Using the concept of demurrage to explain monetary reform is practically unexplainable to a mainstream audience, but a circulation charge makes eminent sense.
A brilliant policy proposal by Jordan Bruce MacLeod, the author of the book: New Currency: How Money Changes the World as We Know It.
The proposal appeared in Kosmos Journal, the following are excerpts.
Jordan Bruce MacLeod:
“In 1932, the town of Wörgl, Austria, was suffering from a 35% unemployment rate. The town’s mayor had a long list of projects and only 40,000 Austrian schillings in the bank to pay for them. Rather than spend the money on what would amount to only a fraction of the work that needed to be done, he used the schillings to back the creation of local currency with a unique feature. The money was designed so that its holder would pay a small fee each month to keep it valid for circulation. Once the fee was paid, a stamp was placed on the back of the paper note to certify it for exchange.
After printing these notes, the mayor of Wörgl then used this currency to begin paying for public projects, thereby introducing it into the town’s circulation. Yet, it was only after this money was spent that the dramatic effects began to take hold. In less than two years from the start of the circulation charge, Wörgl became the first town in Austria to reach full employment. With the equivalent of a modest number of Austrian shillings in circulation, money expert Bernard Lietaer reported, “Water distribution was generalized throughout…. the town was repaved, most houses were repaired and repainted, taxes were being paid early, and forests around the city were replanted.” Clearly, when a town begins to experience full employment during a depression and citizens voluntarily decide to pay their taxes early, people will talk. Within a short period of time, the town’s revitalization garnered international attention and was branded the ‘miracle of Wörgl.’
The Science behind the Miracle While a part of this marked turnaround came from the town’s revenues in collecting fees from the circulation charge, this was not the most significant force behind the dramatic transformation. Of greater importance were the extraordinary contributions from Wörgl’s increasingly engaged citizens. They were enabled to transform their community and do what was previously thought economically unfeasible after the average velocity of money throughout the town increased fourteen-fold because of the monthly expiration date.
In other words, with the introduction of a circulation charge, money changed hands fourteen times more frequently in the same period of time than did the national currency, the Austrian shilling. An increase in trade and activity of this magnitude represents a dramatic leap in economic activity and confidence that simply cannot be replicated by central governments through spending programs or tax cuts. The achievement truly was a miracle, yet backed by solid innovation and grounded economic strategy. Rather than rely on municipal governments or centralized powers, the people of Wörgl had created the means to take power into their own hands and directly accomplish things that would never have occurred solely through the meddling of relatively arbitrary and inefficient centralized bureaucracies. In a time of financial gridlock such as ours, a circulation charge also presents itself as an ideal economic tool to begin catalyzing lending and thereby melt frozen credit markets.
In his opus The Natural Economic Order, Silvio Gesell introduced the concept as an economic tool to effectively solve the problems of hoarding, interest and inflation. It was his original thinking that served as the basis for the successful stamp scrip currencies in Germany, Austria and America during the Great Depression. His work garnered notable recognition and approval from many of his contemporaries, including some of the most acclaimed economists of the 20th century, including John Maynard Keynes and Irving Fisher.
A circulation charge effectively goes to the root of these problems by changing the qualitative nature of how we hold money. It inherently shifts financial thinking towards longer time frames. It creates a natural incentive to lend money without the need for interest, which would mitigate compulsive exponential growth, lessen the costs associated with borrowing and investment and reduce social disparities. It is precisely by shifting these central financial dynamics that markets can naturally begin reversing the inequalities between the rich and poor, facilitate investments in alternative energy infrastructure and create a more resilient financial system.
The implementation of a circulation charge in the global financial system will require profound, unprecedented cooperation between nations. Much like any other global instrument, it will rely on widespread adoption and integration to take hold and succeed. It is for this reason that the G20, as a relatively broad and diverse group of nations, is an excellent starting point for considering this tool. In addition to serving as a catalyst for restoring lending and confidence in markets, it would simultaneously enable a pragmatic shift within the financial system towards achieving the 21st century objectives of sustainable development and the alleviation of poverty.
A circulation charge could be integrated into the financial system through its simultaneous adoption by several nations for their currencies. The tool itself, however, is more naturally predisposed to function as an integral part of a global currency. In fact, it could enable the realization of a global currency by transcending the present weaknesses in monetary policy that arise out of current national fiat currencies and policies. These limitations characteristic of today’s national economies include exponential growth, interest rates, hoarding and inflation. The diverse economic conditions of nation-states within the current economic paradigm mean that national monetary policies are often divergent and frequently irreconcilable. It is therefore only when a global currency is realized that the problems inherent to national currencies are likely to be resolved.
A fully digital currency would also strongly support the efficient and stable adoption of a circulation charge within a relatively short time period. If digitized, the currency could be programmed to automatically deduct the circulation charge instantly, at the time of its expiry date, from anywhere in the world. A digital currency would also enable a faster velocity of money in circulation, greater control and oversight of the money supply and the real-time monitoring of demand. The currency itself, as we saw in the case of Wörgl, also carries the power to quickly restore full employment and effectively decentralize wealth and power into the hands of citizens.
A circulation charge enables the adoption of a monetary policy of zero interest and the creation of a money supply equal to demand. Under such conditions, a global currency could transcend the limitations of national currencies and the arbitrary power and problems that emerge when a national currency, such as the US Dollar, functions as the international reserve currency. A digital global currency with the above characteristics could be far more effectively regulated by global institutions, such as a United Nations agency designated to oversee international currency stability.
While the parameters of this article can merely serve as an introduction to a very broad and important subject, it brings to light the urgent need to recognize that our relationship with money is at the very heart of our global crisis. The consideration and implementation of the requisite financial tools will require the world’s leading nations to forge a common vision for a global economy. Integrating global values and instruments such as a circulation charge into the heart of their monetary policies can help ensure the constant circulation of money and thereby help restore economic activity, lending and the opportunity to catalyze a free market system far more aligned with solving planetary challenges. These are precisely the qualities that will help enable global cooperation and insulate the international community from the inherent dangers that are destined to emerge in the midst of worsening global economic conditions.
A circulation charge also reveals the very real potential to align and reconcile global finance with global values and visionary thinking. Getting there, however, will require bold new approaches in economics and a broader understanding that money is a social creation of the utmost power and importance in our lives. Its understanding and control can no longer be left in the dark corners of arbitrary or centralized power. The true value of money in our lives must be consciously recognized and mastered by all engaged global citizens as a precondition for successfully enabling global transformation. When we do this much-needed work, we will truly hold in our hands the power to change the world.”