First of all, I would like to introduce myself. I am a computer programmer from the Netherlands. I am working on a theory of money and banking derived from the “Natural Economic Order” of Silvio Gesell.
“Natural Economic Order” clearly states that the root the economic and monetary problems we have today, is the charging of interest on money.
I have had several discussions with people on message boards in the Netherlands. There were of course many disagreements and objections to my plan, which helped me to improve my thinking. Not all people objecting to the plan did understand it.
Now I would like to discuss my work with people on this site.
If you are interested, my theory is posted on the link below.
Rule number one: You can’t make people better off by taking away their options.
By prohibiting interest you make it harder to borrow.
You want to have both a constant money supply and “always money available to be borrowed by creditworthy companies and people.” The two can not coexist. With interest set at 0 the demand to borrow will increase while the supply of borrowable money will decrease. Either you will have create new money or people who want to be borrow will be unable to. There is no third option.
Here’s a novel solution: Abolish all laws that require people to use government money and let them choose their own currencies.
Charging interest on loans is not bad at all. This is actually the revenue for the one taking the risk to lend money.
Instead, the whole fiat money + fractional reserve + state regulations is the bad thing. Actually, if you remove state regulations alone, the market can deal with the other crap and reject it.
(State regulations = those laws that forbid one to hold gold, 100% gold reserves and to loan money. Though gold by itself is not mandatory, any other durable good can do if the market likes it.)
This is true… so there is a problem. I never said the system was perfect.
… for people who cannot afford to.
There is always money available at 0 interest for people and business with low credit risk because there is a tax on money. But there might be a problem when demand suddenly increases.
It could be chaos, but this might happen if the system if failing.
The natural money system is about eleminating risk of system failure. Therefore taking risk with money is a bad thing in this theory, because we all need it and society depends on it.
I completely agree, but in a democracy people are asking for goverment intervention, when the creative destruction process creates a depression. That might be wrong, but they will do that.
Thank you, but it is not a question of lawfullness. I try to be practical and prevent system failures.
Capital and money are different things in this theory. Capital may grow, even if there is no interest on money at all.
A business can expand, regardless of the nature of the money system. “Natural Economic Order” will not in any way forbid the interest on capital, only the interest on money.
With no interest it becomes much easier to afford it.
It would be anarchy, but it would not be chaos. We use a pair of terms here: Planned Chaos and Spontaneous Order.
What we have in our current government directed financial system is Planned Chaos; none of the plans had meant to cause this but this what all the planning has caused.
Where people are allowed to interact voluntarily we see Spontaneous Order; exchanges that are mutually beneficial take place, the common good is being furthered because no individual is prevented from pursuing his individual good.
Are you asking, would people be better off if you prevented them from borrowing money they can’t afford to pay back? No, they obviously value present cash over future consequence.
You can’t impose your value system on others. This is an issue between lender and lendee.
(a) A constant supply that can be changed, erh? (b) A constant value of money, erh? (c) If the value is constant why would people decide to change its supply, i.e. why act to change something that is constant? (d) no inflation, but what happens when supply is changed? And (e) have you ever heard about the subjective value theory?
A constant basked of goods and services I imagine?
Hello black market loan sharks!
Inflation?
“You can never trust the government”. Fair enough, I gather we can trust someone at least? If not, why not?
Why wait to get back the basket of goods 2 years from now, when I can enjoy the exact same basket today?
“… a wide range of goods … to prevent price fluctuations…”. Then you are minimizing risk, not preparing for the inevitable anomaly, i.e. “the fourth quadrant” (Thanks to Jon Irenicus for supplying this link).
Lastly, don’t judge a book by its cover, nor the title of a chapter. It’s the contents that count. Now, I’ve read some of your’s, any chance you will return the favour and read some of mine?
[EDIT: I’m sorry to say this, but I do not think this is the right forum for you. The more I read naturalmoney.org, the more I see how it differs utterly and completely from Austrian Economics. It simply does not make sense to just about anyone on these boards. An important question: Have you ever discussed your Natural Money with a person sharing ideas from The Austrian School of Economics?]
Hmm… I don’t think Austrian Economics supporters have this homo economicus assumption. It’s rather that we believe the market rewards those that go with it. So it’s quite simple: you provide service to the market, you win; you cause harm (e.g. waste resources etc.), you lose. More likely natural selection than belief in a good human nature.
Money from the natural order has the following characteristics:
The money supply is constant. There is no money creating activity by financial institutions. The value of the money is also constant. There is basically no inflation. The money supply can only be changed by the government based on democratic decision making.
Natural money is not a form of debt, but a medium of exchange which may be covered by a basket of goods and services.
Money may only be lent without charging interest. Charging of interest in any form is prohibited.
A tax is levied by the government on the money in circulation. This is a tax on money, and this money comes back into circulation by government expenditures.
Let’s say the tax rate is X% a month.
If you hold money, then you are taxed P*((1+x)^12 -1).
If you instead lend out the money to someone else for no interest, than they will be taxed instead. Or whomever they spend/give the money to will be taxed. Through game theory, nobody will want to hold money on the taxation date, as they can just buy goods/gold now. This is violently increasing inflation as demand for money decreases. If the second proposal exists where it is covered by a basket of goods and services, then everyone would call it in near the taxation date.
Note that mathematically, the taxation rate model would be identical to the inflation model. People would be hesitant to hold money in both situations. Money under your matress does not earn any interest under the system NOW. The only difference would be the elimination of the OPTION of charging different interest rates based on credit default probabilities. Instead the only possible interest rate would be 0 or synthetically equal to the tax rate X. If you want to get picky, it might be possible to have an interest rate less than 0, but then you are better off sticking your money in gold.
Under game theory, the quick result would be abandonment of this currency unless the gov criminalizes any unauthorized transaction, leading to a police state. Hardly “good” in my book.
Sure, many economists assume Homo Economicus, but what other options are there? Assuming people are dumb and irrational? Natural Order assumes people are dumb. Then the smart people will take advantage of the system. It doesn’t take too long before dumb people see the smart people. In experimental economics, it almost always concludes that people are close to perfectly rational. The longer an experiment, the more people involved, the more rational people seem.
Who in his right mind would give a loan to someone who can’t afford to pay for it?.. (Well, I guess a banker in a fractional reserve financial system).
One who gives out a loan is making an investment in the person who receives the loan. Hence the lender, as well as the borrower, is responsible when the borrower cannot make payments (since it was his choice to make the loan).
I might be misreading him, but I am sure he means it’ll be harder only on those who can’t afford to borrow (and my guess is because of the scarcer loanable funds relative to a situation where interest is charged and thus rationally priced.) Indeed, that is perfectly consistent with price control theory.
This is true but no one will lend you the money if you cannot afford to pay the loan back or if you are irresponsible. This is the magic.
It would be chaos I think, after which new power structures will emerge.
Spot on. So less government planning should work better.
I think you still believe in the goodness of human nature, just like socialists do. Reality is, there are people longing for power and becoming very powerful, and they will enforce their will on other people.