Clutching at a straw

I read The Limits of Growth in my late teens. Perhaps, I was twenty already. I was young and hoped to live for another sixty years or so. And suddenly, a computer told me that I would live to see the end. The evidence and the logic were convincing. For a long time, I had hardly thought about the impending doom. As a child, I sometimes feared the future when hearing the disturbing song Vluchten Kan Niet Meer or Fleeing Is No Longer Possible on the radio. It unnerved me profoundly as it painted a dismal time ahead where nature would be gone. But that faded once I went to secondary school. After finishing my studies, I became an environmentalist and joined a local Friends of the Earth group in Groningen in 1993.

Friends of the Earth is an international environmental organisation known in the Netherlands as Mileudefensie. They had local groups of activists, most notably in student towns like Groningen. The organisation researches environmental issues and tries to convince people they should change their lifestyles. Friends of the Earth also lobbies with politicians and pressures corporations. Our group was a hodgepodge of students, people with a job, unemployed, activists and ordinary people led by a woman in her thirties, who acted as an Akela at the boy scouts. A 22-year-old student was her boyfriend.

We were not militant like Greenpeace, but sometimes we protested. One day we blocked the entrance of Groningen Airport to protest against the government subsidies for the airport. The police came and told us to leave, which we did. I then concluded that activism would not help. We will not give up our comfortable lifestyles and vote out politicians if they are serious about solutions. And businesses will go bankrupt if they do more to save the environment than others. Their products would be more expensive, and we wouldn’t buy them. And so there were underlying economic and political issues to address. We organised ourselves around themes, for instance, vegetarianism, air pollution, and economic issues. And these caught my interest.

We were short of money, but that changed when I became the treasurer. I took measures to make expenses match income, but I also had some luck. Every year, we obtained a small grant of 2,500 guilders from both the Groningen province and the Groningen municipality. But when I became treasurer, the provincial administration had just denied the allowance we had received the previous years. And so I wrote an appeal to the Appeals Commission. I then went to the Provincial House to discuss the issue with the official responsible for the grant. He explained that it was because we had been late filing our request, and the money jar was already empty. And so, I asked him whether there was any point to the appeal. He said no. It was a done deal. Then I received an invitation for a hearing at the Appeals Commission. I decided not to waste my time by going there, so a commissioner called me that evening, asking me why I hadn’t shown up. And I told him. That probably touched a nerve, as I gave him the impression that no one took the Appeals Commission seriously. And so, our appeal was granted, and we received the subsidy. As I had made a budget that did not anticipate this money and had implemented budgetary discipline, we ended up with income exceeding expenses.

Once over a cliff, a cartoon character can only clutch at a straw. And only in animation pictures the straw holds. The Dutch saying clutching to a straw means grasping to your last hope. On economic issues, our local group worked together with Strohalm, or more precisely, Rinke. He lived in Groningen and was actively engaged in Strohalm and their ideology. As I remember, he was on social benefits, and working for Strohalm and Friends of the Earth was his job. He was serious about it and worked hard. The meaning of the Dutch word strohalm is straw. According to Strohalm, the economy must grow because of interest, and that’s destroying our planet. It is ‘grow-or-die’ because interest rates need to be positive. Interest charges also cause escalating debts, poverty and financial instability. And in the end, the scheme will collapse because the interest adds to the principal until infinity. Any solution begins with ending that, they believed. And as you may have inferred already, I was into sound accounting, so this made me think. Strohalm aimed to ban interest and charge a fee on money, as Silvio Gesell had proposed. You didn’t have to pay the fee on money lent. In this way, it could be attractive to lend money without interest.

In those days, Strohalm started a LETS (Local Exchange Trading System) in Groningen. We exchanged goods and services using fictitious currency. We had a camp to train our persuading skills as environmentalists. Rinke was one of the organisers. He praised me several times and called me an example for others. That was not because of my social skills but because I knew what other people thought and how they would react. My parents and some friends frowned upon me joining the environmentalist movement.

I soon realised that there were serious issues. If you can receive interest elsewhere then why would you lend out money without interest? And if you can borrow money at an interest rate of zero, you would borrow as much as you can and put it in a bank account at interest. Therefore, interest-free money with a holding tax would not work. Only, that wasn’t particularly satisfactory. If you accept doom then you might as well commit suicide. If interest is the root of many social and environmental problems, and can destroy human civilisation, you should make it work. And perhaps it could work. During the Great Depression, it had been tried in a small Austrian village and it was a stunning success.

I am concerned about the planet. For years, I used public transport. And I still do it for work. But at some point, I realised it was pointless. More and more people started driving SUVs. They didn’t care about the planet. So if I saved petrol by taking a train, there was only more for those people. It didn’t matter what I did. A car makes your life comfortable, and I didn’t aspire to higher moral standards than others. So, I bought a car in 2003.

In 1998, I became a freelance IT specialist. I worked for a small bureau named Betamax, led by Martien, a retired manager. I made lots of money, so I had some capital to invest. My first investments were small and unprofitable, as I believed that profits matter. At the time, loss-making internet startups did very well in the stock market, while profitable corporations did poorly. But I had trouble understanding it. And so I thought I had to stay informed about the financial markets. In 2000, I joined the investment message board Iex.nl. At the time, I still said occasionally, ‘With SuperBart,’ when taking up the phone. That was fun and it sometimes caused hilarious moments, for instance, once I expected a call from Ingrid, but it turned out to be Martien. And so, I chose this name as my avatar.

Later I changed my avatar into niphtrique after someone noted that SuperBart sounded arrogant. And since then, I never took up the phone anymore saying, ‘With SuperBart.’ I didn’t need that to feel better anymore. A strange thing about avatars is that you somehow become this person, SuperBart, on the Internet because people do not know you. And so, I introduced a few other avatars to be someone else and have some fun. Most avatars didn’t last long, except dikkevettebeer, or plumpy fat bear, who believed the stock market would crash to zero and the gold price would rise to infinity.

A colourful investment fund manager, Michael Kraland, ran the message board. He also wrote commentaries about his investments. At the time, he rode the hype of the internet and telecom bubbles. His strategy was risky and not sound advice to inexperienced investors. And because he was a bit of a boaster, he received nasty negative comments on the message board, including unproven accusations of wrongdoing. And perhaps also because he was a Jew, which might not be accidental, as he worked in finance. And even though, as far as I know, he never did anything illegal, I nevertheless found him a dubious character.

After some time, a day trader named Cees joined the message board and began sharing conspiracy theories with us. He found them on US message boards and websites. If the markets were about to collapse, a secret group called Plunge Protection Team would come to the rescue. A stock market crash could undermine confidence in the financial system run by Wall Street, so they didn’t allow that to happen. Many readers first ridiculed Cees. But after the internet bubble had popped, and even more so after 9/11, markets often miraculously recovered when they were about to crash. And so, his credibility gradually rose. And the gold price regularly cratered because of sudden selling at peculiar times when most markets were closed. Cees believed central banks were behind this to promote confidence in their currencies. He wrote that if the gold price were to rise, the public would lose trust in our money. When there is little trade, you can sell a bit of gold to make the price drop. The trick was to break a trend. Trend traders, called technical traders, would then join the bandwagon by selling more gold, bringing down the price even further.

That was new to me, and perhaps it wasn’t all true, but there was ample reason to be suspicious. I had already bought some gold for other reasons. I didn’t trust financial markets and those operating them. Those people make a living from your money, so these stories intrigued me. They might be pulling out all the tricks to keep the Ponzi scheme of interest-bearing debt going. After all, debts continued to grow, as did interest payments, so there could soon be a day of reckoning. And I had read The Limits of Growth, so I feared collapse was inevitable. And if the sky has come down on you once, you worry it might happen a second time. Hence, I was constantly on edge concerning my investments, which was not helpful for profits. And I was not good at picking stocks. And so, I bought gold as a long-term investment. I also hoped that gold ownership could help me weather a financial collapse.

I bought my first gold in 1999 before I joined Iex.nl when I learned on the news that the gold price had reached historic lows. And so, I went to my bank to open a gold account. They sent an investment advisor to talk me out of it. He said, ‘No one does that anymore. I know a man who has a silver account with us for two decades. And silver has gone nowhere all that time. Gold mines are making losses because the price of gold is only going down. You should invest in the stock market instead.’ I smelled apathy concerning the precious metals and concluded it could be the beginning of a long-term trend of rising gold and silver prices that might run for decades, which indeed has happened. And so, I pressed on and opened a gold account. Perhaps, they had a good laugh that day at my bank office.

In 2001, after the Internet bubble had popped, I pitched the idea of interest-free money on the message board of Iex.nl. My lack of knowledge of the financial system didn’t deter me. Everyone can participate in a debate on a message board, and you can exchange thoughts with people you would never meet otherwise. Others rebutted me time after time, but I didn’t give up. Lengthy discussions followed, and they took several years. As these discussions proceeded, my knowledge of the financial system increased. And with the benefit of hindsight, debates on the Internet can be more fruitful than academic debates, which often occur in closed circles, because you get more perspectives.

In theory, interest-free money is a sound idea because fixed-interest payments destabilise the financial system. But practical issues stood in the way. The supporters of interest-free currencies didn’t address them. And economists never took interest-free money seriously because if you can receive interest elsewhere, you will not accept interest-free money. Via gold websites, I became familiar with the Austrian School of Economics and their adherents. They question money creation by banks and the need for central banks and point at the inflation caused by money creation. Some hoped to limit money creation or to return to a gold standard. Usually, they were libertarians who saw the government as the root of all evil. And unlike St. Paul, they saw sound money and free markets as the root of all blessings. They were a most peculiar and fanatic bunch, and even though they were on the opposite side of the political spectrum, a comparison with communists is most apt.

Both ideologies are like religions. Like the communists have their prophets, such as Marx, Lenin and Engels, libertarians have them, like Mises, Hayek, and Rand. And both religions have holy books. Communists have Marx’ Das Kapital or the Communist Manifesto, and libertarians have Rand’s Atlas Unshrugged or Ludwig von Mises’s book The Theory of Money and Credit. If their ideology fails, communists blame the capitalists, while libertarians blame the government. They appear to see money as a goal, not a tool. If you held alternative views like me, they might accuse you f being Keynesian, which seemed worse than being Satan himself. To me, these people seemed misers obsessed with money. Perhaps it is not a coincidence that their hero, after which they named their website, is Ludwig von Mises. So Mises for misers, if you didn’t get it already. And even though Wall Street is much eviler than they are, they represent the worship of Mammon in its purest form. They believed they were always right, so they tried hard to convince me I was wrong with my ideas about interest. And so, I learned as much from the Austrians as I learned from Strohalm. And if you come to think of it, perhaps it is also not a coincidence that the miracle of Wörgl happened in Austria.

Two opposing fringe ideas, interest-free money with a holding tax and the Austrian School view of hard money, challenged each other in my mind. It is how Hegelian Dialectic is supposed to work. It was not so that I was constantly brooding on this issue, but I also couldn’t let it go. In 2008 this resulted in a synthesis, Natural Money. In a gold standard, you need positive interest rates to get the economy going. As a result, you end up with unsustainable debt levels that you can never repay in gold, so you must leave the gold standard. But when you do that, the sky is the limit, and debts can escalate to infinity. But limiting the interest rate to zero can curb money creation too, and stop irresponsible lending. If the money supply is stable and the economy grows, prices drop, including the gold price. And so, a well-managed currency with a holding fee could be stronger than gold. As the economy can do better without interest, interest-free money can give better returns. That was the beginning. In the following decade, I produced a more comprehensive theory with the help of modern monetary economics.

Latest revision: 30 January 2023

Featured image: Roadrunner and Wile E. Coyote. Warner Bros. [copyright info]

2 thoughts on “Clutching at a straw

    • There is a relationship between interest and the need for growth, but not necessarily so. There is no need for growth under the following conditions:

      1. There is relatively little capital and there are few interest-bearing debts.
      2. The rich consume their surplus interest and dividend income so that money continues to circulate. The rich tend to save and invest most of their income so this doesn’t happen (enough).
      3. If the rich don’t consume their surplus interest and dividend income, the same can be achieved by wealth taxes that can be spent on lowering taxes on labour.
      4. Interest rates are below the inflation rate. That is a negative interest rate, which implicitly demonstrates the relation between interest and growth compulsion.
      5. Writing off is possible, but this is problematic in the current financial system for if you write off bank debts on a large scale, you may have a systemic crisis.

      In the past interest rates were mostly above zero and economic growth occurred voluntarily. Under those conditions you can hardly speak of growth compulsion. A lack of economic growth can easily lead to a crisis because debts, and the interest on these debts can’t be repaid if growth is too low. Growth can prevent such a crisis, hence it is ‘grow or die’.

      Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.