wealth, which is presumably the true goal of demurrage proponents.

What does this mean for interest in future monetary systems? Interest will persist so long as scarce resources persist and market participants endeavor to shift their consumption of those resources through time. Interest will diminish in importance to the degree that productive abundance facilitates a shift away from transactional currency altogether." (


"The examples used by Rushkoff and others like him all come from societies where financial investments are not available. These are societies where there are only two choices - consumption or saving. In modern society we have a third option - investment...and investment provides a financial return because it uses scarce resources in the present to produce more scarce resources in the future.

Once securitized investment enters the equation the demurrage logic breaks down. A market participant who previously had to choose between consumption or depreciating savings, now chooses between consumption, depreciating savings or appreciating investments. This choice simply shifts hoarding in currency to hoarding in investment products. This is exactly what we experience today, inflation (depreciating currency) does not lead to accelerating consumption; instead it leads to investment in inflation protected assets." (


An example of Demurrage: Worgl


"The greatest success stories of complimentary currencies are in picking up ravaged communities and helping to get them on their feet. A primary example that Lietaer and Kennedy cite is the Worgl, a currency created by a small Austrian town during the great depression. The town of Worgl had high unemployment and lacked the money to pay for its normal infrastructure services, so they killed two birds with one stone by printing a local currency they could pay people to do civic work with, and which could only be used in the local area. They also made the value of the currency time-decaying (or "demurring", as it's properly called) by 12% per year, which caused people to spend it rapidly--increasing the "velocity of money", which in a sense multiplies the amount of money in the community. In about one year, Worgl dropped its unemployment rate by 25% and increased public-works investment by 220%, while the rest of Austria slid further into depression. The experiment was only stopped because the Austrian government was worried that its control over the national money system would be threatened. Today in the Brazilian favela of Palmeira, a local currency called the Palma is helping to lift the residents out of poverty; it is working much more slowly than the Worgl did, but it does not circulate as much because its value does not demur over time."

More Information

  1. The original Free Money proposal by Gesell
  2. Introduction at The Transitioner
  3. Eisenstein's chapter on The Currency of Cooperation, which cites several historical examples of demurrage currency systems

Key Books to Read

The Monetary Reform Reading List, by Thelma Weeks

For further reference I would recommend the following books by authors who were present or prepresented at the workshop:

1.' Interest and Inflation and Free Money', Margrit Kennedy, the second edition ISBN 0-9643025-0-0 (1995) available from Seva International, Okemos, Michigan: It sets out the problem as it was first conceived by her. ( Silvio Gesell published his major work in German in 1918 called ("Natural Economic Order")

2.'The Little Earth Book' - James Burger ISBN 1-901970-23-X, available from Alastair Sawday Publishing UK. Tel: +44 (0)1275 464891 begin_of_the_skype_highlighting              +44 (0)1275 464891      end_of_the_skype_highlighting Fax: +44 (0)1275 464887 Email: This skilfully illustrates the link between the destruction of our planet (environment and resources)and the link to the monetary system. You will find the ideas/theories of many of the participants to the conference briefly explained in this delightful little book with references to the complete texts.

3.'The Ecology of Money', Richard Douthwaite, (Schumacher briefings 4 ISBN1 870098 81 1).

4.'Transforming Economic Life', James Robertson, (Schumacher briefings 1 ISBN 870098 72 2)

5.'New Money for Healthy Communities', Thomas Greco

6.'The Future of Money', Bernard Lietaer, available through This recently published book is not represented in the Little Earth Book and presents a clear, intelligent and easily understandable overview of the present system and its challenges. It introduces the concept of a global currency, the Terra, for co-operative exchange. The book was launched in the House of Commons; see Positive News Spring 2001.

7.'Beyond Globalization', Hazel Henderson (1999) ISBN 1-56549-107-6, Kumarian Press - for the New Economics Foundation.

8.'Recreating Money', Joseph Huber and James Robertson, London 2001

These books offer encouraging reading - even though awareness is created about all the issues that should concern every human being. For the first time I feel that there is a solution in sight and that there are ways in which we can contribute to the outcome - in time or after the event of a collapse. If nothing else we can all help to create awareness of the existing issues and the solutions for when the world needs them and before anything else we can deal with our own emotional blocks around money and abundance consciousness!!!!!!

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