Kennedy's Content Home Guestbook Some other texts about moneyreform


Creating an Interest and Inflation Free Money
 TOWARDS THE END of the 19th century Silvio Gesell,
a successful merchant in Germany and Argentina, 
observed that sometimes his goods would sell quickly and yield 
a high price, and at other times slowly and attracted lower 
payments. He began to wonder why this was so. Soon he 
understood that these ups and downs had little to do with the 
needs of people for his goods, nor their quality, but almost 
exclusively with the "price" of money on the money market.
 So he began to observe these movements and discovered 
that when interest rates were low, people would buy, but if they 
were high, they would not. The reason why there was 
sometimes more, sometimes less money, had to do with the 
willingness of the money owners to lend their money to others. If 
the return on their money was under 2.5%, they tended to hold 
on to their money - thus causing a halt in investment, with 
subsequent bankruptcies and decreasing numbers of jobs. Then 
after a while, when people were ready to pay more interest for their 
money, it would be available again - thus creating a new 
economic cycle. There would be high interest rates and 
high prices for goods at first, then gradually a larger 
supply of money would create lower interest rates, and 
finally there would be a "strike" of capital again.
 Silvio Gesell's explanation for this phenomenon was 
that money, unlike all other goods and services, can be 
kept without costs. If one person has a bag of apples and 
another person has the money to buy those apples, the 
person with the apples is obliged to sell them within a 
relatively short time period to avoid the loss of his 
assets. Money owners, however, can wait until the price 
is right for them; their money does not necessarily 
create "holding costs. "
 Gesell concluded that if we could create a monetary 
system which put money on equal footing with all other 
goods and services, (charging, on the average, a 5% 
annual maintenance cost, which is exactly what has been 
paid in the form of interest for money throughout 
history) then we could have an economy free of the ups 
and downs of monetary speculation. He suggested that 
money should be made to "rust," that is, to be subject to a 
"use fee."

 In 1890, Silvio Gesell formulated a theory of money 
and a "natural economic order" (6) which relates to 
capitalism or communism as the world of Copernicus 
does to the world of Ptolemy. The sun indeed does not 
turn around the earth; the earth turns around the sun - 
although our senses still defy this scientific truth. Gesell 
suggested securing the money flow by making money a 
government service subject to a use fee. And this is the 
central message of this book. Instead of paying interest to 
those who have more money than they need and in order to 
keep money in circulation, people should pay a small fee if 
they keep the money out of circulation.
 In order to understand this idea better, it is helpful to 
compare money to a railroad freight car which also helps 
to facilitate the exchange of goods and services. In 
contrast to governments which issue money, however, 
the railroad company does not pay the user a premium to 
unload the freight car and thereby bring it back into 
"circulation" - instead the user pays a small per diem fee 
if he or she does not unload it. This is all we would have 
to do with money. The community or nation which 
issues "new" money in order to help the exchange of 
goods and services charges a small "parking" fee to the 
user who holds on to new money longer than he or she 
needs for exchange purposes. This change, simple as it 
may seem, resolves the many societal problems caused 
by interest and compound interest throughout history.
 While interest nowadays is a private gain, the fee on the 
use of money would be a public gain. This fee would have 
to return into circulation in order to maintain the 
balance between the volume of money and the volume of 
economic activities. The fee would serve as an income 
to the government, and thereby reduce the amount of 
taxes needed to carry out public tasks. 
 The technical side of this monetary reform will be 
explained in the next two sections.

 During the 1930s, the Freiwirtschaft (free economy) 
followers of Gesell's theory found opportunities to 
initiate interest-free money projects, in order to 
overcome unemployment and to demonstrate the validity 
of their ideas. There were endeavours to introduce 
free-money in Austria, France, Germany, Spain, 
Switzerland, and the United States. One of the most 
successful was in the town of Wörgl in Austria. (7)
 Between 1932 and 1933, the small Austrian town of 
Wörgl started an experiment which has been an 
inspiration to all who have been concerned with the issue 
of monetary reform up to this day. The town's mayor 
convinced the business people and administrators that 
they had a lot to gain and nothing to lose if they 
conducted a monetary experiment in the way suggested 
in Silvio Gesell's book "The Natural Economic Order".
 People agreed and so the town council issued 32,000 
"Work Certificates" or "Free Schillings" (i.e., 
interest-free Schillings), covered by the same amount of 
ordinary Austrian Schillings in the bank. They built 
bridges, improved roads and public services, and paid 
salaries and materials with this money, which was 
accepted by the butcher, the shoemaker, the baker.
 The fee on the use of the money was 1% per month 
or 12% per year. This fee had to be paid by the person 
who had the banknote at the end of the month, in the 
form of a stamp worth 1 % of the note and glued to its back. 
Otherwise, the note was invalid. This small fee caused 
everyone who got paid in Free Schillings to spend them 
before they used their ordinary money. People even paid 
their taxes in advance in order to avoid paying the small 
fee. Within one year, the 32,000 Free Schillings 
circulated 463 times, thus creating goods and services 
worth over 14,816,000 Schillings. The ordinary 
Schilling by contrast circulated only 21 times. (8)
 At a time when most countries in Europe had severe 
problems with decreasing numbers of jobs, Wörgl 
reduced its unemployment rate by 25 % within this one 
year. The fees collected by the town government which 
caused the money to change hands so quickly amounted 
to a total of 12% of 32,000 Free Schillings = 3,840 
Schillings. This was used for public purposes.
 When over 300 communities in Austria began to be 
interested in adopting this model, the Austrian National 
Bank saw its own monopoly endangered. It intervened 
against the town council and prohibited the printing of 
its local money. In spite of a long-lasting battle which 
went right up to the Austrian Supreme Court, neither 
Wörgl nor any other community in Europe has been able 
to repeat the experiment up to the present day.
 In his book "Capitalism at its Best", (9) Dieter Suhr 
presents a report on the U.S. "stamp scrip movement" by 
Hans R. L. Cohrssen who, together with economist, 
Irving Fisher, tried to introduce Gesell's concept of 
cost-bearing money into the U.S.A. - also in 1933. At 
that time, more than 100 communities, including several 
large cities, had planned to implement stamp scrip 
money. The issue went right up to the Secretary of Labor, the Secretary of 
the Interior and the Secretary of the Treasury in 
Washington, D.C., none of whom were opposed - but 
none of whom had the power to grant the necessary 
permissions. Finally, Dean Acheson (who later became 
Secretary of State) asked for an opinion from the 
government's economic advisor, Harvard Professor 
Russell Sprague, before he could make a decision. 
Cohrssen remembers the meeting as a very cordial one:
Professor Sprague told me ... that in principle there was 
nothing to be said against the issue of stamp scrip for the 
purpose of creating jobs. However, our scheme went much 
further: It was an attempt to restructure the American monetary 
system and he had no authority to approve such a proposal. 
That put an end not only to our stamp scrip movement but to a 
model project that might indeed have led to monetary reform. (10)
 On March 4, 1933, President Roosevelt directed the 
banks to be temporarily closed, and he forbade any 
further issue of emergency currency. Cohrssen 
 In summary we can say that the technical difficulties of 
attaining currency stability seem minor in comparison to the 
general lack of understanding of the problem itself. As long as 
the "Money Illusion" ... is not overcome it will be virtually 
impossible to muster the political will power necessary for this 
 According to Otani's proposal, (12) the technical side 
of the reform, based on the payment modes of today, 
would make a "use-fee" on the new money a much 
simpler issue. Ninety percent of what we call "money" 
are numbers in a computer. Thus, everyone would have two 
accounts: one checking account (in Europe this is called 
a current account, in Australia an access account) and 
one savings account. The money in the checking account, 
which is at the disposal of the owner continually, would 
be treated like cash and might lose as little as 1/2 % per 
month or 6% per year. Anyone with more new money in 
her or his checking account than needed for the payment 
of all expenses in a particular month, would be prompted 
by the small fee to transfer that amount to a savings 
account. From there, the bank would be able to lend this 
money without interest to those who needed it, for a 
certain amount of time, and, therefore, the savings 
account would not be debited with a fee (see Chapter 6).
 By the same token, the new money owner would not 
receive any interest on his or her savings account - but 
the new money would retain its value. As soon as interest 
is abolished, inflation becomes unnecessary (see Chapter 
1). The person receiving a credit would not pay interest, 
but risk premium and bank charges quite comparable to 
those which are included in every bank loan. This 
amounts in Germany today to about 2.5% of the normal 
credit costs.
 Thus very little would change in practice. Banks 
would operate as usual, except that they would be more 
interested in giving loans because they too would be 
subject to the same use fee that everybody else would 
have to pay. In order to balance the amount of credit and 
savings available temporarily, banks might have to pay or 
receive a small amount of interest depending on whether 
or not they had more new money in saving accounts than 
they needed or whether they had liquidity problems. In 
this case the interest would only serve as a regulatory 
mechanism and not as a wealth redistribution mechanism 
as it does today.
 The basis of this reform would be a fairly accurate 
adaptation of the amount of money in circulation to the 
amount of money needed to handle all transactions. 
When enough new money has been created to serve all 
transactions, no more would have to be produced. That 
means new money would now follow a "natural" physical 
growth pattern (curve A, Figure 1) and no longer an 
exponential growth pattern.
 Another technical aspect of the implementation of 
such a monetary reform includes the prevention of 
hoarding cash. A more elegant solution than gluing a 
stamp on the back of a banknote would be the printing of 
different coloured banknotes so that various series could 
be recalled once or twice a year, without prior 
announcement. This would be no more expensive for the 
government of a country than the replacement of old 
worn-out banknotes by new ones as happens today.
 As the Austrian and American experiences show, the 
political side is more crucial than the technical. It will 
be dealt with in Chapter 3.
 If the above-described monetary reform were to be 
implemented on a large scale, an accompanying land tax 
reform would be required. Without land reform there 
would be a tendency for surplus money to be attracted to 
land speculation. Without tax reform, the economic 
boom following the introduction of interest free money 
might have some serious environmental consequences. 

 Money and land are two things everybody needs in 
order to live. Whether we eat, sleep or work, life is 
impossible without land. Land, like air and water, 
therefore, should belong to everybody. The North 
American Indians say "The Earth is our Mother. How 
could we divide her up and sell her?" Land should belong 
to the community and then be rented out by the community 
to those who use it. This was the concept and the custom 
in many European countries until the introduction of 
Roman law in the Middle Ages with its emphasis on 
private property.
 Today, the world is split into two systems:
 - private ownership and private use of land in the capitalist countries;
 - communal ownership and communal use of land in the communist countries.
 In capitalist countries, the majority of the people pay 
for the huge profits from speculation in private land 
(Figure 7), and more land is concentrated in the hands of 
ever fewer people. In communist countries, the 
uneconomic use of communal land is the major problem. 
In former West Germany about 70% of the land 
belonged to 20% of the people. In Brazil and other Third 
World countries, the land-owning minority is often as 
small as 2-3% of the population. The problem in 
capitalist countries, therefore, has to do with private 
ownership of land.

Figure 7
   In communist countries, in the former Soviet Union, 
for example, where land was communally owned and 
used, about 60% of the food was being produced on that 
4% of the land which was owned privately. This meant 
that the problem here was communal ownership and use.
 A combination of private use and communal ownership 
would be the most advantageous solution for achieving 
social justice and allowing individual growth. This is 
what was suggested by Henry George in 1879, (13) 
Silvio Gesell in 1904, (14) and Yoshito Otani in 
1981. (15)
 In practical terms today, it would mean that a 
community would buy up all its land and lease it out to its 
inhabitants. Countries with a progressive constitution 
would have no trouble implementing this change from an 
ideal point of view. Thus the constitution of the former 
Federal Republic of Germany described land as an asset 
which carries a "social" responsibility. Up to this date, 
however, this social responsibility has not been met. 
Figure 7 shows that, on the average, people had to work 
three times as long in 1982 as they did in 1950 in order 
to pay for a piece of property.
 After the catastrophic results of expropriation in 
countries with a communist constitution, no western 
nation today would be able to discuss the dispossession 
of land by the state without compensation. Although 
Roman law, which introduced private ownership of land 
into western civilization (roughly 500 years ago), was 
forced on the people by their conquerors, those who 
profited - at first - belong to history, and today's owners 
have either bought or inherited quite legally the soil they occupy. 
Therefore, some compensation must be paid if a society 
wants to create a more equitable situation.
 One long-term possibility is to levy a small fee of 
about 3% per year on the value of each plot of land. This 
fee would be paid to the community and would be used 
to buy land which came on the market. Thus the community 
would acquire the ownership of its land in a little over 
33 years.
 An alternative would be that land owners would be 
notified that they had the option not to pay the fee but to 
sell their land to the community. For instance, the 3 % 
fee would be set off against the normal price over 33 
years. No money would be exchanged. Meanwhile the 
owners still would have the right to use the land - but 
after the 33 years they would have to pay a 3 % lease on 
the value of the land annually to the community.
 The immediate effect of this regulation would be to 
stop land speculation. Most land which people hold 
today without using it would be offered on the market in 
order to avoid a continual loss. As more land became 
available, the price of land would fall and more people 
would have a chance to use the available land in a 
productive manner. Mainly in developing countries, this 
could have a considerable effect on food production, as 
the diminishing ratio of food in comparison to the 
amount of people to be fed is not a question of 
agricultural technique, but a question of the availability 
of land for small scale farms.
 Whether in developing or industrialized countries, 
the tenants would have all the advantages of today's 
hereditary leasehold regulations in this new system. 
They could use their property within the confines of 
local planning restrictions. They could build on it. They 
could sell their houses. They could bequeath their 
houses to their descendants. They could let them out to 
third parties without involving the community as long as 
the next tenants would pay the lease. By determining the 
exact amount of the rent through public bids, auctions or similar processes, 
the inefficiency of the planned economy or bureaucratic 
procedures could be avoided.
 This change would, at long last, take an enormous 
load off the shoulders of the working population who, in 
the end, always pay for every profit based on 
speculation. The latter, indeed, is what land has always 
been used for. A realistic change towards a social 
solution, therefore, must eliminate speculation with land 
and money. Again, the proposed solution does not aim at 
punishing those who profit from the present system, but 
it is designed to put an end, slowly but surely, to the 
preconditions which allow enormous advantages to a few 
people while requiring the large majority to pay for 

 In Germany today it has been estimated that between 
one-half to two-thirds of the Gross National Product 
may be termed "questionable" in respect to maintaining 
an ecologically sustainable future. (16) Therefore, 
removing the barriers to initiate more production and 
employment through the proposed money and land 
reforms may require two changes in the way taxes are 
levied, or else environmental devastation would likely 
 (1) a change from an income tax to a product tax;
 (2) an assessment of the costs to the environment 
included in this product tax.
 Hermann Laistner, (17) who explains this idea in 
detail in his book "Die Ökologische Wirtschaft" (The 
Ecological Economy), points out that income taxes 
eventually make labor more expensive and, therefore, makes more 
mechanization necessary. This encourages the 
consumption of finite resources through increasingly 
cheap consumer products. If a tax on products would be 
introduced, instead, which also would include the costs 
of the product to the environment, products would tend 
to become relatively more expensive. Combined with 
lower labor costs, this would reduce the pressure for 
more automation and more people could find employment.
 Right now, society pays twice if a laborer is replaced 
by a machine. It loses the income tax - as incomes of 
machines are not taxed - and subsequently pays 
unemployment benefits to the laid-off laborer. In 
addition, a sizable portion of work is carried out 
illegally at present, in order to avoid income taxes. If 
income tax were abolished, this shadow economy would 
finally become legal.
 While not causing any lowering of the standard of 
living to start with, because the increase in prices for 
products would be balanced by a tax-free income, this 
change would create very different and more 
ecologically-sound consumer behaviour in the long run. 
People would think twice before they got a new bicycle 
or car if it were a lot more expensive than to repair the 
old one.
 The change in taxation could be introduced gradually 
and would make sense even without the monetary and 
land reforms. It would support effectively a large number 
of demands and proposals from ecologists during the 
last decades. Combined with the two other reforms, this 
change would render redundant many environmental 
issues and "protection measures" while contributing to 
solving unemployment problems.