Infinite growth of material consumption in a finite world is an impossibility. – E.F. Schumacher, former Chief Economic Advisor to the UK National Coal Board

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Photo: Silvio Gesell, the father of negative interest (free money)

We live in the dark shadow of a voracious, cold-hearted monster. The economy used to serve us well, back when it was small. Opportunity and optimism abounded. But it kept growing and so did its appetite. Now it is gradually enslaving us in a quest to satisfy its exponentially growing hunger.

We have felt its bite before, and know that to deny it growth is to bring about extreme suffering. As in the Great Depression, our jobs, our homes, our hope – all would be devoured leaving us destitute and desperate. And so, we reluctantly but obediently give up our wellbeing, inch by inch, for we are told that these concessions are required to pacify the monster that is becoming increasingly difficult to satisfy. So, we put up with reduced wages and benefits, contaminated air, water and soil, food tainted with toxins and lacking in nutrition. Nature is sacrificed to generate profits. Moreover, all that we used to do for ourselves and for each other have become paid services; we no longer need those closest to us, but are totally dependent on faceless strangers. Without a way to tame the economy, our future looks bleak and lonely.

The good news is that economists around the world are proposing a solution. But to appreciate it, we first need to take a step back to understand how the economy got us into such a mess in the first place.

The problem originates with interest charged on debt. Through the lending of money with interest, the banks the world over have created the vast majority of the money supply in the form of credit (debt). (In Canada, cash is only about 3% of our money.) To ensure that debts plus interest are repaid, banks need to continually make more money (make more loans) and the economy needs to expand. If this were to stop, credit would evaporate and with it our wealth.

The solution is simple: negative interest. It was originally conceived by the German-Argentinean businessman Silvio Gesell (1862-1930) as a way to redistribute wealth in a time of unprecedented poverty amidst unprecedented abundance. In the 2013 World Economic Forum’s Global Risks report, severe income inequality topped the list, closely followed by unsustainable government debt. Today the CEO of Walmart makes in one hour what the average employee makes in one year.

Understandably, negative interest doesn’t sound attractive at first. Who wants to see their savings diminish with time?

The problem is that our economy runs on money, and when returns are poor money is hoarded. If money was to decay, then banks would give loans at zero interest and people would find ways to protect their wealth by investing in the potential of others.

Our current system also encourages the rapid harvesting of resources. Since money is the primary store-of-value and does not degrade, it makes economic sense to harvest resources as quickly as possible and store the wealth as money. But, with negative interest on money, it would be economical to preserve resources, even replenish them, and to harvest only when necessary.

Use of negative interest has been quite limited. (It was used with great success in both Germany and Austria during the Great Depression.) But economists the world over have endorsed the idea. John Maynard Keynes called him an “unduly neglected prophet.” Professor Dr. Irving Fisher, regarded by some as the greatest American economist of all time, said, “I am a humble servant of the merchant Gesell.” In 2003, Willem Buiter, then a professor of economics and now chief economist at Citibank recommended that the US Federal Reserve implement a negative interest rate on deposits, also endorsed by Harvard economics professor Greg Mankiw and American Economics Association president Robert Hall.

Central banks are starting to flirt with negative interest. Denmark currently has a deposit rate of minus 0.1 percent. From July 2009 to February 2010, the Riksbank of Sweden charged a slight negative interest on reserve deposits. The European Central Bank and the US Federal Reserve have both announced that they are ready to implement it if the economic outlook warrants it. It seems like just a matter of time before negative interest becomes reality.

For a detailed description of how negative interest would transform our economy and move us to a society that values community and preservation of resources, I highly recommend the book Sacred Economics by Charles Eisenstein. You can download it for free at http://www.sacred-economics.com.

Published in the April/May 2014 issue of North Simcoe Community News.

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