Author: nivtric

The End of Usury

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The miracle of capitalism

A few centuries ago, over 99% of the world’s population lived in abject poverty. In 1651, Thomas Hobbes depicted human life as poor, nasty, brutish, and short. It had always been that way. Yet, a few centuries later, a miracle had occurred. Nowadays, more people suffer from obesity than from hunger. The life expectancy in the poorest countries exceeds that of the Netherlands in 1750, the wealthiest nation in the world at the dawn of the Industrial Revolution. This miracle is the result of science, innovations and a massive build-up of capital. How could that happen? That is because interest rates have come down from 30% in the Middle Ages to near zero today. Only, what caused interest rates to go that low?

In the economic sphere, it is the outcome of an epic battle between ‘Time Preference’ and ‘Capitalist Spirit’ that raged for centuries. The capitalist spirit won. Ordinary people suffer from a condition known as time preference, which causes them to spend their money on frivolous items. They think, ‘Live today, because you can be dead tomorrow.’ Economists say they lack trust in the future. There are also capitalists, who are special people who suffer from an illness called the capitalist spirit. Rather than spending their money on frivolous items, they think, ‘Don’t live today, but invest, so you will have more money when you die.’ Economists say that they have trust in the future.

And so, capitalists save and invest while ordinary people work for them and buy the products and services their ventures produce. When time preference prevails, there are few savings and high interest rates. People are poor because there is a lack of money for investments. When the capitalist spirit prevails, there are ample savings, low interest rates, and wealthy individuals with excess capital to invest. This miracle wouldn’t have happened without low interest rates, as investment returns must be higher than the interest rate, and interest rates can’t be low without efficient financial markets and trust in political and economic institutions. So, how did that come about?

In the Middle Ages, Europeans gradually developed a capitalist spirit. The ethic of the merchant gradually spread, so that money and profit, rather than Christian values, came to drive Europeans. They found new trade routes and exploited their colonies. Initially, Spain and Portugal led the way, but their kings were short of cash and heavily taxed their people. Many merchants moved to the Dutch Republic, which was more business-friendly because the propertied classes ran it. The Dutch didn’t have a strong state with an army, so taxes were also lower. The Dutch invented the stock market, featuring publicly traded shares, a crucial financial innovation that helps manage risk. Since then, investors could invest in a corporation at any time and sell their investment at any time.

Later, Great Britain became the dominant power. The British business elite, who paid most of the taxes, didn’t like paying for incompetence and corruption. After they had gained control over the British state in the Glorious Revolution of 1689, they forced the state to improve its competence. The British invented fractional reserve banking with a central bank, thereby creating efficient financial markets. Their colonial empire also expanded, so that they came to control the largest market, which favoured economies of scale. Once the competent government and financial innovations were in place, the Industrial Revolution took off. Low interest rates made long-term investments in machines profitable.

Once interest rates had decreased, economic growth accelerated, enabling investment returns to cover interest payments, which allowed financial markets to expand and drive further growth. The capitalist miracle is that financial markets helped boost trade and production by creating money that doesn’t exist to start businesses that don’t yet exist to make products that the people those businesses will hire will buy with this newly created money. Financial markets are at the basis of the capitalist economy. When growth slows, interest-bearing debt may collapse the global economy, but so far, financial innovators have invented new schemes to lend more, helped by low interest rates. Low interest rates make an economy possible, not high ones. But trust makes low interest rates possible.

Usury: the hidden cancer

As long as there was growth, there was more for most people, even though the division of the fruits of capitalism has its shortcomings. Personal qualities explain some inequality. Some people work harder, some are better entrepreneurs, some are more frugal, some are more useful, and some are better at exploiting others for their personal gain. These people usually end up wealthier. Still, the primary driving force in the capitalist system has little to do with individual qualities. It is profit or interest. Interest comprises all returns on capital. Interest is the reason why the rich get richer at the expense of the rest of us.

Interest fuels a global competition driven by innovation and economies of scale. As a result, a few oligarchs have become exceptionally wealthy, often by cornering markets, such as in the tech sector. Wealth inequality will be the most urgent immediate challenge once there is less to go around. It is unacceptable that people are starving because of a fuel shortage while the elites fly around in their private jets. Today, the increased use of artificial intelligence drives up energy prices, pushing humans out of the energy market.

Interest rates emerge in a market. Credit in the banking system and the actions of central banks have a profound influence, making financial markets more efficient. Still, supply and demand in financial markets remain key factors. Silvio Gesell had already envisioned, in 1916, that efficient global financial markets would eventually drive interest rates to zero. He based his prediction on the observation that interest rates were the lowest in London, which had the most developed financial markets at the time.

Wealth inequality, caused by decades of neoliberal supply-side economic policies, also plays a role. Gutting labour rights and social benefits to lower taxes for the rich caused their wealth to trickle down via lower interest rates. The wealthy, awash in capital, have run out of sensible investment options because working-class people lack the funds to spend. And so, interest rates decreased, allowing the working class to borrow more, propping up the economy with asset bubbles, in yet another usurious scheme in which the rich exploit the rest of us. Adding mortgage debt has long helped keep several economies afloat, including the Netherlands’.

Most people pay more interest than they receive. We pay interest via rents, taxes, and the price of everything we buy. Interest works like a tax on poverty that the poor pay for the benefit of the wealthy. Lower interest rates could benefit most people by lowering prices. You don’t see that happening. In a usury-based financial system, lower interest rates allow us to borrow more, putting more money into circulation and raising prices. As we borrow more, we may end up paying even more interest. To improve their yields in a low-interest environment, capitalists invent new schemes, such as leveraged buyouts and vampire capitalism. Lower interest rates also enabled more predatory lending because they made loan-sharking profitable at higher default rates.

Lower interest rates have worsened the excesses in the financial system. That is because we live under a usurious financial system. Had the maximum interest rate been zero, loan-sharking and leveraged buyouts wouldn’t be possible. But that would require us to look after people in financial trouble and limit their freedom, rather than giving them the liberty to borrow from payday lenders and credit card corporations. The underlying problem is the merchant’s ethics, which has become the foundation of our moral system, which is no ethics at all. A world without merchants is a world without many comforts we take for granted, but trade also makes us dependent on a system of governments and markets. Interest plays a crucial role. Investments must at least return the prevailing interest rate. Things aren’t straightforward, so ‘interest is evil’ is not a helpful approach to the matter. But what precisely is usury?

What is usury?

When you ask someone what usury is, the answer might be charging an excessively high interest rate. Traditionally, usury referred to paying for the use of money. In other words, usury is charging interest on loans. In this traditional definition, the currency has a constant value, so the borrower must repay the same value. If a ruler debases the currency and halves its gold content, a lender has a legitimate claim on the same amount of gold, hence twice the amount of currency. The reasons why usury is damaging are:

  • Usury turns money into a tool of power, enabling the rich to exploit the poor.
  • Usury disrupts the circular flow of money, causing economic hardship.
  • Fixed interest payments cause financial instability as incomes fluctuate.

Making a profit from a business venture is not usury. However, all capital income is interest, and interest contributes to wealth and income inequality, unless the interest rate is at or below the growth rate. Capitalism has raised living standards, so the prevailing view is that its benefits outweigh its drawbacks. Today, capitalist economies excel in generating money for capitalists by turning energy and resources into waste and pollution to market non-essential products and services in the bullshit economy. Therefore, the drawbacks now surpass the benefits, and by a wide margin.

The economist Piketty found that interest rates on capital were higher than the economic growth rate most of the time.1 That is unsustainable. It requires capital destruction that creates new room for growth or lower interest rates. In the past, World War I, the Great Depression, and World War II annihilated capital and created new room for growth. And so did the end of communism at the end of the 20th century. Eastern Europe, China and India became new centres of growth. The wave of capital seeking a return has finally reached Africa, the last frontier. From now on, growth must come from ‘wealth-creating’ non-essential activities in the bullshit economy, such as data centres that run artificial intelligence.

Value standard

The idea behind banning usury is that it is unfair for borrowers to return more than they borrowed. Traditionally, the poor borrowed from the rich, so charging interest would make them even poorer. If you borrow a loaf of bread, you return it. That is simple. Money, however, is an abstract measure of value, so what is usury and what is not requires a value standard. Islam forbids charging interest on money and debts, but also prohibits the debasement of currencies. According to Islamic law, money is gold or silver. Lenders should receive the same amount of gold or silver as repayment for the loan. There is, however, no reward for the risk of lending, which impedes capital formation. It is one of the reasons why the Industrial Revolution didn’t take off in the Islamic world.

A Natural Money currency serves as the value standard, so usury refers to charging an interest rate above zero on loans. To serve as a standard, the currency must have a stable value. The value of the Egyptian grain money came from its backing by grain stored in granaries. During the gold standard, gold was the value standard, as you could exchange national currencies for a fixed amount of gold. The backing of today’s fiat currencies is the economy. The Quantity Theory of Money states that Money Stock (M) * Velocity (V) = Price (P) * Quantity (Q), so Money Stock (M) depends on Velocity (V), Price (P) and Quantity (Q), and the value of a single unit such as the euro, is M / units in circulation.

A grain or gold backing can give the currency a stable value because there is a limited amount of grain and gold. Such a limit doesn’t exist for fiat currencies. Still, Natural Money currency can serve as a stable value standard because its issuance depends on lenders’ willingness to accept negative interest rates. Lenders thus only lend when they expect the currency’s future value to remain sufficiently stable. When they don’t lend, the amount of money in circulation shrinks due to negative interest rates and debt repayments, allowing the currency’s value to increase and prices to decrease. Trust in the currency thus stems from persistent deflationary pressures, as negative interest rates consume the money supply, and the maximum interest rate constrains credit creation.

Efficiency argument

Today’s global economy is overcapitalised due to massive over-investment in the bullshit economy, so near-term future growth rates will probably be negative, either as the result of an involuntary collapse or a managed decline, and the sustainable interest rate will also be negative. Once the world economy is on a sustainable footing again, there may be sustainable growth, allowing growth rates to become positive once more in the more distant future. A stable economy operating near the maximum growth rate, which can be negative, can achieve its full potential and full employment. That is what the ‘miracle of Wörgl’ suggests.

When average investment returns are near their sustainable maximum, real interest rates are also near their sustainable maximum. The usury-based economy is unstable due to credit expansions and contractions, so it often does not operate at its sustainable maximum, reducing its efficiency. Natural Money helps achieve a stable economy and minimise financial system risk, thereby realising the sustainable maximum. It follows that real interest rates with Natural Money are higher, even when economic growth rates are positive. The maximum nominal interest rate is zero, so higher real rates show up as currency appreciation, allowing an interest rate of zero to yield a positive absolute return.

A simple calculation illustrates this view. Economists assume there is a link between the amount of money and money substitutes (M) in circulation and prices in the equation Money Stock (M) * Velocity (V) = Price (P) * Quantity (Q). If ΔP, ΔM and ΔQ are sufficiently small, and velocity is constant, so that ΔV = 0, then it is possible to approximate this equation with %ΔP = %ΔM – %ΔQ, where %ΔP is the percentage change in price level, %ΔM is the percentage change in money stock, %ΔV is the percentage change in money velocity, and %ΔQ is the percentage change in the quantity of production.

The velocity of money (V) for Natural Money might be higher than for interest-bearing currency, and that could go together with a smaller money stock (M). Still, the velocity is likely to remain constant, as the economic picture is expected to remain stable. Now, it is possible to calculate the real interest rate (r) as the nominal interest rate (i) minus the inflation rate (%ΔP), so that r = i – (%ΔM + %ΔQ).

Suppose the long-term average economic growth rate for interest-bearing money is 2%. For Natural Money, it might be 3% because the economy is more often performing at its maximum potential. Assume that the long-term average money supply increase for interest-bearing money is 6% per year. For Natural Money, it is 0%. The long-term price inflation rate could then be 4% for interest-bearing money. With Natural Money, there could be a price deflation rate of 3% as the economy grows at a rate of 3% with a stable money supply. We can then produce the following calculation:

 situation interest on money  Natural Money 
 nominal interest rate (i)+3%-2%
 change in money supply (ΔM) +6%0%
 economic growth (ΔQ)+2%+3%
 real interest rate (r = i – ΔM + ΔQ)-1%+1%

Economic growth can be higher with Natural Money, allowing real interest rates to be higher. Furthermore, because Natural Money has several stabilisers that reduce financial system risk, the level of risk is likely lower. As a result, the risk-reward ratios associated with Natural Money are better than those in the current usury-based financial system. In other words, the same real interest rate in a usury-free financial system is a better deal because it entails fewer risks. Hence, a usury-free financial system based on Natural Money is more efficient, so there will be a capital flight from the usury-based economy to the usury-free economy after implementing Natural Money on a large enough scale. The efficiency argument demonstrates that usurious finance is parasitic.

The real interest rate may improve more than the economic growth rate due to lower financial-sector profits from phasing out exploitative parasitic activities, such as interest-bearing consumer credit. The rationale is that, without credit card payments, consumers have more disposable income. Furthermore, economic and financial stability can reduce investment risks, thereby requiring less financial sector intermediation. The financial instability and the need for government and central bank interventions in the usury-based financial system create opportunities for politically connected and other savvy and informed individuals, often referred to as ‘parasites’, to enrich themselves at the expense of the general public. The higher efficiency of Natural Money could end that.

The efficiency argument still applies when we switch to a values-driven, people-friendly economy that operates in harmony with nature. The inefficiency of such an economy stems from its inferior ability to generate money for investors by transforming energy and natural resources into waste and pollution in the bullshit economy. That depresses interest rates. That is not an inefficiency in the financial sector. With Natural Money, a values-driven, people-friendly economy can remain operational thanks to the financial system’s efficiency. Terminating the bullshit economy in a usury-based financial system will also depress interest rates. That can bring about an economic collapse, because usury makes capital addicted to growth.

Trust

Someone once asked me on an Internet message board, ‘Why would I lend money interest-free?’ The borrower may not repay. So, why take that risk? We lend interest-free to people we trust, and we may lend to family and friends, even when they are untrustworthy individuals living off our money. After all, they are family and friends. In a market, it won’t happen unless we trust the currency and the borrowers. Hence, ending usury is only possible in a high-trust environment. And investors must be in the market for other reasons than maximising their profits. Those who lend money to organic farms and invest in renewable energy have a different view of investing than vampire capitalists, who scam the government and rob grandparents of their retirement savings.

Credit means trust. Trust in the future is the foundation of the capitalist economy. Investors imagine that the future will be better so that their investments will be profitable or at least not loss-making. Credit, or financial capital, reflects this trust. Most of our money is credit, so its value depends on an imagined future. Some people argue that credit, banking, and central banking are a fraud because they are a fantasy. They may prefer something tangible, such as gold. Indeed, the capitalist economy, as well as civilisation in general, demonstrates the power of human imagination, and our faith in what we believe.

To have trust in the future, investors must believe that their investments are safe. The rule of law, political stability, the absence of graft, and sensible economic policies are fundamental factors for the economy to function effectively. As investments, such as factory investments, are long-term, the risk that a government will annul earlier commitments is a critical factor in investment decisions. Government actions, such as asset confiscation or taxation, can deter investors. Differences in tax regimes are equally damaging, as tax havens parasitise on productive economies that collect taxes to invest in their infrastructure and education.

Interest rates are the lowest in stable countries with low inflation, as trust translates into a risk premium on investments. The greater the perceived risk, the more the future becomes discounted, the higher the interest rates are, and the lower the standard of living usually is. Hence, Switzerland and Sweden have low interest rates, while Argentina and Mozambique have high interest rates. Interest rates in Europe are lower than in the United States. Apart from lower growth expectations, the Stability and Growth Pact, which limits government deficits, plays a role. And the government deficit as a percentage of tax income is a better indicator of the health of government finances than the deficit as a percentage of GDP. These are more sustainable in Europe. And so, trust also plays a role here.

Interest rates in Switzerland are currently at their lowest. In 2025, the key interest rate stands at zero. Interest rates in Switzerland are that low because investors trust the Swiss currency. From 1990 until 2024, the government’s budget deficit averaged at 0.45% of GDP. At the end of 2024, government debt was 20% of GDP. A general rule is that the lower the trust in the currency, the higher the interest rate. Venezuela has the highest interest rate at 60%, but with an inflation rate of 180%, investors are better off with a yield of zero in Swiss francs. In a market, low interest rates signal trust. Hence, trust is a crucial prerequisite for ending usury.

In 2025, interest rates in Turkey exceeded 40% to curb inflation after a failed monetary experiment. The assumption that interest charges cause inflation led Turkey’s leader to force the central bank to lower its interest rates. Inflation soared to 85% in 2022. The Turkish leader was defrauding creditors, thereby transgressing Islamic law. The relationship between interest and inflation exists, but it operates via credit. Credit expansion causes inflation, not interest itself. In a usury-based financial system with fiat currencies, raising interest rates curbs inflation by dampening demand for credit. That obscures the truth that interest is a cause of inflation, but a better way to limit credit expansion is to set a maximum interest rate on loans.

With Natural Money, the central bank doesn’t set the interest rate or manage the money supply. The interest rate and the money supply emerge in the market for lending and borrowing. The holding fee on the currency provides a stimulus by making lending at negative interest rates attractive, so no money remains on the sidelines. At the same time, the maximum interest rate of zero provides austerity, curtailing credit during a boom or when inflation is high. That will cool down the economy and dampen inflation. There could be deflation, and deflation could be permanent. The market for lending and borrowing is free in the sense that the central bank doesn’t manage interest rates and the money supply. However, the maximum interest rate of zero operates as a price control.

Interest rates emerge in the market for lending and borrowing. Negative interest rates require trust in the currency, the government and its policies, the financial system, and, ultimately, in the borrowers. It requires trust in the political economy and the future. In other words, all the world’s governments must be as reliable and capable as Denmark’s, and the global economy must be on a sustainable footing. At the same time, market participants shouldn’t engage in scams. So far, business and ethics haven’t agreed very well. The ethic of the merchant is no ethic at all. The change requires a moral imperative. We shouldn’t harm other people or nature. Instead, we should see the consequences of our actions and change our ways. Only a new religion can make that happen.

The price of usury

Interest promotes wealth and income equality. Most of us pay more in interest than we receive, either directly through loans and rents, or indirectly through the products we purchase. German research from the 1980s showed that the bottom 80% poorest people pay interest to the top 10% of the wealthiest people. You can view interest as a tax on the poor paid to the wealthy. The wealthiest individuals reinvest most of their interest income. That is what made them rich in the first place.

Interest promotes short-term thinking. The pursuit of profit drives the transformation of energy and resources into waste and pollution in the bullshit economy. With positive interest rates, money in the future is worth less than money now. It affects investment choices. Without interest charges, long-term investments would become more attractive. When interest rates are high, cutting down a forest today, selling the wood, and investing the proceeds may give higher financial returns than sustainable forest management.

Incomes fluctuate against fixed interest charges. It can bring borrowers into trouble. Financial instability can lead to economic instability. Usury causes financial crises, recessions and depressions. Governments and central banks manage the problem, but their actions create a false sense of security, allowing debts to continue growing, which will ultimately lead to a financial apocalypse. The underlying cause is usury. However, the road to the end of usury also goes through financial innovation and modern finance.

Fractional reserve banking

Innovations in financial markets have made them more efficient, enabling lower interest rates and increased lending, thereby spurring the Industrial Revolution. A crucial invention was fractional reserve banking. It turned bank deposits into money. There is always a demand for money. It is the most liquid asset. Economists call it the liquidity preference. Money commands power. You can use money to buy anything at any time. We may want to keep cash at hand for expected purchases, unexpected expenses, and investment opportunities.2 And so, we often aren’t willing to lend our money.

Fractional reserve banking enables banks to lend out money that depositors can withdraw. If you lend money to a fractional reserve bank, you can use it at any time, as if it were cash. Banks kept a fraction of deposits in cash reserves to meet withdrawals, knowing that only a small share of depositors would withdraw their money. That freed up funds for investments and helped to lower interest rates. A fractional-reserve bank creates money because a new loan automatically creates a new, equal-sized deposit. And that deposit is like any other deposit. You can use it to make a payment or withdraw cash. Fractional reserve banking eroded the commanding power of money, resulting in lower interest rates.

Fractional-reserve banks can fail when a large number of depositors withdraw their funds at once. The integrity of fractional-reserve money depended on the ability to exchange deposits for cash. That is where central banks come in. They can help banks in times of trouble by printing additional cash and lending it to them at interest. That safety net reduced the risk associated with bank deposits, allowing interest rates to drop even lower, which, in turn, promoted more lending and economic development.

If it sounds too good to be true, then it usually is. Lower interest rates fuelled the economic boom since the Industrial Revolution, which will eventually lead to a technological-ecological apocalypse. Critics of fractional reserve banking and central banking further argue that lower interest rates encourage poor investment decisions and that the safety net provided by central banks creates a moral hazard. If interest rates were to rise, these investments would become unprofitable, leading to bankruptcies and unemployment. And if central banks rescue banks in times of trouble, it will promote irresponsible lending.

There is overcrediting, and lower interest rates promote irresponsible lending by increasing profit margins for usurious lending. The way to end usurious lending is to set a maximum interest rate. More recently, critics have argued that central banks, through extraordinary measures such as quantitative easing, have suppressed interest rates. However, central banks believed that interest rates were too high. They couldn’t lower them due to a price control called the zero lower bound, which distorts the market. By printing money, central banks aimed to generate inflation, thereby allowing them to raise interest rates later.

Reserve requirements

Banks hold reserves, which are money issued by a central bank. Reserves include banknotes and coins, as well as balances that banks hold at the central bank. The primary reason for holding reserves was to meet cash withdrawals from depositors or to make payments to other banks in case depositors transfer money to another bank, and the other bank desires payment in kind rather than an IOU. A reserve requirement is a liquidity requirement. A bank must have enough cash on hand to meet its short-term obligations. Two developments have profoundly affected the need for reserves:

  • Contrary to the past, depositors hardly ever withdraw their funds in cash, so the money stays within the banking system.
  • Government debt has become an alternative source of liquidity. Government debt issued in the government’s currency is as safe as cash.

A government can guarantee repayments of debts issued in its own currency by printing more currency, with a so-called independent central bank as a cover, which has become a core foundation of confidence in the current usury-based financial system. The central bank will not let the usury-based financial system fail, so it will print money to buy government debt, which reduces the supply of debt and increases the supply of currency by which to buy government debt, thereby lowering interest rates and allowing the government to borrow more, making new money available to pay interest.

These profound changes have made traditional reserve requirements largely redundant. Banks hardly need any cash in their vaults. If they pay another bank in kind, government debt is as good as central bank currency. Or a bank could borrow at the central bank or another bank and pledge government debt as collateral. The experts concluded that reserve requirements have become superfluous. Government debt has become the actual reserve. And so, banking regulations today focus on solvency, or the ability to meet long-term obligations. Still, it would be a most serious oversight to ignore liquidity.

Globalisation, liberalisation, and derivatives

Advances in information technology and financial innovations have driven the globalisation of financial markets over the past few decades. In the 1980s and 1990s, governments liberalised financial markets and removed capital controls. Capital controls can lead to higher interest rates and higher costs of capital.3 Globalisation and liberalisation expanded the possibilities for borrowing and lending worldwide.4 The increased competition reduced the price of financial intermediation.

Globalisation and liberalisation made financial markets more liquid. It became cheaper and easier to exchange financial instruments, such as bonds and stocks, as well as goods and services, for cash. This development is more commonly known as financialisation. Like fractional reserve banking, financialisation eroded the position of money as the most liquid asset, thereby diminishing the commanding position of money owners to demand interest.

Globalisation and liberalisation also caused trouble. Money and capital could move more freely, making it easier for changing expectations to lead to financial instability. Central bank interventions neutralised a series of financial crises in the 1980s, 1990s and 2000s. Lower interest rates prompted investors to seek higher yields and take on more risk. However, trust and, therefore, liquidity can suddenly evaporate. Some countries used capital controls to counter financial instability while central banks provided liquidity.

Innovations in risk management and derivatives enabled the financial sector to further increase lending. These innovations spread risk, allowing the total amount of risk in the system to grow. Due to a lack of regulatory oversight, derivatives also enabled scammers to sell fraudulent mortgages, contributing to the 2008 financial crisis. Still, banks that professionally used derivatives to hedge their risks weathered the crisis better and had fewer loan write-offs.5

The notional value of outstanding derivatives can be mind-boggling. Their actual value is much lower. You can best compare them with insurance policies. The notional value of your fire insurance policy is typically based on the value of your home. The actual value is the premium you pay. That is, until your house burns down, and the actual value becomes the notional value. Insurers can handle that until many homes catch fire simultaneously.

The actual value of an interest rate derivative on a 3% ten-year bond with a notional value of €1,000,000 might change by €81,109 if the interest rate increases to 4%. As long as parties use derivatives to hedge risks, and counterparties, the ‘insurers’, can absorb the losses, the system will function. An equivalent to all houses catching fire simultaneously could be a sudden increase in interest rates. When the system is more stable, the need for these instruments decreases.

Wealth effect and bubbles

Lower interest rates increase the value of assets via discounting. In theory, the price of an asset is the net present value of its future revenues. Even though that is often not the case in reality, the theory explains why the prices of assets like bonds, real estate, and stocks rise when interest rates decrease. In this sense, lower interest rates can promote wealth inequality, but only when we consider the net present value of assets. If future revenue streams don’t change, wealth inequality is merely a temporary side effect.

There was, however, another dynamic operating underneath. Lower interest rates allow consumers to borrow more by taking out higher mortgages, thereby financing their unsustainable lifestyles. Critics called it a wealth effect promoted by an asset bubble. Lending propped up consumer spending when the incomes of many working-class people were lagging, and the wealth of the rich ‘trickled down’ via lower interest rates as they were running out of sensible investment options, giving them yet another avenue by which to squeeze the working class. In a system of usury, lower interest rates are of no help.

Financial sanity

Interest compounds to infinity. Three grammes of gold at 4% interest turn into an amount of gold weighing twelve million times as much as the Earth after 2020 years. Most of us aren’t long-term planners. We are busy fixing holes rather than solving underlying problems until things fall apart. Economists do this as well. John Maynard Keynes invented government borrowing as a fix for usury-induced debt problems. He once justified his short-term thinking with the world-famous quote, ‘In the long run, we are all dead.’ And this man was the founding father of modern economic policies.

More debt has now become the standard solution for debt problems. Today, most money comes into existence as a loan on which the borrower must pay interest. Every loan creates a deposit. The depositor automatically becomes the lender. If the interest rate is 5%, and €100 is circulating, then €105 must come back. So, where does the extra € 5 come from? Here are, once again, the options:

  • Depositors (on aggregate) spend some of their balance so borrowers (on aggregate) can pay the interest from existing money.
  • Some borrowers default and do not return (part of) the balance.
  • Borrowers (on aggregate) borrow the extra €5.
  • The government borrows the extra €5.
  • The central bank creates €5 out of thin air to cope with the shortfall.

Interest payments do not necessarily cause a shortage of money. Still, in reality, they do, mainly because depositors find it, like Scrooge McDuck, difficult, emotionally or otherwise, to part with their money. New debts fill most of the holes caused by the Scrooge McDuckism of depositors. That is why debt levels nearly always increase. Still, the money doesn’t always arrive at the right places, which causes financial crises. A few defaults are acceptable, but too many can cascade into a financial crisis, triggering an economic downturn or even a depression.

The cost of letting the financial system fail is so great that this is not an option. The 2008 financial crisis could have meant the end of civilisation as we know it, had central banks not saved us from a financial apocalypse caused by usury. When no one else is borrowing, the government and the central bank must step in, either by borrowing or printing money outright, to introduce new money into circulation to repay existing debts with interest. In this way, debts continue to grow, and we have become the hostages of the usurers.

The end of the road

The road to the end of usury ran through financial innovations. They lowered interest rates. Today, the world is awash in debt, and interest payments strangle the global economy, so that future interest rates may become negative. That could either be the end of usury or, if usury remains, the end of the economy. The world economy may collapse, or we can have a graceful decline, promoted by the efficiency of a usury-free financial system. The efficiency of Natural Money can help us build a high-trust world economy founded on moral values.

In a simplified world, we rely more on family and community, and less on markets and states, so the economy will also become simpler. Natural Money eliminates risk from the financial system, so that, after its implementation, several modern financial instruments may become obsolete, joining fossil fuels and marketing strategies. Still, economies of scale apply to several essential products and services, including finance. Negative interest rates require risk management that only scale can provide.

Latest revision: 3 December 2025

Featured image: Loan shark picture circulating on the internet, origin unknown.

1. Capital in the Twenty-First Century. Thomas Piketty (2013). Belknap Press.
2. Keynes, John Maynard (1936). General Theory of Employment, Money and Interest. Palgrave Macmillan.
3. Edwards, Sebastian (1999). How Effective are Capital Controls? Anderson Graduate School of Management, University of California.
4. Issing, Otmar (2000). The globalisation of financial markets. European Central Bank.
5. Norden, Lars, Silva Buston, Consuelo, Wolf Wagner (2014). Financial innovation and bank behaviour: Evidence from credit markets. Tilburg University.

Declassified Pentagon UFO footage

UFO Mysteries

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In April 2020, the Pentagon declassified videos showing pilots running into unidentified flying objects (UFOs). These disclosures vindicated those who believe extraterrestrials visit us. Former Senator Harry Reid tweeted that the videos only scratch the surface of the available research and materials. Now, think of crop circles. Not all may have been the work of pranksters trying to poke fun at the UFO crowd. The Pentagon claims it doesn’t have evidence of UFOs being extraterrestrial. A few months later, Netflix revived the once-popular documentary series Unsolved Mysteries. Most episodes are not particularly mysterious, and many so-called mysteries can’t be dubbed unsolved. But one particular creepy story is keeping people awake at night. It is about the Berkshire UFO encounters of 1 September 1969.

Four families claim to have been picked up by a UFO and transported by a beam of light on that fateful day. Apart from a few personal accounts, there is little to no recorded evidence that this happened. Not even a local newspaper reported it. The documentary compensates for the omission. Indeed, this is a mystery worthy of being labelled unsolved. The stories of the people involved appear credible because they confirm each other. Thomas Reed, who was nine when it happened, claimed he and his family missed more than two hours of their lives while driving in their car. Reed said his family saw an amber glow on both sides of the road. Then everything got calm. After that, they found themselves back inside the car, but his mother and grandmother had changed places.1

Reed also noted that he saw the then-14-year-old Melanie Kirchdorfer aboard the UFO. She confirms his story. Tommy Warner was a child when the incident occurred. He also claimed to have been abducted that evening. His babysitter, Debbie, confirms his account, saying that she saw him vanish into a bright ray of light. The people involved were not eager to tell their stories, which could have made them a laughingstock. This Unsolved Mysteries episode has left many viewers feeling anxious.2 Is it safe to go outside? Or is a starship lurking out there that could beam us up anytime?

On 16 September 1994, 62 schoolchildren aged between six and twelve saw a UFO outside Ruwa, Zimbabwe. Some children claimed to have seen aliens dressed in black, who allegedly gave them a telepathic message, advising them to respect the planet and not rely too heavily on technology. Dozens of other children who were also present stated they had not seen a UFO or anything unusual. Sceptics argue it was a mass delusion. However, the children who saw the UFO consistently told the same story, differing only in the details. Many children believed the beings were not aliens but tikoloshes, creatures of local folklore.3 If it was not a delusion, then you can say goodbye to objective reality, as many children saw the UFO while many did not. Two realities in one place at the same time? That should make you think. This world could be fake.

For five months after October 2007, hundreds of people saw UFOs over Texas. On 8 January 2008, 19 witnesses saw a massive UFO speeding from Dublin to Stephenville, pursued by F-16 fighter jets. One witness estimated the object to be 1,600 metres (a mile) long and 800 metres (half a mile) wide. It hovered and then sped away at 5,000 kilometres per hour without causing any disturbance like a gust of wind, suggesting the object was not material. However, radar data confirmed what witnesses had reported, indicating that the object was material. Again, this should make you wonder. The local newspaper, Empire-Tribune (ET), was the first to report on the object. Steven Spielberg, the director of ET, made a documentary about it.4 That is a noteworthy coincidence.

The psychiatrist John Edward Mack investigated the mental state of those who claimed to have seen aliens. He initially suspected these persons had mental illnesses. Mack interviewed them and came to believe that was not the case. Many of those he interviewed said their encounters had affected their views, creating a sense of spirituality and environmental concern. Mack was cautious about explaining these experiences, but believed there was a powerful phenomenon causing them. There is a rich history of visionary experiences worldwide. Mack noted that alien abduction accounts can be part of this tradition.5 That didn’t agree with some of his fellow scientists, who subsequently grew keen on excommunicating him from the science religion, claiming that telling someone who has reported a close encounter with an alien that this experience might have been real is professionally irresponsible.

Many UFO sightings lack a credible explanation. In other words, they aren’t evidence of aliens visiting us. A few people have claimed to have seen aliens, but there is no objective evidence of their presence. They never broadcast a message saying, ‘Hello Earthlings, we come from the planet Ploc.’ Not even simply ‘ploc’ did they say. What is also suspicious about these aliens is that they resemble humans. They stand upright and have arms, legs, and heads with eyes. Alien life, if it exists, likely differs from Earth life, and aliens could take any form, for instance, jellyfish or plants, or, more likely, something we can’t think of, suggesting human imagination created the aliens people saw. They are either the imagination of the people who saw them or of those who created this world. And an advanced species warning us of advanced technology? They could have shared it with us. Okay, these aliens may not have a high opinion of us. And what about telepathy if we are beings made of carbon and water, and our minds are just brain chemistry? Something doesn’t add up here if science is correct and these experiences are real.

And so, unidentified flying objects can be anything. Another US government report claims most UFO sightings are weather balloons, surveillance drones, airborne clutter, or optical illusions. Nevertheless, many sightings remain unexplained. The UFO incidents in Berkshire, Zimbabwe and Texas, amongst them. They aren’t mere delusions, nor can a weather balloon be 1600 metres long and 800 metres wide and all of a sudden fly off at 5,000 kilometres per hour, leaving the F-16 pilots chasing them, biting the dust. UFOs and alien abduction stories are part of an array of mysteries, including evidence suggesting reincarnation, ghosts, meaningful coincidences, and premonitions. There is, however, an explanation that doesn’t involve aliens. This universe could be a simulation created by an advanced civilisation, and that civilisation is likely humanoid rather than alien.

Latest revision: 21 July 2025

Featured image: Declassified Pentagon UFO footage

1. 1969 Berkshire UFO Event Gains Recognition. Jim Levulis (2015). WAMC. [link]
2. Berkshire UFO sightings: Unsolved Mysteries episode is spooking viewers – but what happened next? Jacob Stol (2020). The Guardian. [link]
3. Ariel School UFO incident. Wikipedia. [link]
4. Spielberg-produced UFO doc has more than 300 witnesses for a mile-long spaceship. Lauren Sarner (2023). New York Post. [link]
5. John E. Mack. Wikipedia. [link]

A tenner on the street

Money for Nothing

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Cheap promises

Stop whining. Everyone should be rich. Vote for the Tegenpartij (Opposition Party), together for ourselves. It was the motto of the fictional Opposition Party in the Netherlands, run by two shady characters, Jacobse and Van Es. The creators of the fiction, Van Kooten and De Bie, intended to mock populist politicians and their promises. An opinion poll revealed that the party could have won a few seats in the Dutch parliament in 1981, if it had been genuine. But why isn’t everyone rich? Perhaps it is because poor people don’t have enough money. It can’t be that simple, or can it? Some people think it is.

So, why not hand out money for free? It is a scheme known as Universal Basic Income (UBI). There are reasons to consider a UBI. Perhaps, machines and computers will soon do everything. If so, how can we keep humans alive? The wealthy own most of the capital and already get money for doing nothing, while the working class fights over the scraps they leave behind. We can distribute that money more fairly. A UBI might be too expensive, but many countries already have the dole for those who don’t work. And if there are no jobs anymore, everyone must go on the dole.

Some believe that it won’t happen, and if it does, that it will be a nightmare. Most people work for a living, and without them working, we wouldn’t have food on the table or the other things they produce. And so, we should receive a reward for doing something worthwhile. And there is our problem. In ‘advanced’ economies, most people entertain themselves in the bullshit economy, transforming energy and resources into garbage and pollution, while not producing anything we need. A UBI is a more resource-efficient and ecologically friendly way to keep these useless eaters alive.

We run out of resources, so getting money for free is not as stupid as working arse off to leave a wasteland for your children. We should contribute to society if we can. Being redundant is not good at all, as you have no reason to exist. But in the current arrangement, the most wasteful get the highest rewards for transforming energy and resources into waste and pollution. So, it is a bad idea to pay people for doing nothing, but what we do now is worse. If we are to terminate the bullshit economy, a UBI can allow us to adapt to the new situation and survive until we have found sensible employment.

Nightmare scenario?

Until recently, machines mainly did simple tasks. That has already put many people out of work. So far, the surplus of workers has found employment in the bullshit economy. Robots and artificial intelligence may soon make human workers obsolete. And that could be all human workers. When robots can perform the same physical tasks and artificial intelligence surpasses human intelligence, there will be no job that machines can’t do, and humans will be redundant. In that case, we may all retire and live off the dole. A UBI would be the fairest arrangement, because we would all be equally useless.

AI will be better at making decisions than humans. Past experiences are no guarantee of the future. We may have heard the phrase ‘this time is different’ so often that we no longer believe it. But you only have to jump into a time machine to find out that every time is different. Horses may have laughed at the first cars and horseless agricultural machines, thinking that humans would continue to need them like they did since time immemorial. They all ended up in slaughterhouses. So, what will happen to all those redundant energy and resource-consuming humans? We will know once it has happened.

Realising our full potential

Proponents of a UBI tell us that handing out money will make our lives wonderful. Once we get money for nothing, we will be free to realise our dreams and achieve our full potential. If you have always wanted to become a blogger or vlogger, you can accomplish this with a UBI, as you don’t have to work for a living. The opponents of the scheme paint a dismal picture of people sinking into an abyss of idleness, filled with writing blogs nobody wants to read and making videos nobody wants to see, while essential jobs remain undone.

Doing a job is about making yourself valuable to others, not about realising your potential. That is how humans have lived and survived since time immemorial. People helped each other. Essential jobs are not always attractive. In countries with benefits, immigrants often do the unattractive, low-paying jobs. These vital jobs, such as harvesting crops, need to be done. The problem is that the production of essentials is often subject to intense competition, so that these jobs are often hard work for low wages.

A game of Monopoly

The game of Monopoly is a model of capitalism. Proponents of capitalism argue that it isn’t, but that is because this model, like any model, is a simplification and not perfect. If you have played the game more than once, you may have noticed it usually goes like this. At first, players buy streets and create capital by building houses and hotels. You can get rich by making the right investments. You also need luck. You need to be at the right place at the right moment. The game ends when most players are bankrupt.

At that point, there are more houses and hotels than players, but few can afford to stay in them. Like any model that has some merit, it says something about the real world. If you see that billionaires own everything and you can’t afford the rent, the game of Monopoly explains what is happening, to some extent, because no model is perfect. Capitalism is a scam against you, and the rig is interest, or profit on capital. Capitalism only works for the masses when enough of that money gets handed out to them.

Monopoly has a property tax on houses and hotels. If you are rich, you have to pay up. The money ends up in a jar, and if you are lucky, that money is yours. If you happen to be poor, the money transfer can keep you in the game. Monopoly also has a UBI. Every time you finish a round, you receive a fixed sum of money. It keeps the game going. Otherwise, it would end sooner as players would run out of cash. If the game ends, the players can wipe out all the houses and hotels and start anew.

For a game of Monopoly, that might be okay, but in the real world, that is like destroying everything, which is a highly inefficient way of reducing wealth inequality. The alternative is taxing the rich and handing out that money to the poor. In reality, the rich pay little in taxes and leave it up to the middle class to support the poor. The underlying cause of this problem is that interest makes wealth accumulate in the hands of a small rent-seeking elite. Without interest, the need for redistributing income might abate.

Bullshit jobs

For most of history, most people worked a few hours per day on average, but they were dirt poor. The Industrial Revolution changed that. Factory owners wanted labourers to work long hours to increase production and their profits. That is still how the economy operates today, even though we don’t need to. In ‘advanced’ economies, only a third of the people do things we truly need. The remaining jobs are pointless bullshit jobs. These occupations range from trading securities to taking orders at a fast-food restaurant. Once resources are gone and the Earth is a wasteland, these jobs will be gone.

For most of history, most people worked a few hours per day on average, but they were dirt poor. The Industrial Revolution changed that. Factory owners wanted labourers to work long hours to increase production and their profits. That is still how the economy operates today, even though we don’t need to. In ‘advanced’ economies, only a third of the people do things we truly need. The remaining jobs are pointless bullshit jobs. These occupations range from trading securities to taking orders at a fast-food restaurant. Once resources are gone and the Earth is a wasteland, these jobs will be gone.

Working is doing something useful for others or society. While doing our jobs, we consume energy and resources, so if our jobs aren’t useful, they aren’t work, but entertainment. We drive our cars to heated or air-conditioned offices. We work hard, so we believe we deserve a holiday and consume energy and resources for relaxation. If we axe all the pointless jobs, we can divide the remaining work, relax more, so we don’t need to waste energy and resources on holidays. The anthropologist David Graeber estimated that at least one-third of all jobs are pointless.1 In advanced economies, it is probably two-thirds.

So, which jobs can we do without? Graeber mentions a receptionist at a publisher in the Netherlands. She had nothing to do except for taking up an occasional telephone call. Another employee could have done that alongside other tasks. Without a receptionist, no one would take the publisher seriously. And so, the publisher needed a receptionist. It made economic sense. But we can do without the publisher and over 99.99% of the books ever published. Graeber vastly underestimates the inefficiency of the modern economy in terms of the energy and resources it consumes relative to our needs.

In our economic system, a job has economic value when someone pays for it. I could hire you to dress as a rabbit and hop on the street. Perhaps that brings a few smiles to a few faces, so who is to tell this job is pointless? Okay, the cost of making the rabbit suit could have saved a few children from starvation, but that has less economic value. And that is precisely the problem. Think of consultants, managers, salespeople, lawyers, and financial advisors. They don’t make anything we can eat or use to keep our bodies warm, and a small percentage of what they consume could feed those who still go hungry.

These highly peculiar views come from a belief that money is the supreme measure of value and that we need to engage in a rat race to produce and consume as many non-essential items as possible to prevent businesses from becoming unprofitable, as that would collapse the economy. In other words, we commit suicide because economists believe that negative interest rates are impossible. And so, they keep on telling us, like Jacobse and Van Es, that if we just work harder and waste more energy and resources, so that the capital owners can make more money, everyone will become rich.

And so you can see the extent to which usury controls our thinking and makes us do stupid things. Things will collapse, and when they do, Earth will be a wasteland, and money will be worthless. Choosing to do nothing and be on the dole while you can work is not as bad as transforming energy and resources into waste and pollution by working in a non-essential bullshit job. Being a leech is less harmful than being a destroyer. And so, a UBI can help us to make the transition from a wasteful and destructive economic system to a sustainable one that centres on providing for our needs.

Income guarantee

A UBI can become expensive, most notably if the payment is sufficient to live off. An income guarantee is cheaper. Why hand out money to people who have enough? And there should be an incentive to work. Existing welfare schemes often make it financially unattractive to take on a low-paying job. A simple example can explain what an income guarantee scheme might look like. Assume there is an income guarantee of € 800 per month and a 50% income tax.

gross incometaxnet income
€ 0+ € 800€ 800
€ 1000+ € 300€ 1300
€ 2000– € 200€ 1800
€ 3000– € 700€ 2300
€ 5000– € 1700€ 3300

The income guarantee gets settled with the income tax, so you receive money when your income is low. If your gross income is €2,000, you pay €200 in taxes, and your net income is €1,800. There is an incentive to work as you gain financially from doing a job. When the income guarantee is sufficient to live on, there may be no need for minimum wages, making the job market more efficient. If the income guarantee replaces existing welfare schemes, there may be limited additional costs.

Denmark has an income guarantee, combined with a duty to seek employment if you are unemployed. It makes the Danish labour market flexible. Corporations can adapt their workforce to market requirements. Employment security, education and generous benefits compensate for the lack of job security.2 Denmark has a functional social contract and a competent government, which are prerequisites for such a scheme to work. The Danish state offers free childcare, so parents face fewer obstacles to working.

An income guarantee can improve workers’ bargaining position, even when it is not sufficient to live on. If the income guarantee is €500 and the living wage is €1,000, someone doing a cleaning job can work fewer hours, taking labour out of the market, which can result in higher pay to attract workers. An income guarantee might affect employment and income as follows:

  • Machines will do unattractive jobs that machines can do cheaply.
  • Those who do unattractive jobs that machines cannot do will be paid well.
  • Attractive jobs that machines can do cheaply fetch poor pay.
  • For other attractive jobs, the pay is hard to predict.

Latest revision: 21 October 2025

Other images: Monopoly game.

1. Bullshit Jobs. David Graeber (2018). Simon & Schuster.
2. Danish Employment Policy. Jan Hendeliowitz. Employment Region Copenhagen & Zealand, The Danish National Labour Market Authority (2008). https://www.oecd.org/employment/leed/40575308.pdf

A tenner on the street

A tenner on the street

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No such thing as a free lunch

Here comes another joke about economists. Suppose you just have found a tenner on the street. You are very excited about your windfall and tell the next person you meet about your find. You say, ‘I just found a tenner on the street.’ Now, this individual happens to be an economist. And he replies, ‘That is impossible. If there really was a tenner on the street, someone would have picked it up already.’

Economists also say, ‘There is no such thing as a free lunch.’ Some people get a free lunch, but someone else has to pay for it. If you find a tenner, someone else paid for it. If there is money for free, people will take it and let others pay for it. Economists call it arbitrage. It is also what trade is about. Traders try to make money by finding money for free, but in doing so, they work and take risks.

Economics assumes humans are rational in economic matters and do not leave tenners on the street. We make the best of our money by choosing the right products. And we make as much as we can with our abilities. If we get cash for free, many would not work or only do jobs they like to do. And even though we often are not rational, it explains much of our behaviour, most notably what happens in markets. If there is a tenner on the street, it will not be there for long.

If gold costs € 50 per gramme in France and € 40 in Germany, traders can make money by buying gold in Germany and selling it in France. The demand for gold in Germany will rise, as will the supply in France. The law of supply and demand says that the price goes up when demand increases and goes down when supply increases, so the price in Germany and France will be the same.

Economists call it arbitrage. Smuggling comes from the same principle. Cigarettes are more expensive in the United Kingdom than on the European continent. You can make money smuggling cigarettes into the United Kingdom and selling them there illegally. The price difference promotes smuggling. The difference between arbitrage and smuggling is that arbitrage is legal.

Markets without morals

Even though most individuals have moral values, markets do not have them. There are always people willing to market a harmful product. Their excuse often is that if they do not, someone else will. Laws can illicit smuggling and black markets. It helps if laws and enforcement are the same everywhere. Still, supply always equals demand at a specific price. So, if you outlaw harmful substances or practices, say alcohol, prostitution, cocaine, gambling, or cigarettes, you promote crime and violence because criminals make more money.

And so, the War on Drugs is a failure, like the prohibition in the United States in the 1920s. If selling cocaine is legal, the price difference between Colombia and the United States would be close to the production and transport costs. In that case, a gramme of cocaine might cost $ 5 in Colombia and $ 6 in the United States. But if it is illegal, and governments enforce the law, a gramme of cocaine might cost $ 10 n Colombia and $ 100 in the United States, and criminals make lots of money in the trade.

As crime-related violence engulfs more and more countries, gangs of criminals undermine governments and societies by giving poor people an income, bribing officials and hiring hitmen to eliminate those who stand in their way. Seeing it as an economic problem might help to find solutions, for instance, undermining the criminal business model by letting governments supply harmful substances and gambling and regulating prostitution. If governments keep repressing the drug trade, they make the criminal enterprise unprofitable by bringing their cost above the price for which governments sell.

It brings moral dilemmas, but unlike criminals, governments do not do marketing, for instance, by giving drugs to children to turn them into addicts. Governments have no profit motive, which allows governments to help drug addicts and give them treatments. But this does not stop the fentanyl crisis in the United States. This drug is too cheap and too deadly. Only unconventional measures like taking all the addicts off the streets and locking them up might end the suffering. To solve this issue, we might need to be as committed as the Taliban and accept the human cost. The human cost will be higher if we are lax. If an addict dies because of these measures, this person would have died anyway, and the gain is in the people we save.

Trust but verify

Similar issues arise when governments tax, punish criminals, give subsidies or provide social benefits. If that elicits the desired behaviour, that is good, but that does not always happen. Businesses shift their profits to tax havens. Wealthy individuals do the same with their assets. If there are social benefits, people who do not like to work or dislike their job try to get on the dole. Many people need those benefits, but fraud undermines their legitimacy.

Reasonable people are willing to pay taxes for people who need help but not for fraudsters. Tax and welfare fraud may get understated or overstated for political reasons. If you can commit fraud and gain financially, some will do it. And if they get away with it, more will do it. That undermines trust. Regulations need enforcement. For instance, not enforcing building regulations allows contractors to make money using inferior materials. And that happens with devastating consequences.

When private contractors perform public tasks, and the government pays for them, there is an opportunity for fraud. In the Netherlands, the government decentralised several forms of social work to the municipalities. Since then, criminals and fraudsters have set up businesses in those areas. The choice is either for governments to do these tasks themselves or to work with reliable suppliers by vetting them, perhaps even licencing them, and monitoring their performance.

Trade as finding tenners

Trade is like looking for tenners on the street and keeping them, even if you know the previous owner. You might call it pickpocketing. The difference is not always clear. Hermes, the Greek god who was the protector of the merchants, was also the refuge of the thieves. Popular culture views traders with suspicion. Value is subjective. If you bought an item for € 50 but could have bought it elsewhere for € 40, did the seller dupe you, was the item worth € 50, or were you stupid?

And we cannot do without trade. Few people have the time to go to all the producers for the things they need, nor have these producers the time to handle each individual that needs their product. If you had looked around, you might have found the same item for sale for € 40, but perhaps, you were too busy and happy to get the item instantly without looking around. Trade performs the following functions:

  • Goods are made in one place and used somewhere else. Trade bridges distance.
  • Goods are produced first and consumed later. Trade bridges time.
  • Goods usually are made in large batches and used in smaller ones. Trade matches volumes.

Crucial to trade is information. A trader must know what is on offer for what price and where, and for what price it might sell when and where. Gathering that information costs time and effort. If you trade potatoes, you buy them in large quantities from farmers during the harvest and sell them in smaller quantities to greengrocers throughout the year. You must offer an attractive price to the farmers and the greengrocers. Otherwise, they will go elsewhere. And your business must make a profit. Otherwise, you might as well have stayed in bed to watch television.

Financial markets

A tenner dwells more likely on streets where others do not look. Wall Street firms hire the brightest minds on the planet to find these places. For instance, Apple stock may be for sale for € 150 in Australia while it is doing € 151 in Germany. If you want to pick up that euro, you must be there and act quicker than everyone else. Wall Street firms thus invest in the fastest computers and networks.

So if a tenner falls out of your pocket on the stock market, Wall Street firms have already picked it up before it hits the street. They may soon apply artificial intelligence to look inside your pocket and fetch the tenner before it falls. So if you are willing to sell your stock for € 150 and someone else is willing to pay € 151, Wall Street banks may snatch the securities you offer for € 150 and sell it to the other for € 151.

If the interest rate in one country is lower than in another, you can profit by borrowing money in the first country and lending it out in the other. It can be attractive to borrow yen at 1% to buy dollars to lend them at 5% and pocket the difference. Economists call this a carry trade. You might expect that, like the price of gold, interest rates would converge because the yen interest rate would rise because of the borrowing in yen, while the dollar interest rate would fall because of the lending in dollars.

That did not happen. The central bank sets the interest rate and can create money. The Japanese central bank kept lending yen at 1% and buying dollars because the Japanese government did not like the yen to rise. That could hurt their exports. If the US central bank held the interest rate at 5%, and the Japanese central bank prevented the yen from rising, that meant lots of free money for banks. The Japanese paid for it. They could have bought more with their money if it had been worth more.

One of the most troubling issues with trade, markets and capitalism, is that value is subjective and often depends on irrational emotions. The market value of an empty Gucci bag is higher than that of a shopping bag filled with potatoes. And even though we cannot establish objective value, we need food more than designer bags. The appreciation of subjective value is what makes the current economic system suicidal. A happy shopper today can be a dead one tomorrow.

Lately, I found a tenner on the street. Economists can be wrong. Well, indeed.

Latest revision: 19 August 2023

Featured image: A tenner on the street. Free Shutterstock image from Blackday.

Doughnut economic model

A model for the economy

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Doughnut

Our greatest challenge at present is dealing with the limits of the planet. The second greatest challenge is to provide for an acceptable standard of living for everyone. The third may be reducing differences in income and power. To a large extent these are economic questions. The order is important. For instance, what’s the point of achieving a higher standard of living when our planet is destroyed in the process? And it may be good to reduce differences in income and power but not if everyone ends up poorer.

New technologies can make these goals easier to attain. Information technology and the Internet made it possible for people everywhere around the globe to connect and to work together. This created jobs for millions of people in countries like India and China and it provided them with a better standard of living. Imagine nuclear fusion becoming available and energy becoming really cheap. That could halt climate change and make our lives easier. But we don’t know what kinds of technology there will be in the future.

The challenges we face are of an economic nature so a model of the economy can be helpful. Economics is about deciding for what we use the limited means we have and for whom. The distinction between economics and politics is not always clear because economic choices are often of a political nature. Even when you believe that everything should be left to markets then this is a political opinion.

The economist Kate Raworth came up with the idea of doughnut economy. It can be used to assess the performance of an economy by the extent to which the needs of people are met without overshooting Earth’s limits.1 Assessing is not the real challenge here. Making it work is. Raworth did some suggestions but this model outlines a comprehensive global solution.

Much of economics is drawn from experience. Often from experience supposed economic laws were formulated. The supposed laws don’t always work so we need imagination too. Experience may be a good guide to predict human behaviour and it can help us to see how far we can make our imagination become reality.

We can’t continue to live like we do. New technologies alone will probably not save us. The changes we need most likely are a shock for most people, except the poorest. On the bright side there is the 20/80 rule. It states that if you set your priorities right, you can achieve 80% of what’s possible with 20% of the effort needed to achieve the 100%. So if we stop the 20% most resource consuming and polluting non-essential activities then we might achieve 80% of what we can possibly achieve. That may be enough so life may still be acceptable in the future.

This plan contains ideas that ignore political borders like combining environmentalism with supply-side economics. This is a comprehensive solution. People may take their pickings based on their political views but you can’t cherry pick and expect it to work. This plan doesn’t include specific proposals like building windmills nor does it dwell on sustainable development goals. It is an economic model only.

This model gives a general outline as to how to deal with the challenges using underlying economic mechanisms. Many issues have to be resolved along the way, for instance mitigating the consequences for those who suffer the most. In short the model is:

  • The limits of our planet should dictate economics. That is just plain survival. Everything else should be of a secondary nature.
  • Ending poverty should be the second goal in economic thinking. That is our moral obligation. All other goals come after that.
  • People organise themselves in different ways. Organisational flexibility is the feature that made humans so successful as a species.
  • Setting these limits will bring severe dislocations in the economy that have to be addressed in the short term as well in the longer term.
  • Money is power. Ignoring money and the profit motive won’t produce acceptable outcomes. Still, it may be possible to reduce the power associated with money.
  • The economy has a short-term bias. An important reason is interest. Negative interest rates can lengthen the time horizon of investment decisions.
  • Capital represents wealth. Capital can help to make the economy sustainable and to end poverty. Destroying capital usually is not a wise course of action.
  • It is probably easier to build the required capital via investment than via taxation as most people love to invest but hate to pay taxes.
  • It may be better not to tax capital but to tax conspicuous consumption of the wealthy instead and to ban harmful activities if that is feasible.

Caring for our planet should be central in economic thinking. In traditional economics the consequences for the planet are delegated to a marginal role. The approach so far has been that products and services can have hidden costs like the usage of scarce resources and pollution. The proposed solution is that bureaucrats calculate these costs and tax harmful products to the point that their price reflects their true cost.

The government is supposed to use the proceeds from these taxes to repair the damage done, which often doesn’t happen. Still these taxes increase the price of harmful products so people can afford fewer of them. That may help but it is a proverbial drop-in-the-bucket. Economic growth is exponential so measures to reduce resource consumption or pollution are overtaken by the growth of production and consumption.

It is hard to calculate the true cost of products and services. Another problem is that green solutions use scarce resources too. To build a windmill energy is needed, which often comes from non-renewable resources like fossil fuels. Subsidising these solutions can be inefficient. A better way out may be setting hard limits on resource consumption and pollution. That could allocate resources more efficiently and set higher rewards on solutions that really contribute to a sustainable future.

Ending poverty is not always an explicitly stated goal of economics but economics is about making the best use of limited resources. Economic thinking can help to reduce poverty. Capitalism can create wealth efficiently but doesn’t distribute it equally. An important obstacle is interest rates being limited to the downside. Negative interest rates can help to reduce poverty but poor people are often poor for other reasons too, for instance a lack of opportunities or their own behaviour.

Human organisation

The political economy describes how humans organise themselves. Humans are social animals that can cooperate on a large scale in a flexible way. It made humans the dominant species on the planet. There are three major forms of human organisation:

  • communities
  • markets
  • governments

Traditionally humans lived in communities and villages where people help each other. They contributed to their community and expected their community to care for them. Money hardly played a role and trade with the outside world was often barter. People were born into a community and it was difficult to leave. Communities are still important in modern societies but leaving is easier. Many communities are communities of choice that you can join and leave as you like. These are often based on shared interests, for instance a soccer club or a message board on the Internet.2

Markets can distribute goods and services efficiently. This is what is meant by the invisible hand. If people work in their own self-interest, this can benefit society because products and services are made according to the desires of individuals. The theory of supply and demand explains how that is achieved. This is done with the use of money in market transactions. In many instances markets fail to bring desirable outcomes. Markets are flexible but they do not think ahead so they do not take into account the limits of the planet.

Governments set the rules in societies and enforce them, often with the consent of the citizens. They provide public services that markets do not provide efficiently or in an acceptable manner. The organising agent is money too, in this case via taxes and government expenditures on public services. Governments can think ahead but they are less flexible. The limits of the planet aren’t flexible either so it may be a task for governments to enforce them.

Dealing with the consequences

The flexibility of the ways in which we humans organise ourselves allows us to set limits on a global scale and let governments, businesses and communities all over the world deal with them and reorganise themselves accordingly. These limits must be set from the top down like a dictate because the size of the planet can’t be changed. Being too flexible on this issue can be a greater mistake than not being flexible enough.

This requires a global authority. If adequate measures are taken, severe dislocations in the economy can be expected. For instance, if recreational air travel is to be ended, that will affect poor countries depending on tourism. The same is true for people working for businesses that use scarce resources produce non-essential goods and services. Millions of people will lose their jobs and their means of existence.

In the short run they have to be helped out with food and money. In the longer term people, communities, businesses and countries must adapt to the new reality. Multinational corporations may have to relocate jobs to areas that have little to offer to international markets. Ideally everyone has a useful role in society and feels secure but the economy requires a flexible labour market.

Money makes the world go round

Humans have social needs and varying motivations but most people are motivated by money, at least to some extent. Even when people are not motivated by money, those who are often determine what happens. That is because money represents power. Reforming the economy based on ideals and moral values will have little effect if money and financial markets are ignored. We need the goods and services money can buy.

People can be motivated by their jobs but most people work to make a living. Money plays an important role in this process. If you are not rewarded for doing your job well that can demoralise you, most notably if others receive the same reward for doing a poor job. A great experiment called the Soviet Union has proven that beyond reasonable doubt. Markets can help to eliminate businesses that are useless or inefficient.

Sadly the amount of money individuals acquire doesn’t always represent their merits for other people and society. The politically connected can enrich themselves at the expense of taxpayers. Business owners can exploit labourers and enrich themselves by moving jobs to low wage countries. And criminals can become very rich too.

Rich people can buy the respect and cooperation of others. They can make others do what they want them to do. This comes with social status. People like you when you are rich because they hope to benefit from your spending. Social status also comes from the products you can afford. Differences in power and social status can lead to social instability, most notably when many are poor and the rich didn’t deserve their wealth.

It is easier to finance a great endeavours like making the economy sustainable and ending poverty from investments than from taxation because nobody wants to pay taxes but everybody is happy to invest. People may work hard to build some capital for themselves through savings and investment but they won’t work so hard to pay taxes.

This was the secret of the success of the European empires that conquered the world. England, France, Spain and the Netherlands were much poorer and smaller than China, India or the Ottoman Empire, but they didn’t finance their conquests with taxation, but with investment capita. European conquerors took loans from banks and investors to buy ships, cannons, and to pay soldiers. Profits from the new trade routes and colonies enabled them to repay the loans and build trust so they could receive more credit next time.2

Reducing the power associated with money is possible. For instance, if there is a tax on currency, interest rates can go below zero, and owners of money can’t demand interest when there is a capital surplus and positive interest rates aren’t beneficial to the economy. Redistributing wealth via wealth taxes may reduce differences in wealth and power but it can also lead to capital destruction via higher interest rates.

Capitalists save and invest while ordinary people borrow and spend. Wealth taxes divert money from investment to consumption so interest rates may rise and the effect may be a reduction of capital rather than more tax income. And it is consumption that harms the planet. Wealth taxes can be useful but they aren’t part of the solution. It may be better to reduce the consumption of the wealthy instead as they often consume the most.

This would reduce the privileges attached to wealth as it reduces the options for the wealthy to use their riches. At the same time it allows capital to be allocated via markets so that efficiency considerations apply. Hence, more investment capital may become available and the excess may be transferred to governments, people and businesses via negative interest rates.

In other words, it may be smarter to ‘milk the capital of the rich’ by giving the rich fewer options to spend their wealth than to tax their wealth. In this way their capital may grow to the possible maximum and interest rates go lower to the benefit of everyone.

In the neo-liberal era government spending was constrained by interest payments. The public sector was neglected. The price paid was often poor health care, bad roads or an overstretched police force. Once interest rates are negative, we may enter an era of abundance, and interest payments may be added to government budgets. This is to be expected when resources are diverted away from the consumption of the rich.

I want it all, I want it all, I want it all, and I want it now.

– Queen, I want it all

Short-term bias

These words of Queen express the mindset behind an economic system that encourages people to buy as much stuff as possible. More is preferred to less and now is preferred to tomorrow. If we stop buying stuff, or even when we buy less, businesses go bankrupt, people become unemployed, debts can’t be repaid and money becomes worthless. And so there is a quest for economic growth that’s killing us.

Economics teaches that our needs and wants exceed the available goods and services and that we always want more. This is called scarcity. Economics also teaches us that we want stuff sooner rather than later. This is called time preference. And so we must be encouraged to save for the investments needed to make more stuff by promising us more stuff in the future. And so there must be interest, economics teaches us.

To be fair, economics goes beyond this simple caricature, but the short-term bias caused by the belief in scarcity, time preference and positive interest rates, is still everywhere in economic thinking, and also in our thinking because we are influenced by economics. The existence of negative interest rates signals that the basic assumptions underlying economics may not be correct. People keep on saving without the promise of more stuff in the future. And that is a good sign.

Our way of living has to change in a fundamental way. We need to recycle more, buy second hand stuff and forego frivolous consumption. In the future employment may come from addressing needs in society. For instance, former salespeople may care for the elderly. There is an abundance of capital, and if those who have enough constrain their desires, even more capital can be available to meet the challenges humanity is facing.

To make that happen we need new ideas about wealth and poverty. It may be wiser to see wealth as the amount of time we can to sustain our current standard of living. For instance, someone who owns € 50,000 in assets and needs € 10,000 per year to live off may be wealthier than someone who owns € 100,000 and needs € 50,000 per year. This also applies to humanity. The resources of the planet can be considered as our assets. On the basis of this measure we are becoming poorer by the day.

Interest rates are important here. They affect the time horizon of investment decisions. That is because of discounting. When investment decisions are made, this usually comes down to discounting the future income stream from the investment against the interest rate. Higher interest rates promote shorter time-horizons. This can be illustrated with an example from the Strohalm Foundation:

Suppose that a cheap house will last 33 years and costs € 200,000 to build. The yearly cost of the house will be € 6,060 (€ 200,000 divided by 33). A more expensive house costs € 400,000 but will last a hundred years. It will cost only € 4,000 per year. For € 2,060 per year less, you can build a house that lasts three times as long.

After applying for a mortgage the calculation changes. If the interest rate is 10%, the expensive house will not only cost € 4,000 per year in write-offs, but during the first year there will be an additional interest charge of € 40,000 (10% of € 400,000).

The long-lasting house now costs € 44,000 in the first year. The cheaper house now appears less expensive again. There is a yearly write off of € 6,060 but during the first year there is only € 20,000 in interest charges. Total costs for the first year are only € 26,060. Interest charges make the less durable house cheaper.3

In reality things are not that simple. The building materials of the cheap house might be recycled to build a new house. And technology changes. If cars had been built to last 100 years, most old cars would still be around. This could be a problem as old cars are more polluting and use more fuel. Nevertheless, the example shows that long-term investments can be more attractive when interest rates are lower.

The interest rate is not the cause but the consequence of the time horizons of individual borrowers and lenders in financial markets, which are people, businesses and governments. The economy doesn’t magically become sustainable because interest rates are low. Interest rates are low for a reason. If we don’t buy things we don’t need, interest rates go down. The time horizon of the economy lengthens because our economic time horizon lengthens.

Capital and wealth

The painful reality of what our wealth really is has such dramatic consequences for the economy that it is hard to foresee what a future sustainable society might look like. But capital will still represent wealth in the future. The traditional definition of capital is buildings, machines, technology and knowledge to make the products and services we use. This definition ignores the planet and that is not helping us to survive.

Only if we think of the planet Earth as our main capital and believe that we have to keep that capital in tact and that we have to sustain ourselves from the interest of this capital then economics can help us to survive. We must reduce our consumption to the point that the planet can regenerate itself. A true capitalist doesn’t consumes his or her capital either. He or she lives of the interest and saves whatever he or she can for the future.

Traditional capital can help with that. For instance, internet and video conferencing allow us to meet other people without travel. If most traffic is to disappear that would greatly reduce resource consumption and pollution but that may only happen if travel is restricted. Knowledge to make artificial meat from plants can reduce the need for fertilisers and pesticides. If we don’t have to feed livestock any more, lower yields in agriculture are acceptable. This can help to make agriculture in harmony with nature.

We may need more traditional capital in order to sustain ourselves within the limits of the planet even though much of our existing capital may prove to be worthless. For instance, if research is done to make artificial meat taste better then people will find it easier to switch. In that case factory farms may become redundant. We may need massive investments in renewable energy and recycling as well as pollution reduction. If we set limits on our resource consumption and pollution then the capital that can make us live within these limits can be profitable.

As capital represents wealth, lower interest rates can increase wealth. That is because investments must at least generate returns equal to the interest rate. If returns are lower then it makes no sense to invest as it would be better to put the money in a bank account. Hence, with lower interest rates more investments are profitable and more capital can exist. It may explain why wealthy countries often have the lowest interest rates.

The requirement of making at least the interest rate in the market has enormous consequences. A corporation that makes a product people like can go bankrupt when potential customers don’t have enough money and the corporation can’t make enough profit. In other words, if an investment in this corporation yields less than the interest rate in the market, it must fail. That’s why corporations don’t make products for poor people. There is no profit in that. Some economists think this is healthy and natural.

In a similar vein a coal fired power plant that returns 6% is considered efficient and useful while a windmill that makes 2% is seen as inefficient and wasteful at an interest rate of 4%. This logic can be suicidal because of climate change. Something is terribly wrong with this. But if investments don’t make the interest rate in the market, no-one would make them voluntarily. Nowadays windmills and solar energy are profitable because the technology has improved and interest rates have fallen.

In a market economy capital exists for profit. Capital can exist for other motives too. A community can make an encyclopedia or a software product freely available on the Internet. A government can build a road or operate a library or a hospital. But history has demonstrated that people are motivated by money and profit and that a market economy is an effective way to build capital. In order to live within the limits of the planet and to end poverty, markets may need more guidance from governments.

With lower interest rates it may be possible to make investments in ending poverty and making societies sustainable profitable so that people will make these investments voluntarily. Perhaps it is better to make a distinction between what should be done, for instance making the economy sustainable and ending poverty, and what can be done, which depends amongst others, on the interest rate. At an interest rate of 0% the windmill could be profitable and fossil fuels can be phased out. That’s why lower interest rates can be beneficial.

Indeed, there are other measures for usefulness than profitability. Perhaps the requirement to make a specific interest rate may not seem particularly useful to humankind but it can help to allocate capital more efficiently. Hence, for the benefit of humankind capital markets must continue to exist and interest rates may need to be as low as possible to generate the investment capital needed for making the economy sustainable and ending poverty.

Governments should guide this process by defining what is legal and what is not. The investment options for capitalists depend on the products and services that are legal. As the number of options are reduced, for instance by banning resource consuming non-essential consumption, the remaining alternatives can become more attractive, most notably when the excess of investment capital drives interest rates lower so that sustainable production processes with low returns become feasible.

If there is a market

Banning harmful products can elicit black markets, most notably when these products are addictive or save you from a lot of trouble or hard work and if you can use them without being noticed. It would be hard to stop the use of alcohol and drugs because people will use these products anyway. It may be easier to limit air travel as it will be difficult to fly a plane without being noticed.

Black markets and fraud are likely to arise if limits are set on the extraction of resources like fossil fuels and basic materials. The price of these resources could rise and it could be lucrative to extract more than is allowed. It might a good idea to look for places where effective control can be established. That may be on the demand side by banning or limiting certain activities or on the supply side by monitoring production.

Distortions in the markets for resources can produce losses or profits. Governments may need to take ownership of resources and compensate the owners. A government can then contract a miner to mine resources based on quota under specific regulations, and the miners can then be paid for extracting the resources. If markets become distorted by forward-looking planning then governments must intervene.

Perhaps different arrangements are possible. When interest rates are negative then future income discounted against the interest rate will have a higher net present value so it can make economic sense to keep resources in the ground.

Global competition drives down prices and it allows developing nations to build their economies too. Free trade can benefit humankind because it allows people and countries to specialise in what they do best so more and better products can be made at lower prices. Regulations aim to increase the quality of products by setting minimum standards. Regulations can favour large scale operations if they require large investments.

If the economy is to become sustainable the energy cost of producing items as well as the cost of transport may change and affect the scale of production. Regulations can stand in the way of scaling down and localising production but in many cases regulations, for instance regulations about food safety, exist for good reason. Investments to make production processes sustainable may be costly and may also favour economies of scale.

Confidence in money and trust in the financial system

Confidence is key in the capitalist economy because credit is based on confidence. The availability of investment capital comes from confidence in financial system and the economy. Actions that erode trust affect the available credit. Bank failures shatter confidence and stop the circulation of money. The Great Depression really took off after banks went bankrupt. The financial crisis of 2008 escalated once Lehman Brothers was allowed to go bankrupt.

To ensure that businesses can prosper credit must be available. A lack of trust in financial markets results in a destruction of capital. It is not a coincidence that economic crises are often preceded by a financial crisis. That’s why governments and central banks stand behind the financial system and support it at all cost. That’s why we seem to be hostage of the financial system. It doesn’t have to be that way.

Interest on money and debts makes the financial system unstable and prone to crisis because incomes fluctuate while interest payments are fixed. And because there is currency at an interest rate of zero, investors can flee to the safety of currency at no cost whenever there is some trouble. But interest rates are poised to go negative. This may be the opportunity to make the financial system more robust by charging a holding fee on currency and banning positive interest rates on money and debts.

Trust in the financial system and debts is reflected in the interest rate. If the interest rate is negative then investors prefer a certain loss to other investment alternatives. That might happen because of confidence in the currency as a store of value, for instance when inflation is non-existent. It is imperative that governments promote confidence in their currencies by limiting their primary deficits to the point that they are paid from the interest received on their debts.

Interest is the price paid for distrust so governments must be reliable and transparent to inspire confidence in financial markets. If a government is not honest to its creditors then the interest paid on its debts can rise. People like entitlements and do not like taxes so citizens may elect politicians who promise more entitlements or lower taxes. The interest rate on government debt can therefore also reflect the confidence of creditors in the citizens of a country.

A robust financial system that inspires confidence can meet the challenges that lie ahead as they will on the one hand require an unprecedented amount of capital in form of knowledge, new products and new ways of producing and distributing them, while on the other hand there will be severe shock and dislocations in the economy that only a robust financial system can withstand.

A holding fee on currency can ensure liquidity in financial markets so that the economy will not fall apart in times of economic stress. The situation in Wörgl demonstrated that even a deep depression can soon end with negative interest rates. The transformation to a sustainable economy requires an unprecedented amount of low yielding capital that may only be made profitable when interest rates are negative.

Investment guidance policies

For markets to do their job properly, capitalists should deploy their capital in the way they see fit within the options that are available. Additional measures may be needed to guide investments into desired directions like developing countries, recycling, and affordable housing. Wealthy individuals should realise they have a moral duty to make their capital contribute positively to society and the well-being of others. And even if the wealthy do not live up to their moral obligations, the laws and the financial system must channel their efforts in the right direction.

Financing the challenges of the future by investors may work better than financing them from taxes. Investors tend to chose the options that generate the most profits. In doing so they may be able to realise these goals more efficiently and generate more investment capital for the purpose. Favouring desired investments, for instance by excluding them from a wealth tax, can be a way to make them more attractive.

Products should cause as little harm as possible to the planet. Nature should be able to regenerate itself and undo the harm done. To make that possible, corporations should be responsible for the lifecycle of their products. Even when they work with contractors, the responsibility should remain with the corporation that markets a product.

During the neoliberal area businesses were often allowed to regulate themselves. This is didn’t work out well as businesses can gain an advantage from evading responsibilities in the form of reduced costs and higher profits. Governments have a responsibility to make and enforce the law. That may not be enough so journalists and activists have a duty to press businesses into sticking to the rules and governments into enforcing them.

Summary

This is an economic model meant to identify the economics to make the economy sustainable and to end poverty. There will probably be consequences that aren’t fair and they should be addressed where possible. Capital represents wealth. To make the economy sustainable we need a different view on wealth as it not being the amount of assets you currently have but the time your assets can support your lifestyle.

The planet should be seen as our main capital, not the buildings, machines, technology and knowledge to make the products and services we use. If we use more than nature can replenish, we use more than the interest of our main capital, and we become poorer as a consequence, even when the interest rate on traditional capital is positive.

To make the economy sustainable and to end poverty while maintaining an acceptable standard of living requires an unprecedented amount of traditional capital. The effort can better be financed from investments than taxes. Lower interest rates can make investments in making the economy sustainable and ending poverty more attractive.

Limiting our production and consumption will depress interest rates. Low interest rates require trust in the financial system and currencies. The financial system is based on debt, hence the integrity of debtors. A maximum interest rate of zero can improve the quality of debts. A holding fee on currency can ensure liquidity in financial markets.

Instead of spending on frivolous consumption everyone who can afford it should become a capitalist and invest in his or her own future. That can help to make the economy sustainable and to end poverty. Governments can support this process by legislation that bans harmful products and supports investments in areas that are beneficial.

Featured image: Doughnut economic model. Kate Raworth (2017). . CC-SA 4.0. Wikimedia Commons.

1. Doughnut economics: seven ways to think like a 21st century economist. Kate Raworth (2017). Vermont: White River Junction.
2. Political economy. Wikipedia. [link]
3. Sapiens: A Brief History Of Humankind. Yuval Noah Harari (2014). Harvil Secker.