Author: nivtric

College Noetsele

School Newspaper

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When I was sixteen, the school newspaper retired. The editors lacked inspiration. It had become an infrequent occurrence, filled with political activism over cruise missiles, with little to do with the school itself. My experience with the funny newspaper made me figure that I could be a newspaper editor. My friend Arjen found it a good idea. Arjen contacted Erik to join the editorial board. Arjen believed Erik was a popular guy, which could help the newspaper. And even though I didn’t like him, I accepted him on the editorial board. Erik was a bully, and we had fought once. He proved to have good writing skills, and his editorials filled the first page.

We figured we could write six pages every three weeks instead of 100 pages once or twice a year. We named the paper Ikzwetsia after a humorous paper that circulated among the fifth-graders a few years earlier. Another guy in our class, Hendrik, added a few drawings. We filled the rag with juicy gossip about teachers and fabricated stories to make it more amusing. To give you a better insight into what our rag was like, I list a few gossip items,

Mr. Van den Brink’s lessons from economics are not particularly interesting. Remarks from pupils, such as, ‘The snow goes more up than down,’ make this clear.

During a heated discussion, the truth came out. ‘We teachers are not people,’ said Mr. Blaak from mathematics. We had always thought this, but never dared to publish it.

At the school’s back entrance, a garbage container has been defaced with the inscription ‘new janitors’. So far, no one has dared to open this container.

Mr. Nauta from business accounting recently walked to the emergency building 400 without glasses, while he was supposed to be in the main building. He explained this coincidence with the strange statement, ‘You can only see from the inside if someone is crazy.’ Mr. Nauta forgot to mention that this can also be noticed in someone’s words.

There were also some rude jokes, like,

There is a particularly great interest in Mr. W in Hollywood. This interest has been the case since it became known that the ET doll is broken.

Some teachers were in a difficult spot. If we were aware of that, we didn’t make jokes about them, or we complimented them in disguise,

Mr. Kamps, from religion, does not believe in paranormal phenomena. So, we have at least one normal teacher walking around the school.

Mr Kamps had lost his son. These news items were facts mixed with fiction. There had never been any interest in Mr W in Hollywood, but somebody had written ‘new janitors’ on a garbage container. The part about no one daring to open it was a joke. Mr Kamps definitely said he didn’t believe in paranormal phenomena. Finally, Mr Nauta likely had forgotten his glasses while ending up in the wrong building and did explain the coincidence with that bizarre remark, but I wasn’t there when it happened.

There was a film section. A group of film enthusiasts who considered themselves cultured organised film evenings at school. Their film selection centred on artistic content. Not all of these films proved suitable for a conservative Protestant school. One of them, Narayama, featured a scene in which a man had sex with a dog. It generated a lot of ado, or, as Erik put it, the suspense became too much for some people. Art must shock people for some reason. Otherwise, there needs to be a deeper meaning.

Geraldine wrote some of the film commentaries. She was a girl in my class with a striking hairdo, was a bit alternative, dressed outspokenly, and flaunted her interest in art and literature. She had written a particularly lengthy commentary about the classic All About Eve. To fit the page, I shortened it a bit, which offended her, probably because she believed the editing violated her artistic integrity. I didn’t see my writing as art, so it had to fit the available space, but she did, and she believed the space had to adapt to her writing. Marilyn Monroe, who was building her career, played a small part in the film All About Eve.

I indulged myself in writing an imaginary story about the school, a crime detective series with the Cultural Council, which had, amongst its tasks, overseeing the school newspaper. It had a secret service stealing the newspaper’s secrets. The editors were the police detectives solving the crime. It was a loony story featuring a teacher disguised as a standing twilight lamp, a preparation for a theatrical play that looked like a love affair between two teachers, a wild-west-style shoot-out and a dangerous-looking Basset hound with a degree in psychology. And it contained witticisms like, ‘He lay there as lifeless as a soccer match in Enter.’ Some children came from Enter, a village near Rijssen, and the guys were fanatic supporters of the local soccer club Enter Vooruit (Enter Forwards). So, apart from them, everyone had a good laugh.

Ikzwetsia became popular very fast and was a headache for the school board. Children brought copies home. Some parents complained, while other parents enjoyed reading the rag. We presumed the name Ikzwetsia would be telling enough, as it referred to the Dutch word for talking nonsense. But some people took it seriously nonetheless, so we added a cautionary note on the front page, saying, ‘Whoever takes this rag seriously is not taken seriously.’ Unlike the previous school paper, we didn’t need money from the school board because I had prepared a budget. We covered the expenses with subscription fees.

Featured image: College Noetsele by Historische Kring Hellendoorn-Nijverdal, from MijnStadMijnDorp, CC-BY 4.0

1919 Cover of The Natural Economic Order

Feasibility of Interest-Free Demurrage Currency

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Setup

Natural Money is an interest-free demurrage currency. It features a holding fee on currency and a maximum interest rate of zero on money and loans. The Natural Money currency is an accounting unit only, as the holding fee, which may range from 0.5% to 1% per month, makes the currency unattractive to hold. Therefore, the currency will not circulate, nor will someone invest in it. Cash, bank deposits, bonds, stocks, real estate, and other investments aren’t currency and therefore not subject to the holding fee. Not paying the holding fee and the curtailment of credit, and thereby inflation, caused by the maximum interest rate, can make lending at negative interest rates attractive.

Natural Money features a separation between regular banking, also known as commercial banking, which involves lending and borrowing, and investment banking, also referred to as participation banking, which involves participating in businesses. Regular banks guarantee returns to their depositors and use their capital to cover losses. Participating banks have shareholders who share in the profits and the losses. These two bank types should remain separated, even though one bank might offer both in distinct accounts. A commercial bank’s funds should be used only for lending. The maximum interest rate limits lending, allowing equity to replace debt in the financial system.

Evidence from history

There is little historical data on the subject of interest-free demurrage currency. Financial systems founded on interest-free money with a holding fee have never existed. There were holding fees and interest bans, but the combination of both has never existed. More importantly, a usury-free financial system requires a high-trust society founded on moral values where investments are safe, and is only feasible with the help of several relatively modern financial innovations. That all seems too good to be true, but we can have dreams. And so, the evidence from history is of limited value.

Several ancient societies have seen usury-induced economic crises. Extreme wealth inequality, often accelerated by usurious lending, regularly coincided with societal collapses. It is a recurring pattern that has existed since time immemorial. The Sumerians were already familiar with charging interest and its disastrous social consequences. Sumerian rulers began implementing debt jubilees as early as 2,400 BC, cancelling debts and freeing debt slaves. Other cultures, such as those in Israel, have banned charging interest. Israel also had debt jubilees every fifty years.

The Egyptian grain-backed currency existed for over 1,000 years, suggesting it provided monetary stability. Nevertheless, ancient Egypt has seen economic crises, often due to droughts causing crop failures, high taxation during warfare, or a weakening central government. The government mitigated famines with its grain reserves, but prolonged famines depleted these facilities, leading to civil unrest and, sometimes, a collapse of order. There is no evidence of social benefits of this money for Egyptian society. Charging interest was common, and Egypt had debt cancellations.

In the Middle Ages, the Church forbade charging interest. Christians, like Jews, were each other’s brothers and couldn’t charge each other interest. When economic life became more developed, the ban on interest became difficult to enforce. In the 14th century, partnerships emerged where creditors received a share of the profits from a business venture. As long as the share remained profit-dependent, it was not illegal, as it was a participation in a business rather than lending at interest.1 Islamic finance works with similar principles.2

In the 17th and 18th centuries, interest ceilings replaced bans. To circumvent the interest ceilings, a creditor and debtor could secretly agree on a fraud, whereby the creditor handed over less money than stated in the loan contract, so that the borrower actually paid more interest.3 More recent experiences with Regulation Q in the United States, which imposed maximum interest rates on bank accounts, suggest that a maximum interest rate is enforceable only if it does not significantly impact the bulk of borrowing and lending.4

An effective ban on usury requires a society grounded in moral values rather than profit. It requires us to live modestly and within the planet’s limits. It also requires societies to care for vulnerable individuals, so that they don’t fall prey to usurers. You shouldn’t charge interest, not merely because it is illegal, but because it contributes to something profoundly evil. That points to a broader problem. We should care about the world and consider the consequences of our actions. Even when what we do is legal, it doesn’t mean that it is good.

Implementation

To implement Natural Money, interest rates must already be low or negative. Attempting to lower interest rates when market conditions don’t justify that move would likely scare investors. Low interest rates require trust, which requires financial discipline, including fiscal discipline from governments. That doesn’t equal austerity, since governments earn interest on their debts when interest rates are negative. The transition preferably is a gradual process that the authorities communicate in advance. Whether that is possible at all remains to be seen, as the implementation may occur in exceptional times.

If there is still a functional currency, the first step is for the government to balance the budget. The second step is to decouple cash currency from the administrative or central bank currency. The move encompasses retiring central bank-issued banknotes and replacing them with treasury-issued banknotes. Not everyone will hurry to a local bank office to exchange banknotes, so the central bank-issued banknotes must be exchangeable at par for the new banknotes for a considerable period.

As long as interest rates are significantly above zero, a holding fee won’t bring them down. Setting a maximum interest rate can lower interest rates by curtailing credit, thereby cooling the economy. To avoid disrupting financial markets, the implementation must be gradual. The maximum interest rate should be high enough to avoid disrupting the economy. Initially, authorities could set the holding fee at a low percentage, or not at all. As interest rates fall, authorities can lower them.

The zero lower bound is a minimum interest rate. It operates like a price control by preventing interest rates from moving freely to the rate where supply and demand for money and capital balance. That is to the advantage of the wealthy, as they can take the economy hostage by demanding a minimum return on their investments. When returns are low, investors may prefer cash over investments, which can hinder an economic recovery. Economists call it liquidity preference.

Low interest rates can prompt lenders to seek higher yields and take on more risk. Low interest rates allow borrowers to take on more debt. Low interest rates can promote investments that become unprofitable when the economy slows down. A maximum interest rate can prevent these situations from happening. A maximum interest rate caps the risk lenders are willing to take and promotes a deleveraging of balance sheets, so that even low-yielding ventures don’t go bankrupt because of interest-bearing debts.

Issues with the maximum interest rate

A holding fee will cause few difficulties, but a maximum interest rate is more problematic. Insofar as the maximum interest rate affects questionable segments of credit, such as credit card debt and subprime lending, this is beneficial overall. More serious issues can emerge with financing small and medium-sized businesses. Partnership schemes can fill in the gap, but it is hard to predict how that will play out. The maximum yield on loans is zero, making partnerships more attractive, as they can offer higher returns.

There may be objections to the limits Natural Money imposes on consumer credit. Still, there is little doubt that a maximum interest rate can improve consumers’ purchasing power, as borrowers won’t have to pay interest. As a result, there are fewer borrowing options, which may lead to the emergence of black markets. To make illegal schemes unattractive for lenders, lenders who charge interest could lose the money they have lent.

Zero is the only non-arbitrary number, making it more difficult to change the maximum interest rate. That may happen for political or other reasons. The salespeople of usury can find plenty. If it is one, why not two? Zero is a clear line. A positive interest rate, no matter how small, contributes to financial instability. All positive growth rates compound to infinity, so once we start the fire of usury, it will eventually consume us.

A maximum interest rate seems feasible if it is above the rate at which most borrowing and lending occur, thereby limiting the effects on liquidity in the fixed-income market. A maximum interest rate creates room for alternatives, such as private equity and partnership schemes. These alternatives can supplement the fixed-income market and mitigate the effects of the maximum interest rate. A maximum interest rate is beneficial overall if it mainly affects questionable segments of credit, such as subprime lending.

In the case of bonds, the maximum interest rate of zero applies at the time of issuance. Due to economic circumstances or issues with the debtor, the interest rate may rise and enter positive territory. Likewise, governments may issue long-term bonds that may have positive yields if interest rates rise later on. That is not a serious issue, as long as the interest rate was zero or lower at the time of issuance.

A more serious issue is the risk of liquidity problems. When interest rates rise, less credit becomes available at interest rates of zero or lower. Interest rates might increase due to a strong economy with inflationary pressures. There are always economic agents that must borrow at all costs to meet their present obligations, so if they can’t borrow, they might go bankrupt. Businesses and individuals need to deleverage and arrange credit in advance, such as an overdraft facility, with their banks.

Another equally serious question is the profitability of banks with Natural Money. The lending business of banks will likely shrink significantly. The assumption is that risk-free lending will be profitable. But what if it isn’t? In that case, banks may need to lower the interest rates on deposit accounts to a level below the interest rate on short-term government debt. In that case, the cash interest rate may need to be lower than the interest rate on short-term government debt to make it work.

Inherent stability

Ending usury is impossible without investors having trust in the political economy or the political and economic institutions of the polity issuing the currency. The most trusted political economies have the lowest interest rates because their governments are fiscally responsible. Natural Money requires taking it to the next level. With Natural Money, to borrow, the government must find lenders willing to lend in the currency at negative interest rates. The government will be better off borrowing at negative interest rates, which provides an incentive for budgetary discipline. That is the foundation of stability.

Extracting a fixed income from a variable income stream contributes to financial instability. Fixed interest payments can bankrupt a corporation even when it is profitable overall. Interest contributes to moral hazard, as it serves as a reward for taking risks. Investors expect to earn higher yields on riskier debt, so lenders take on these risks. The more uncertain an income source, the higher the interest rate needs to be to compensate for the risk of lending, but the higher the fixed interest rate, the more likely failure becomes, which reveals the destructive consequence of interest being a reward for taking risks.

All parts of the financial system are intertwined. Individual banks can transfer these risks to the system. And so, the risk management of individual agents can increase the overall level of risk in the system. The payment and lending system is a key public interest, so governments and central banks back it. Banks take risks and reap rewards in the form of interest, while public guarantees back up the financial system. The arrangement leads to moral hazard, a mispricing of risk and private profits at the expense of the public. A maximum interest rate can end these problems.

A maximum interest rate causes a deleveraging and a reduction in problematic debts, which has a stabilising effect on the financial system and the economy. Individuals and businesses must already take action before their debts become problematic. Maximum interest rates can distort financial markets. Most notably, there will be fewer options for smaller firms to borrow. Partnership schemes should fill that void.

Interest payments also affect business cycles. The mainstream view is that central banks should raise interest rates during economic booms to curb investment and spending, thereby preventing the economy from overheating. A rosy view of the future prevails during a boom, so higher interest rates seem justified and borrowing continues for some time. When the bust sets in, the picture alters, and an overhang of debt at high interest rates worsens the woes. It would have been better if these debts hadn’t existed in the first place.

That makes a usury-based financial system inherently unstable. Natural Money changes this dynamic. When the economy improves, higher interest rates increase the attractiveness of equity investments relative to debt. That reduces the funds available for lending. The curtailment of credit will prevent the economy from overheating and avoid a debt overhang. When the economy slows, negative interest rates provide stimulus. In the absence of a debt overhang, the economy is likely to recover soon. A Natural Money financial system is inherently stable.

Featured image: 1919 Cover of The Natural Economic Order. Wikimedia Commons.

1. Simon Smith Kuznets, Stephanie Lo, Eric Glen Weyl (2009). The Doctrine of Usury in the Middle Ages. Simon Smith Kuznets, transcribed by Stephanie Lo. An appendix to Simon Kuznets: Cautious Empiricist of the Eastern European Jewish Diaspora.
2. Sekreter, Ahmet (2011). Sharing of Risks in Islamic Finance. IBSU Scientific Journal, 5(2): 13-20.
3. K. Samuelsson (1955). International Payments and Credit Movements by the Swedish Merchant Houses, 1730-1815. Scandinavian Economic History Review.
4. R. Alton Gilbert (1986). Requiem for Regulation Q: What It Did and Why It Passed Away. Federal Reserve Bank of St. Louis.

Amish family, Lyndenville, New York. Public domain.

Economic Development

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Before the Industrial Revolution

Before the Industrial Revolution began in England, European crafts and sciences had already advanced. During the Middle Ages, inventions such as gunpowder, eyeglasses, the compass, the printing press, the mechanical clock, the windmill, and the spinning wheel had reached Europe from China or the Middle East. What made Europe culturally different was its individualism. In the 14th and 15th centuries, a new spirit emerged in Italian merchant towns like Venice, Florence, and Genoa. It was the spirit of the merchant which subsequently spread throughout Europe.

And so, Europeans gradually abandoned their traditional Christian values and developed a capitalist spirit by pursuing worldly wealth and pleasure rather than modesty and bliss in the afterlife. There were merchants elsewhere, but the populace held them in low regard because of their depraved ethics, as greed was their core value. It was the pursuit of profit that drove European explorations and colonialism. Making money became the new moral virtue, alongside inquisitiveness, creating a dynamic that would change the world.

During the 16th and 17th centuries, Europeans explored the world and invented the microscope, the steam turbine, the telescope, and the steam pump. Modern science began when Nicolaus Copernicus calculated the trajectories of the planets by assuming that they revolved around the Sun. Isaac Newton later formulated the laws of motion. Europeans expanded their colonial empires, thereby increasing the size of their markets, a prerequisite for the mass production that industrialisation was to bring.

The British were the most successful. Supported by a strong navy, they built the largest colonial empire. They also invented modern banking, creating money out of thin air or financing capital by imagining future revenues. In 1689, the British had the Glorious Revolution, which, like many revolutions, was about taxation. Businesspeople then took over the government. Taxation henceforth required the consent of the taxed, thus, property owners. And the state became a venture of the propertied classes, like the Dutch Republic, the wealthiest nation at the time, already was.

The taxpayers didn’t like to pay for ineptitude and corruption, so the quality of the British state improved, and the state used its military to support the colonial business ventures of the propertied classes. Great Britain had easily accessible coal deposits and developed a large coal mining industry. Due to a lack of firewood, coal had become England’s primary heating source. As mine pits grew deeper, they became prone to flooding. With no transport costs, a coal-fired steam engine to pump water out of the mine became cheaper than manually pumping with buckets.

Ignition

Trade with the colonies promoted British industries, resulting in high living standards and wages in England. In England, coal was easily accessible, so energy was cheap. In Great Britain, the aristocracy had an entrepreneurial spirit and paid taxes, making the British government a reliable borrower. Banking innovations, most notably the creation of money, made British capital markets more efficient. And so, Great Britain had low interest rates, so a low price for capital. The first machines were clumsy and inefficient, but high wages, cheap capital and affordable energy made them profitable.

This combination of factors is why the Industrial Revolution started in England rather than elsewhere. Wages in France were lower, while the banking system was less developed. The rent-seeking French aristocracy didn’t pay taxes, making the French government an unreliable borrower. Thus, interest rates in France were higher. Once the first machines were in operation, inventing new ones or improving existing ones became profitable, so British engineers got busy enhancing the steam engine’s efficiency and inventing contraptions like the spinning jenny and the cotton gin.

The fuel consumption of steam engines dropped from 44 pounds of coal per horsepower-hour in 1727 to 3 pounds in 1847, making it economical to use the steam engine for other purposes, such as trains. The dramatically improved fuel efficiency, combined with other improvements, made it economical to mechanise production elsewhere where wages were lower, interest rates were higher, or energy was more expensive. That allowed the Industrial Revolution to spread to other countries.1

It was a watershed moment. Until then, inventions were rare. Scientists made them out of curiosity. However, from then on, the profit motive generated a permanent drive to pursue knowledge and new technologies and to invent new products. In this way, economising through innovation and scale became a constant, unstoppable process that economists call creative destruction. Factories needed scale to operate profitably, while inventions birthed new industries and made others obsolete.

Humans have started a fire in their midst that continues to grow. We can’t stop it. A classic book on the Industrial Revolution used at universities is David Landes’ The Unbound Prometheus. According to Greek mythology, Prometheus stole fire from the gods and gave it to humans. The Greek supreme deity, Zeus, punished him for his act. The story parallels the biblical story of the Fall. The Industrial Revolution unleashed the unlimited fire of the gods that will devour us.

Since the Industrial Revolution, the general level of opulence has risen dramatically, though it was hardly noticeable at first. Industrialisation made craftspeople in the clothing industry destitute as they couldn’t compete with factories. Everyone else profited from cheaper cloth. Mechanisation made existing products like cloth more affordable, so people had money to spend on new products like light bulbs, making investing in new inventions profitable. Economists call it Say’s Law. More supply generates new demand.

Due to these innovations, production costs decreased, and industrialisation became profitable where wages were lower, energy was more expensive or interest rates were higher. Industrialisation first took off in Europe and North America, but not elsewhere. One reason is that Europeans had become innovation-minded and eagerly adopted new technologies like railroads and telegraphs. These first technologies were simple, thus easy to apply, but the Chinese and others remained reluctant to use them.2

Standard development recipe

Western Europe followed quickly, helped by the French Revolution and Napoleon Bonaparte’s reforms. The French Revolution wiped out the corrupt old French regime and replaced it with a modernised, efficient bureaucracy. The aristocrats lost their power. The French introduced civil registries, rationalised the law code, standardised weights and measures by introducing the metric system with kilograms and metres, and made everyone drive on the right side of the road. Napoleon’s armies then spread these reforms over Europe. Napoleon did to Europe what the first Chinese emperor did to China 2,000 years earlier. Both reigned shortly but left a lasting legacy.

Countries Napoleon didn’t conquer, such as Great Britain, continued to drive on the wrong side of the road and use arcane measures like miles and ounces. And only in Great Britain do aristocrats still influence politics through the House of Lords. To catch up, Western Europe and the United States followed a standard recipe consisting of the following elements:

  • Creating a national market by eliminating internal tariffs and building railroads.
  • Developing domestic industries by using external tariffs.
  • Instituting banks to finance investments and stabilise the national currency.
  • Establishing a mass education system to upgrade the labour force.

These measures had enormous social consequences, which we now refer to as modernisation. Societies came to replace communities. It was the age of nationalism. With the help of mass education, everyone learned the national language, and local dialects disappeared. People learned to identify with their nation rather than their kin and village. The outcome was that modern humans rely on markets and the state more than on their family and community.

Other countries implemented the same recipe but with modifications due to local economic factors. Factory layouts that operated at a profit in Europe were loss-making elsewhere. If energy were expensive, the operation would become more cost-effective using fewer machines and more labour. Japan was the first non-Western country to follow. The Japanese had to deal with local circumstances. High interest rates made investment capital expensive, so Japanese factories held no stockpiles of raw materials and semi-finished products but let their suppliers make them when needed. So, when interest rates rose in the late 1970s and early 1980s, Western industries couldn’t compete with Japan.

There are varying views on why industrialisation succeeded in some countries but not in others. If you dare to generalise, you can make the following observations:

  • East Asian countries like Japan, South Korea, Taiwan, and later China modernised successfully. They had a sense of nation and experience with rational government administration. Their bureaucrats and businesspeople successfully implemented modernisation projects.
  • Latin American countries were less successful. They were former colonies lacking national identities. Their white elites neglected the education of indigenous people. There were a few large estates and hardly any small-scale farmers. Wealth inequality prevented the development of a middle class.
  • The Soviet Union modernised with the help of state planning. Industrialisation of heavy industries succeeded, allowing the Soviet Union to defeat Nazi Germany. Agricultural reforms were a disaster, and consumer products were of poor quality. By the 1970s, it became clear the Soviet Union couldn’t keep up with the West.
  • Several countries in the Middle East modernised with dictators implementing socialist development models based on the experiences in the Soviet Union. Some Arab countries became wealthy from oil revenues. Few countries in the Middle East have developed industries that compete in international markets.
  • Africa lagged. African borders didn’t match the tribes living there, so there was no sense of nationhood. There have never been states in most of Africa. European colonisers ended traditional forms of government and property rights, contributing to poor governance and corruption. Africans started with a disadvantage.

Industrial politics

There are requirements for a modern economy, though a country doesn’t need to meet all of them. A capable government and an educated workforce can turn a situation around. Japan has few natural resources, but has become one of the most advanced countries in the world. It was the first non-Western country to industrialise. Japan was also lucky. After World War II, it had access to US markets because it was a close ally of the United States, which needed it to help it export its way into prosperity. Argentina had fertile land and was one of the wealthiest countries by 1900, but it has since then gone downhill. To successfully modernise, a country probably needs:

  • a capable government that understands economics and is business-friendly
  • an educated workforce as workers must read, write and use technology
  • businesspeople, investment capital, and sufficiently ensured property rights
  • a large enough market, thus a sizeable middle class
  • an industrial policy, thus picking industries to compete in international markets, helping to develop them, and supporting them with tariffs or subsidies

There are several kinds of industrial politics. Neo-liberal politics aim to pursue economic growth by promoting trade, lowering taxes, and reducing regulations. Unrestricted trade allows areas and people to specialise and compete to produce more and better products, enhancing overall opulence. It also promotes a race to the bottom at the expense of our future. Industries go where wages are lowest or where they can dump their waste and avoid paying for government services.

Making the economy sustainable and people-friendly also requires industrial policies, such as reducing competition and introducing regulations and controls. And it requires ending imports from countries that don’t adhere to the same ethical standards. A sustainable, people-friendly economy can only exist on a level playing field with other economies that adhere to the same standards. These measures increase costs and reduce living standards. An extreme case is the Old Order Amish. They choose to be self-sufficient and live simple lives. Their economic model resembles community economics.

Community economics aims to enable people in a community to help each other by buying and selling goods and services using local currencies. It never became a worldwide success because communities lack the scale for self-sufficiency. There is also a lack of commitment, which is something the Amish do have. Few people barter their labour or goods in their community if they can get better deals elsewhere. Commitment is vital. Without it, there will be black markets with merchants smuggling in illicit goods.

Featured image: Amish family, Lyndenville, New York. Public domain.

1. The British Industrial Revolution in Global Perspective. Robert C. Allen (2014). Cambridge University Press.
2. Sapiens: A Brief History of Humankind. Yuval Noah Harari (2014). Harvil Secker.

1919 Cover of The Natural Economic Order

Discovery of Interest-Free Money

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In September 2008, the banking crisis was getting out of hand. Things were falling apart. It seemed as if the financial system could collapse at any moment and that civilisation, as we know it, would end. Today, the 2008 financial crisis is a distant memory, but at the time, not only did the financial press worry. Panic was setting in. It was like 1929. I had long feared an apocalyptic financial collapse and believed that usury, or charging interest on money and debts, would be the underlying cause. On the surface, the cause may appear irresponsible lending, but interest is a reward for the risk of default. Without interest charges on debts, there would be no irresponsible lending.

The events prompted me to watch the animated picture ‘Money as Debt’ on YouTube and reflect once again on Silvio Gesell’s ideas about charging a holding fee on money and using it to eliminate interest charges. I penned down my thoughts about interest-free money with a holding fee, and tried to make an ordered, coherent whole of them. The idea had never seemed workable. Why should you lend out money interest-free if you can receive interest elsewhere? It is why economists didn’t look into it more seriously and why interest-free money remained a fringe idea, mainly attracting eccentrics like me.

Then, in the first days of October, I made a startling discovery. Banning interest promotes financial stability by preventing usurious lending, irresponsible lending, and unproductive financial schemes. That would improve the economy. Think of it like so. When credit card debt and payday lending at high interest rates disappear, people will have more disposable income, and you will have no usurers living off the work of others. That would be more efficient. It also reduces the need for government and central bank interventions to manage the interest-bearing debt. Usury requires government deficits and the creation of money by central banks.

That is because most of our money is debt. If you go to a bank and take out a loan, the bank creates money out of thin air, but you must pay back the loan with interest. You repay the loan with money borrowed by someone else. And the money you need to pay the interest doesn’t exist. Someone else must borrow that as well. On a larger scale, due to interest charges, we need to add extra debt to pay off existing debts with interest. To prevent the usury scheme from collapsing, governments run deficits and central banks print money, which leads to inflation. The inflation rate is often higher than the interest rate you get on a bank account. The profits are for the bankers, who receive huge bonuses.

Now comes the explosive discovery. The economy would do better without usury. If the economy performs better, the yield on investments would be higher, so an investor would receive better returns with negative interest rates. The difference comes from inflation. Without interest charges, there is no need for government deficits and money printing. The economy can thrive without more debt, so there would be no inflation. During the Great Depression, the Austrian town of Wörgl issued a currency with a holding fee. Those holding the money had to pay a 1% monthly fee to keep the money valid, so they would spend it rather than save it. And so, the money kept circulating, and Wörgl’s economy boomed while Austria suffered from the depression.

And so I figured that if the money is interest-free, the currency’s value rises more than the interest you would receive on an interest-bearing currency. Think of it like so. You can have 2% interest with 5% inflation or -2% interest with 0% inflation. The latter would be a better deal. The question then becomes, why lend out money with interest when interest-free money offers better returns? If the idea is that good, and the ‘Miracle of Wörgl’ suggests so, investors would bring their money to the interest-free economy, and the usury economy would collapse. If this became more widely known, the idea would spread and terminate the usury financial system forever.

Until then, I had always believed that interest-free money was sound in theory, but impossible in reality, because rather than good intentions, efficiency drives changes in this world, which is also the reason why we are doomed. The only constant in history is the strong killing the weak. But this money could be the terminator of usury, and a better future for humankind suddenly seemed possible. An incredible power seemed to lurk behind it. And making this knowledge public, I speculated, could unleash an unspeakable force. The Austrian central bank banned the Wörgl money, so we don’t know how it would have ended if it had continued. Perhaps, we would have lived in an entirely different world. A similar type of money lasted for over a thousand years in ancient Egypt. Had I discovered the secret that explains these successes?

That gave me serious doubts. How could the experts have missed it? I was an amateur. And amateurs who think they know better than the experts have become a plague recently. ‘Think for yourself and do your own research,’ has become the motto of a growing squad of nutters that the Dutch would call Wappies. ‘If it snows, that proves climate change is a hoax.’ You know the type. Everyone can gather random posts and articles from the Internet and create their own version of the truth out of thin air. I was anxious about getting it wrong, which made me doubt the greatness of the discovery. It might be a good idea, but it can’t be that good. And that is correct, a decade of research later confirmed, but it is possible nonetheless. And the proof also came as we have seen negative interest rates in the next decade.

Then, on a website promoting Gesell’s ideas, I found the following quotes,

‘The creation of money that cannot be hoarded will lead to a different and more real kind of property.’

– Albert Einstein

‘Gesell’s name will be a leading name in history once it has been disentangled.’

– H.G. Wells

‘The application of Gesell’s principle of circulation of money will lead the nation out of the depression within two to three weeks. I am a humble student of this German-Argentine businessman.’

– Irving Fisher

‘The future will learn more from the spirit of Gesell than from that of Marx.’

– John Maynard Keynes

‘Gesell’s work will initiate a new epoch in the history of mankind.’

– Prof. Dr. B. Uhlemayr

‘Gesell’s discoveries and proposals are of the greatest importance for centuries to come.’

– Dr. Theophil Christen

These brilliant minds agreed that something epic lay beneath the surface and that it could change the future forever. John Maynard Keynes and Irving Fisher were among the greatest economists of their time. If Keynes believed Gesell would make us forget Marx, I might have found out why. And so, the Miracle of Wörgl and the grain money in ancient Egypt may not have been freak accidents but a sign of something more. Ending usury, the scourge that had haunted humankind for thousands of years, seemed within reach. While considering the implications, the following song played on the radio,

Summer has come and passed
The innocent can never last
Wake me up when September ends
Like my father’s come to pass
Twenty years have gone so fast
Wake me up when September ends

– Green Day, Wake me up when September ends

September had just ended. Silvio Gesell first proposed money with a holding fee in his book ‘Natural Economic Order,’ which he first published in German in 1916 as ‘Natürliche Wirtschaftsordnung.’ I figured that its abbreviation could be NWO, which stands for New World Order, not knowing that the German ‘Wirtschaftsordnung’ was, unlike in English and Dutch, one word. So, was my discovery meant to happen? Was it part of something bigger? These thoughts arose, ironically, because I didn’t see ‘Wirtschaftsordnung’ as a single word. It made me feel small and insignificant. Paranoia was creeping in.

What is less known, but definitely worth noting, is that the German Nazis also aimed to abolish interest and contemplated Gesell’s ideas. Gesell himself was not a Nazi, but a liberal and an internationalist. Adolf Hitler was more impressed by the ideas of Gottfried Feder, who had the same kind of moustache Hitler had. Feder had written ‘The Manifesto for the Abolition of Interest-Slavery’ around the same time Gesell wrote ‘The Natural Economic Order’ and proposed nationalising all banks and abolishing interest. Gesell argued for charging a holding fee on currency and not interfering with markets and banks.

I named the discovery Natural Money as a reference to the Natural Economic Order. Strange things began to happen. When I woke up at night, the clock always showed times like 2:22, 4:44 or 5:55, with no exception. That was creepy. Something seemed seriously off with reality. Then, my wife told me she was seeing those time prompts as well. Until then, I hadn’t told her that I was seeing them. Once you enter the Twilight Zone, it begins to affect you. Meaningful coincidences started to occur, making me open to suggestions. What happened around me and in the world seemed to interact with my thoughts. Even the covers and titles of the books in the bookshop at the train station in Leeuwarden radiated a sense of spookiness, with references to my situation. They call it synchronicity.

The animated picture Money as Debt started with a list of assassinated US Presidents who supposedly opposed the banking system, suggesting evil bankers were behind these assassinations, making me fear death under suspicious circumstances if Natural Money would get serious attention. Still, if a repetition of the miracle of Wörgl were to occur, the news would spread fast, and if it were that good, it would be impossible to stop. Killing me wouldn’t help. The Secret Service would be too late. Of course, I had worried far too much. I posted the idea on several message boards. Most people didn’t get it. I mailed the findings to 200 Dutch economic researchers. None of them was interested.

Natural Money had a more favourable reception on the message board of Opednews.com. It generated some discussion as some visitors saw the potential. Still, it didn’t lead to a further propagation of the idea. I also went to Strohalm’s office in Utrecht. They had been working on interest-free currencies for decades. The people of Strohalm received me politely, but they had other priorities. They had a promising project in Uruguay. Doubt crept in again. I didn’t know enough about monetary economics and the financial system to see whether it was an idea worth pursuing. And even if I was right, no one would listen, so I planned to give up and resume my life.

It was disappointing, but not as bad as being evicted from the dormitory by A* nineteen years earlier. To remind myself of that and make me feel better, I played the Sleepwalking album by Gerry Rafferty, the album I had come to associate with the events at the dormitory because of the lyrics of the first song, ‘Sleepwalking.’ And then I wondered whether A* had something to do with the discovery of Natural Money. Over the years, several incidents had occurred, suggesting that She was still interfering with my life. It didn’t take long before clues came up. There is a thin line between paranoia and psychosis. The lyrics of the fourth song of the album ‘On The Way’ were noteworthy,

Drifting along with the wind, telling yourself you can’t win
It’s over, and now we begin, oh yeah, we are on the way
…
Only one woman, one man, just doing the best that we can
There’s so much we don’t understand,
Oh yeah, but we’re on the way
Light shining down from the east,
bringing a love that won’t cease

– Gerry Raffery, On The Way

In my bed, I was imagining again. By giving up, I had just told myself I couldn’t win. Was this just the beginning? The beginning of what? What did I not understand? What was this love that won’t cease? Was my destiny connected with that of A*? I had loved Her in secret all that time, but never thought, or even hoped, that we could be together. The distinction between my make-believe world and reality, which had been there since I was a child, began to blur. The lyric wasn’t specific, so the suggestion came from me linking the album to the events in the dormitory. And I might still have ignored it if it weren’t for the fifth song,

People come and people go, friends, they disappear
There’s only one thing that I wanna know, tell me where do we go from here
Everybody’s on the make, everybody’s trying to get ahead
In a world like this, you just exist to feed the walking dead.
…
Lookin’ out on a world gone crazy, waitin’ for the fun to begin
The race is on, yeah, they’re gettin’ ready, Jesus, what a state we’re in
Meanwhile, down in my backyard, I’m sitting doing solitary
Now that I’ve milked the sacred cow, I just worry ’bout the military.
…
Get ready
Get ready

– Gerry Raffery, Sleepwalking

It is a strange lyric, and it made me think. Is the world about to go crazy, and is something about to start? We exist to feed the walking dead, which could be the defunct banking system, I reasoned. The phrase probably refers to what Karl Marx once wrote, ‘Capital is dead labour, that, vampire-like, only lives by sucking living labour, and lives the more, the more labour it sucks.’ I didn’t know that, so I made up my own interpretation. The sacred cow made me think of Joseph explaining the Pharaoh’s dreams, which is also not so obvious. Now, the story originates from a holy book, and one of the Pharaoh’s dreams involved cows, so that was the connection. Joseph introduced the granaries in Egypt, the story goes. Grain stored in these granaries became the basis of the Egyptian grain money, which, like Natural Money, had a holding fee to cover the storage costs.

These are some incredible leaps of thought that you wouldn’t make if you aren’t psychotic, so by then, I had crossed that line. Sleepwalking was the only album Gerry Rafferty had recorded outside the United Kingdom, and it was in the Netherlands, where I was living at the time. That was not a coincidence, I supposed, and I was right about that at least as it turned out. I had grown open to suggestions. Natural Money could change the world, some of the most brilliant minds had agreed on, and it was something epic, and it had to do with A*. And so, I was well on my way towards the shadow world where I was about to meet A* again after nineteen years. That evening, I felt A * trying to do a mind melt with me, like the Vulcans do in Star Trek, once again. This time, I didn’t resist. And there She was, on the other side. It seemed like a telepathic connection. By then, it was 11 November 2008.

Latest revision: 25 September 2025

Featured image: 1919 Cover of The Natural Economic Order. Wikimedia Commons.

Kombuisflat in Lewenborg.

Under the Bridge

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In 1993, I moved to Groningen and rented a small apartment at Kraaienest in Lewenborg, a multicultural neighbourhood on the outskirts of town. The quarter featured a few large apartment blocks mixed with family homes. When I told others that I lived there, some of them felt sorry for me. The area had a questionable reputation, but that was grossly exaggerated, mainly by those who didn’t live there. I had lived there for four years and never felt unsafe. But if you look for ‘Kraaienest Groningen’ in a search engine, you will find that someone died there in 2014 as a result of a ‘violent incident.’

There was drug dealing going on in the area, or so I had heard. I wandered around quite often, but never noticed it, probably because I didn’t know where to go. For the most part, it was an ordinary neighbourhood. I only knew my next-door neighbours vaguely. You could raise your children there, and there were families with children, but if you had better options, you would go somewhere else.

A group of about thirty black males with dreadlocks often hung out near the shopping mall, in what the Dutch call a coffee shop, but which was, despite the name, a place to buy and smoke cannabis. At first glance, they seemed intimidating because there were so many, but as far as I could see, they did nothing more than hang around and smoke weed. If you passed by, they were friendly. ‘Live and let live,’ was the Dutch stance on cannabis, which was officially banned, but no enforcement of that ban was the official policy of ‘tolerance’ concerning the less harmful soft drugs.

As a teenager, I had imagined there would one day be a giant Rasta party in Nijverdal, likely because the river passing through Nijverdal is named Regge, which sounds like reggae. The party would be on the banks of the river, and the Rastafari from all over the world would come to Nijverdal. In hindsight, this is a coincidence worth noting. Rasta(fari) is an Abrahamic messianic religion like Judaism, Christianity and Islam.

Rastafarians see Haile Selassie I, the former Emperor of Ethiopia, as a reincarnation of Jesus. Significant dates in the Rastafarian religion are 11 September (9/11 American notation), the Ethiopian New Year and 2 November (11/2 American notation), referring to emergency services numbers of the United States and the European Union. And there, they were hanging around in droves, near my home.

I had a job and, more importantly, a place of my own, so I wasn’t very particular about the place where I lived. Life had turned for the better. It was not marvellous, but then again, not as bad as it had been for a long time. And if your life turns from miserable to not-so-great, you can be content. I went out often alone, secretly hoping for the love that might come while dancing all night to rock music,

Sometimes I feel
Like I don’t have a partner
Sometimes I feel
Like my only friend
Is the city I live in
…
I don’t ever want to feel
Like I did that day

Red Hot Chili Peppers, Under The Bridge

The day was 13 October 1989 when I left the dormitory. The city was Groningen, where I lived alone and without a partner. I started collecting Garfield comics, about a cat well-known for its fatness and cynicism. Garfield’s owner, Jon Arbuckle, was an out-of-style country guy like me who had ended up in a city without a love life. Jon Arbuckle. That was the kind of guy I could relate to. And I didn’t even have a cat.

Women have become economically independent, and men, on average, crave women more, or perhaps sex, than women desire men, so more men than women end up involuntarily single. And women can be more picky because they don’t need a man to provide for them. Feminism solved a few problems but also created new ones. And men don’t talk about their problems, so women’s issues get the most attention.

Once, I met a lady in Groningen. She had travelled a lot and seen much of the world, whereas I hadn’t. She immediately concluded, and these were her exact words, ‘I hadn’t much to offer her.’ I was a provincial, and there was no point in getting to know me. Women often had long lists of requirements a man should meet. Men also have their wishes. They want hot supermodels, even if they’re not rich or good-looking.

Some of my friends never found a wife. They would have made good husbands, better than the jerks many women select. But they weren’t particularly adventurous or glamorous. Every market has winners and losers, as does the market for spouses. Once, in a pub, an Asian woman approached me out of the blue. She asked me if I was willing to die for her. My reply was frank, ‘No.’ I wasn’t that desperate. And so, she moved on. In hindsight, the incident was yet another noteworthy coincidence.

It turned me off. What was wrong with women? Did they think that men merely exist to please them? Of course, not all women were like that, but those still on the market often were so due to their excessive requirement lists. And women had only brought me misery with nothing good to show for it. Women weren’t worth the effort. Let’s face it. I was gradually giving up on them, and apathy was setting in.

A friend from my student years came over to Groningen. We went to a pub with a dance floor. A short but muscular man suddenly demanded that I leave. He seemed angry. In hindsight, I probably hit his face with my elbow while dancing as he was close behind me, but I was unaware of that and didn’t know there was a problem. I also didn’t recognise him as the pub’s bouncer, so I continued dancing. He then gave me a terrible beating and threw me out of the pub, severely injuring me so that I couldn’t work for two weeks. I filed a report with the police. I didn’t hear from them, so after a week, I called.

The police officer responsible for the case wasn’t in, so the police asked me to call again later. That happened a few times until, after a month, I managed to get hold of him. They weren’t going to do anything. It was a low-priority matter. And he began lecturing about police priorities. Justice was served nonetheless. About six months later, a local newspaper mentioned that the police had apprehended the guy for beating up an immigrant for no reason. It became treated as a case of racism, and at the time, racism had a high priority with the police.

Princess had moved to London in the United Kingdom and came to Groningen to visit me. She came by bus to the central station. I showed her Groningen, and we went out to the pubs. We also went by train to Amsterdam. On our way back, she expressed her disappointment that we hadn’t visited the world-famous red light district, which foreigners seem to want to see for some reason. It hadn’t occurred to me that she wanted to go there. Groningen also had such an area, and the lights there were as red, so Princess didn’t have to miss out on the action. When we walked down that particular street everyone in Groningen knew about, she said, ‘Look! That hooker is cursing me because I walk here with you!’ I didn’t notice it, but that is what Princess supposedly saw.

We also visited Nijverdal. I had hoped to surprise my mother, but she wasn’t at home. From there, we went to Enschede. I showed Princess the university campus. We also went to the German border close to Enschede at Glanerbrug. At the frontier, Princess attracted the attention of some locals in a pub. When Princess went to the toilet, one of them came after her and offered her money for sex. It was at least one hundred guilders, as Princess described his offer as a pile of banknotes with a one-hundred-guilder note on top. And the guy became pushy, even though not threatening. He offered to bring us to Enschede, or wherever we wanted to go, in his car several times. We had come to Enschede by train and, from there, by bus to Glanerbrug.

Princess didn’t see any problem with stepping into his car. She was sturdy enough to handle the guy, but I smelled trouble and insisted on taking the next bus out. She was genuinely surprised. On the bus back to Enschede, she asked me, ‘Why do you allow me to chat with guys in the pubs in Groningen but don’t allow him to bring us back?’ Princess seemed to think I was possessive. I said to her, ‘He is an asshole.’ Then she suddenly turned thankful for me being protective. And it dawned upon her that the whole situation wasn’t quite right. That showed the conditions of the ghetto where she had grown up. She later married a German guy. We later changed addresses and lost contact by 1997. Around 2013, she found me on LinkedIn and contacted me again. She worked for the US Army in Germany and was still married to him. They had a son together.

In 1994, I received an invitation to a singles party on a boat in Amsterdam. They had invited me because I had put in a personal advertisement the year before. On my way there on the train, I accidentally bumped into two guys from Almelo who were also going there. Nijverdal is close to Almelo, so we came from the same region, Twente. That created a bond and a mutual understanding. The guys from Almelo were discussing the disappointment they were about to get. One of them said, ‘The great thing about these events is the anticipation.’

After a decade of disappointments, there was hardly any anticipation on my part. And the previous five years had counted as twenty. When I moved to the university campus, I was twenty but immature, like a fifteen-year-old boy. Five years later, I had grown mature like a thirty-five-year-old. The intense memories still hung over me like a shadow. A clear division had emerged between life before and life after meeting A******* in the dormitory. These were two entirely different lives. When in Enschede, I sometimes returned to the campus to take a walk in the nearby forest and think about all that had happened.

Featured image: Kombuisflat in Lewenborg. H. de Vegt (2005). CC BY-SA 3.0. Wikimedia Commons.