Beautiful countryside in southern California

Capital for the future

Making the economy sustainable may require an unprecedented amount of capital in the form of knowledge and outfits like solar panels, sustainable farms and energy-efficient transportation systems. It is hard to imagine that it can be done. And imagining it is still a lot easier than really doing it. It is going to require some economic magic to divert investment capital from destructive activities to the future of humanity. We may need more useful capital and less consumption.

Perhaps the invisible hand can be of some help. It is easier to finance a great endeavour from investments than from taxation because nobody wants to pay taxes but everybody is happy to invest. It is the secret of the success of the European empires that conquered the world after the Middle Ages. 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 the use of investment capital.1

Europe won out because 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.1 The same logic may need to be applied to making the economy sustainable. The challenge is so enormous that it may never be possible to finance it by taxes. Nowadays interest rates are so low because there is plenty of investment capital.

It’s the economy stupid!

It is often argued that the economy is unsustainable because of short-term thinking. The economy must grow in order to have positive returns on investments. And it is believed that returns on investments need to be positive otherwise the economy would collapse. The economic time horizons of individuals are reflected in their time preferences. The time horizon of the economy as a whole is reflected in the interest rate.

The lower the interest rate, the longer the time horizon of the economy could be. The following example from the Strohalm Foundation can illustrate this:

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 math 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.2

Without interest there is a tendency to select long-term solutions. Interest charges make long-term solutions less economical. Interest promotes a short-term bias in the economy. It may explain why natural resources like rainforests are squandered for short term profits. If interest rates are high, it may be more profitable to cut down a rainforest and to put the proceeds at interest rather than to manage the forest in a sustainable way.

Only, things are not as simple as the example suggests. For example, the building materials of the cheap house might be recycled to build a new house. And technology changes. For example, 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.

This also applies to investments in renewable energy. For instance, a solar panel that costs € 100, lasts 15 years, and generates € 150 worth in electricity in the course of these 15 years, is feasible at an interest rate of 5% but not at an interest rate of 10%. Many investments in making the economy sustainable may have low returns and are only feasible when interest rates are low. Low and negative interest rates can also deal with low economic growth. That may be needed for living within the limits of the planet.

Living within the limits of the planet

When interest rates are negative, the time horizon of the economy could go to eternity so that it makes sense to invest in making the economy sustainable. A few examples from history can illustrate this. In the Middle Ages some areas in Europe had currencies with a holding fee like Natural Money. As there hardly was economic growth, interest rates were negative. It was the era of Europe’s great cathedrals. These cathedrals were built for eternity. As better investment opportunities were absent, wealthy towns people spent their excess money on cathedrals.3 For similar reasons, the people of Wörgl planted trees as the proceeds of the wood were expected to occur in the distant future.3

A bit of calculus shows why. At an interest rate of 5%, putting € 1 in a bank account turns into € 1,05 after a year, so you would rather have € 1 now than in one year’s time, even when you need the money in one year’s time. That’s because you can put the money on a bank account at interest. At an interest rate of 5%, € 100 in one year’s time is worth € 95.25 now. The distant future has even less value. The same € 100 in one hundred year’s time is worth only € 0.59. And € 100 after 1000 years has no value at all in the present.

At an interest rate of -5%, you would prefer to have the money when you need it, otherwise you would end up with less. At an interest rate of -5%, € 100 in one year’s time would be worth € 105. The same € 100 in one hundred year’s time would be worth € 13,501 now. And € 100 after 1000 years would be worth more than everything there is in the present. Income in the distant future is also very uncertain, so it is unlikely that investors will shift their time horizon to 1,000 years, but this logic may help us to come into terms with the limits our planet poses on human activities.

Living within the limits of the planet may require unprecedented investments in the future. These investments may require low or even negative interest rates as their returns may be low. Only low and negative interest rates can make these investments economical. Everyone who has money to save can help by shifting money from consumption to saving and investing. The more people act like capitalists, the lower interest rates may go, and the more sustainable the economy may become.

Capitalists think that money spent on a frivolous item is money wasted, because when you invest your money, you will have more money that you can invest again. Capitalists hardly care about interest rates. They will save and invest anyway because of their capitalist spirit. Rich people may be encouraged to save even more if luxuries that use a lot of natural resources and energy aren’t available any more. One can think of luxury yachts, private jets, but also of travel by airplane for holidays. When energy becomes a constraint, local products may replace long-distance trade.

Featured image: Beautiful countryside in southern California. James McCauley (2005). Wikimedia Commons. Public Domain.

1. A Brief History Of Humankind. Yuval Noah Harari (2014). Harvil Secker.
2. Poor Because of Money. Henk van Arkel and Camilo Ramada (2001). Strohalm.

Graffiti near the Renfe station of Vitoria-Gasteiz

The monster called financial system

Is the financial sector overtaking the real economy?

Less than 1% of foreign exchange transactions are made for trading goods and services. More than 80% are made for exchange rate speculation. Every three days an entire year’s worth of the European Union’s GDP of € 13 trillion is traded in the foreign exchange markets.1 So is the financial sector overtaking the real economy?

Financial industry share of total nonfarm business profits. Evan Soltas (2013)
Financial industry share of total non-farm business profits. Evan Soltas (2013). Economics and Thought.

In the United States financial sector profits grew from 10% of total non-farm business profits in 1947 to 50% in 2010.2 This figure excludes bonuses. It is explosive stuff and the original research has been removed from the Internet. The findings could give us the impression that the financial sector is a big fat parasite that feeds on us. And who would have guessed that?

What a scary monster the financial system has become. This terrible creature could easily wipe out human civilisation as we know it. That nearly happened in 2008. And it can still happen. We are hostage of this monster. It is too big to fail. But what created it? It wasn’t Frankenstein for sure. The answer is already out there for thousands of years. It is interest on money and loans. In the past this was called usury and often forbidden.

The core problem is that incomes fluctuate while interest payments are fixed. This causes instability in the financial system. And if the investment is more risky, lenders demand a higher interest rate, which contributes to the risk. Limiting interest would reduce leverage and make financial system more stable and less prone to crisis.

It’s the usury, stupid!

Fraud in the financial sector contributed to the financial crisis of 2008. To what extent the fraud or the size of the financial sector are to blame is less clear. Financial crises are not a recent phenomenon. They have caused economic crises in the past. For instance, the stock market crash of 1929 and the subsequent bank failures caused the Great Depression of the 1930s. Back then the financial sector was not as large as it is today and there was no large-scale mortgage fraud. Hence, there must be another cause.

Charging fixed interest rates on debts causes problems as incomes fluctuate. So if some person’s income or some corporation’s profit suddenly drops, interest payments may not be met. When the economy slows down that happens to a lot of people and corporations simultaneously, which makes the financial system prone to crisis. And interest is a reward for risk. Creditors may be willing to lend money to people and corporations that are already deeply in debt, but only if they receive a higher interest rate. So if interest was forbidden, that might not happen, and there could be fewer financial crises.

Banning interest has been tried in the past and it failed time after time. That is because without interest lending and borrowing wouldn’t be possible and the economy would come to a standstill. Until now there was a shortage of money and capital so interest rates needed to be positive, but that may be about to change. The increased availability of money and capital pushed interest rates lower. Money and capital may soon be so abundant that interest rates can go negative. That could be the end of usury.

The scary monsters in the financial system

Apart from exchange rate speculation there are frightening creatures like quantitative easing, shadow banks and derivatives. These things will be explained later in this post. Some experts believe that the financial sector is out of control. That may not be the case. Usury created this monster so Natural Money, which is negative interest rates and a maximum interest rate of zero, could make many of these seemingly hard-to-solve issues disappear, and perhaps shrink financial sector profits too.

Leverage, shadow banking and derivatives make the financial sector so profitable for its operators because of interest and risk. Interest is a reward for risk but interest also increases risk because interest charges are fixed while incomes aren’t. But more risk means more profit for the usurers because all that risk needs to be ‘managed’. That provides opportunities to profit for those who make the deals. Usury is the main cause of financial crises and generates most financial sector profits.

Quantitative easing

Quantitative easing means that central banks print money to buy debt with this newly created money. Trillions of dollars and euros have been printed so central banks now own trillions in debt. In this way the financial crisis of 2008 was stemmed. Investors and banks wanted to get rid of debts and preferred cash because there was a risk that some of these debts would not be repaid in full. This caused the crisis.

But what if there was a tax of 10% per year on cash and central bank deposits? Losing a few percent on bad debts suddenly doesn’t seem such a bad deal any more. Investors may have kept these debts and the crisis would not have occurred. The losses on bad mortgages turned out to be a lot less than 10% per year. That was also because the crisis was halted with central bank actions like quantitative easing.

If there had been a tax on cash and central bank deposits there would always have been liquidity. The crisis may never have happened in the first place and quantitative easing may not have been needed. And if this tax is going to be implemented in the future, investors may gladly gobble up the debt on the balance sheets of central banks, so that quantitative easing can be undone, and most likely at a profit for the taxpayer.

Shadow banks

In order to protect depositors, banks are subject to regulations. Regulations are bad for profits because they limit the risks banks can take. Bankers who were looking for bigger bonuses came up with a scheme that is now called shadow banks. Shadow banks don’t offer deposit accounts to ordinary people so regulations don’t apply. And so shadow banks can take more risk and generate more profits.

A shadow bank borrows money from investors and invests it in products like mortgage-backed securities. A mortgage-backed security is a derivative that looks like a bunch of mortgages. The owner of the security doesn’t own the mortgages themselves, but is entitled to the interest from the mortgages but also the losses when home owners fall behind on their payments. Not owning the mortgages themselves makes trading a lot easier because mortgages involve a lot of paperwork.

Shadow banks can be dangerous because bank regulations don’t apply. Ordinary banks are required to have a certain amount of capital to cushion losses so that depositors can be paid out in full when some loans aren’t repaid. The balance sheet of an ordinary bank might look like the one below:

debit
credit
mortgages and loans
€ 70,000,000
deposits
€ 60,000,000
loans to other banks
€ 10,000,000
deposits from other banks
€ 20,000,000
cash, central bank deposits
€ 10,000,000
the bank’s net worth
€ 10,000,000
total
€ 90,000,000
total
€ 90,000,000

But shadow banks don’t need to comply to these regulations because they don’t have depositors. And so the balance sheet of a shadow bank might look like this:

debit
credit
mortgage-backed securities
€ 500,000,000
short-term lending in money markets
€ 490,000,000
insurance and credit lines
the shadow bank’s net worth € 10,000,000
total
€ 500,000,000
total € 500,000,000

What is so great about shadow banking, at least for bankers? If banks borrow at 2% and lend at 4%, the ordinary bank can make € 1,400,000. The bank’s net worth is € 10,000,000 so the return on investment is 14%. But the shadow bank can make € 10,000,000 and the return on investment is 100%. And you can imagine how great this is for bonuses. Only, if something goes wrong, there is little capital to cushion losses. That’s not a problem for the bankers because by then they have already cashed their bonuses. But it could become our problem as shadow banks can blow up the financial system.

If the loans drop 10% in value because some home owners fall back on their mortgage payments, the capital of the ordinary bank can cushion the loss of € 8,000,000, while the shadow bank goes down in flames leaving an unpaid debt of € 40,000,000. And now we get to the point where financial system blew up. It is the insurance and credit lines part on the balance sheet of the shadow bank. There is no value attached because credit lines so insurances don’t show up on balance sheets or only for a very low amount.

Ordinary banks guaranteed credit to shadow banks just in the case investors like money market funds didn’t want to invest in shadow banks any more. The great thing of credit lines for bankers is that they get a fee for these credit lines while they don’t appear on the balance sheet so that banks don’t have to cut back their lending. When homeowners fell behind on their payments, investors didn’t want to invest in shadow banks any more, and these credit lines had to be used. This means that ordinary banks had to step in and suddenly their capital wasn’t sufficient to cover the losses. Also going down in flames, were the insurers of mortgage-backed securities.

The United States had a government policy of stimulating home ownership. Under the guise of this policy mortgages were given to people who couldn’t afford them. Behind the scenes usury was to blame. If there was doubt whether the borrower could afford the mortgage, a banker could charge a higher interest rate to compensate for the risk. This made the mortgage even less affordable to the borrower. The solution for that problem was giving ‘teaser rates’, meaning that the interest rate was low during the first year so that the home owner could afford the mortgage payments at first. Meanwhile the mortgage was packaged in a mortgage-backed security so the banker was already off the hook when the home owner fell behind on his or her payments.

And there is more. Shadow banks offer higher interest rates to their investors. Shadow banks don’t have a lot of capital so investing in them is a more risky than putting money in a bank account of a regular bank. Investors in shadow banks need a compensation for that risk. That’s no problem because the enterprise is very profitable. It is therefore possible for shadow banks to pay higher interest rates. This might not be possible if interest was forbidden, unless shadow banks had a lot more capital to cover their losses, but that would solve the problem of them being too risky. It is usury that allows for risky schemes like shadow banks to exist.

The multi-trillion-dollar derivatives monster

In 2016 the notational value of all outstanding derivatives is estimated to be $650 trillion. This is the so-called multi-trillion derivatives monster. This figure is more than eight times the total income of everyone in the world.3 Some people are spooked by the sheer size of that number. And indeed, derivatives can be dangerous. In 2003 the famous investor Warren Buffet called derivatives ‘financial weapons of mass destruction’.

Five years later derivatives played a major role in the financial crisis. An improper use of derivatives nearly brought down the world financial system. But derivatives can be useful. Most banks use derivatives to hedge their risks. Banks that managed their risks well using derivatives fared relatively well during the financial crisis compared to banks that didn’t.4 Therefore, derivatives are probably here to stay.

But what about the multi trillion monster? The number is a notational value, not a real value. Derivatives are insurance contracts, often against default of a corporation, a change in interest rates, or home owners falling behind on mortgage payments. You may have a fire insurance on your house to the amount of € 200,000. This is the notational value of the contract. You may pay the insurer € 200 per year. That is the real value of the contract, until something happens, that is.

If your house burns down, the contract suddenly is worth € 200,000. Insurers often re-insure their risks, which is a prudent practice. But re-insurance makes the notational value of the outstanding derivatives increase. So if your insurer re-insures half of your fire insurance to reduce its risk exposure, another contract with notational value of € 100,000 is added to the pile of existing insurance contracts.

So what went wrong? If suddenly half the houses in a nation catch fire because there is a war, insurers go bankrupt. The cause of the financial crisis was many home owners falling behind on their payments at the same time so that insurers of derivative contracts like mortgage-backed securities went bankrupt. The American International Group (AIG) was the largest insurer of these contracts and it was bailed out with $ 188 billion. The US government made a profit of $ 22 billion on this bailout, but only because the financial system wasn’t allowed to collapse.

In a financial crisis a lot of things go wrong at the same time. The financial system can’t deal with a major crisis. If it happens, it may cause the greatest economic depression ever seen, and in retrospect it may herald the collapse of civilisation.

The usury issue

Money circulation in the economy is like blood circulating in the body. It makes no sense for a kidney or a lung to keep some blood just in case the blood stops circulation. The precautionary act makes the dreaded event happen. It is a self-fulfilling prophecy. A financial crisis is like all parts of the body scrambling for blood at the same time. When the blood circulation stops, a person dies. An if the money circulation stops, the economy dies. Hoarding is to blame for that.

Perhaps big banks are too big to fail. Breaking them up may not help because the banking system is closely integrated. Banks lend money to each other. If a few banks fail then others get into trouble too. And in a crisis all the trouble happens at the same time. So perhaps it is better to address the cause of failure itself, which is interest on money and debts. And it may be possible because interest rates are poised to go negative.

A tax on cash makes negative interest rates possible. It can also keep investors from hoarding money. If money keeps on circulating, there may never be a crisis. The crisis happened because investors scrambled for cash when they feared they might lose money on bad debts. But if they expect to lose more on cash, they might keep their debts. And there may have been fewer bad debts in the first place if there had been no interest on debts as interest is a reward for risk.

Featured image: Graffiti near the Renfe station of Vitoria-Gasteiz. Wikimedia Commons. Public Domain.

1. The rise of money trading has made our economy all mud and no brick. Alex Andreou (2013). The Guardian. [link]
2. The Rise of Finance. Evan Soltas (2013). Economics and Thought. [no link because the information has been removed]
3. Here’s What Makes the Derivatives “Monster” So Dangerous (for You). Michael E. Lewitt (2016). Money Morning. [link]
4. Financial innovation and bank behavior: Evidence from credit markets. Lars Norden, Consuelo Silva Buston and Wolf Wagner (2014). Tilburg University. [link]

Arab farmer taking straw to his farm. Public domain.

Clutching at a Straw

Fleeing is no longer possible

As mentioned earlier, I read The Limits of Growth in my late teens. Having hoped to live for another sixty years or so, I was informed by that book that a computer had calculated I would live to see the end. And who would argue with a computer, an entirely logical device? Time was ticking. Tic toc tic toc. As a child, I dreaded the future whenever the song Vluchten Kan Niet Meer (Fleeing Is No Longer Possible) was on the radio. It unnerved me profoundly, as it painted a dismal future in which nature would be gone. The ticking clock had made me run for cover as a toddler. That gloomy mood faded when I went to secondary school, and for a long time, the coming doom hardly crossed my mind.

That was until I read The Limits of Growth. It featured dreadful graphs showing decades in advance how resources would run out, and billions of people would die. Two decades had passed since then, and everyone had ignored it. It led me to join a local environmentalist group, Friends of the Earth, after finishing my studies. That was in 1993. My political affiliation had gradually trended to the centre-left. For a long time, I had believed that there was no alternative to capitalism, but gradually I realised that it also meant there was no alternative to doom. And so there had to be an alternative. It was impossible, but it was necessary. And that thought settled.

Friends of the Earth is an international organisation known in the Netherlands as Milieudefensie, with local activist groups, most notably in student towns like Groningen. We researched issues and tried to convince people. Friends of the Earth also lobbies with politicians and pressures corporations. We were a hodgepodge of students, people with jobs, unemployed, activists, and ordinary people, led by a woman in her thirties who acted like an Akela in the Boy Scouts. A 22-year-old student was her boyfriend.

We were not as militant as Greenpeace, but sometimes we protested. Once, we blocked the entrance of Groningen Airport to object to the government subsidies for the airport. The police came and told us to leave, which we did. It made me realise that activism wouldn’t solve the world’s problems. What could you do? If you went extreme and vandalised property, people would hate you for it, and it wouldn’t change the world. Starting a political party wouldn’t help. Think of what must be done and promise that you will do it. Few will vote for that. Even the most ‘extreme’ environmental party, the Green Party (GroenLinks), didn’t have what it takes, and they had only a few seats. That did not bode well.

And finally, if the Netherlands was going to do it, but no one else would, it wouldn’t help. And then there is the competition in the economy. Businesses will go bankrupt if they do more to save the environment than others. Their products would be more expensive, and we wouldn’t buy them, except for those who care enough for the environment to pay more. The group had about thirty active members and was divided into subgroups centred around specific issues such as vegetarianism, factory farms, air pollution, and economics. Economic issues caught my interest.

My mind was often grinding. It was like Hegelian dialectic, so trying ideas and looking for reasons why they would fail. You can ask hypothetical questions. Is it possible to make capitalism sustainable and just? Fat chance. Wasting is the essence of the system. If capitalism doesn’t solve these problems, then why not try socialism? Would that work? Probably not. People want more stuff. Democracy? Authoritarianism? Likely not. Can we make nature sacred? They will laugh at the idea. Money is sacred. All I got was an increasing pile of objections as to why ideas don’t work. I was too realistic to get carried away by any idea. History is full of examples of ideas going wrong. You can discard most ideas without even trying. That was the benefit of knowing history all too well.

No frivolous accounting

Friends of the Earth in Groningen was a small outfit, so compared to the art festival at the university campus, the yearly budget was negligible, about 6,000 guilders (€ 2,723). It covered the group’s activities. We were short of money. That changed once I became the treasurer. I took measures to make expenses match project income. Everything had to be accounted for. I eliminated the use of cash and required everyone to deliver receipts and state their purpose. I transferred the money via bank transfer, so it was clear where the money went. Yet, luck played a major role.

Each year, we received two grants of 2,500 guilders (€ 1,134), one from the province of Groningen and one from the municipality of Groningen. The provincial administration had just denied the allowance we had received in previous years. We could appeal to the decision at the Appeals Commission, which we did. Then I went to the Provincial House to discuss the issue with the official responsible for the grant. He explained that our request had been late and that the money jar was empty. I asked him whether there was any point to the appeal. He said no. It was a done deal.

So, after receiving an invitation to a hearing at the Appeals Commission, I decided not to waste my time going. After all, it was a done deal. One of the commissioners called me after the hearing to ask why we hadn’t shown up. And I told him. That probably touched a nerve, as it gave him the impression that no one took the Appeals Commission seriously. Our appeal was granted, and we received the subsidy. As I had made a budget that didn’t anticipate this money and had implemented budgetary discipline, we ended up with income exceeding expenses.

Once over a cliff, a cartoon character might clutch at a straw to save itself. Only in animated pictures does the straw hold. The Dutch saying ‘clutching at a straw’ means grasping at your last hope. On economic issues, the local group of Friends of the Earth worked together with Strohalm, or more precisely, Rinke. He lived in Groningen and was actively engaged in Strohalm and its ideology. He was on social benefits, and his career was working for Strohalm and Friends of the Earth. He was serious about his job and worked hard. The meaning of the Dutch word strohalm is straw.

The people of Strohalm claimed that the economy must grow to pay interest. Interest rates can’t go below zero, and if debts aren’t repaid with interest, the financial system collapses, so it is grow-or-die. And interest adds to the principal until infinity. To deal with that problem, I later figured that central banks print money to fill the gaps and aim for inflation, which is why it hadn’t collapsed. Sound accounting attracted me, so this made me think. And the idea of economic growth is frivolous accounting if you are the accountant of our planet’s resources. Many people worry about government deficits, but not about the overexploitation of the earth. And so, the cranks run the show in this world with insane planetary accounting schemes and delusions about growth. And the global economy and financial system create oceans of wealth and deserts of poverty, Srohalm argued.

Strohalm aimed to end interest by charging a holding fee on money. You don’t have to pay the fee if you lend your money. In this way, it could be attractive to lend money without interest. Natural Money as an idea thus already existed back then. Silvio Gesell introduced the holding fee in his 1916 book The Natural Economic Order. Strohalm also promoted local money. And Strohalm promoted local solutions to shield the local economy from international financial markets, such as local currencies.

When you buy groceries at your local supermarket, you have no clue where your money ends up and what it helps to accomplish. The supermarket chain may use it to build a new distribution centre. One of the contractors there might exploit immigrants. It is hard to do something about that, but it made me aware of the impact my money has on the planet and on other people. I moved most of my savings to an ethical bank, first ASN and later Triodos. Later, I also started buying Fair Trade products.

With local money, you could oversee what it accomplishes. And so, Strohalm began a LETS (Local Exchange Trading System) in Groningen. We exchanged goods and services using fictitious currency with a holding fee. It soon dawned upon me that LETS would accomplish very little. It was more of a tea party than a viable alternative for the regular economy. The exchange circle had a few hundred people, and many weren’t very active, so there were only a few products and services. And most weren’t things you needed. You might get a Reiki healer but not a handyman.

If your skills had market value, you wouldn’t exchange them in the LETS circle because you could get guilders you could spend everywhere. Thus, it was not only a matter of scale but also of commitment. The people in the exchange didn’t offer valuable skills or products, either because they didn’t have them or because they could fetch more in the market. You could say that people value money more than community, but you could also say that people tried to make money from their hobby, so they didn’t have to work for a living.

The people in such a scheme were mostly idealists who wanted to change things rather than people who would get things done. For a closed economy to work, the community needs scale to fulfil most of its needs. And it must produce tradeable goods and services to fulfil the remainder of its needs. Above all, building such a community requires commitment. Everyone must contribute, make themselves useful by acquiring new skills if needed, and accept a lower standard of living because they forgo the benefits of the division of labour in international markets. How can you achieve that?

Friends of the Earth Groningen once held a camp to work on our persuasion skills. Rinke was one of the organisers. He specifically praised me and called me an example for the others. That couldn’t be because of my communication skills. What set me apart was that I knew very well what other people were thinking and how they would react. My parents and some of my friends disapproved of my joining the environmentalists. And I didn’t try to convince others of my views, but merely tried to figure out how much they were willing to go along with them. Everyone knows that dumping garbage in nature is not okay. You can use that.

My parents found environmentalists a nuisance at best. When, in 2012, the socialists, led by Diederik Samsom, had a chance to win the elections, they were alarmed because Samson had been with Greenpeace as a student. A former environmentalist running the country was their worst nightmare. Perhaps you can see the irony of that. They considered voting for the conservative liberals (VVD) rather than the Christian Democrats (CDA), for which they had voted all their lives, to prevent that from happening. And so, there is no point in arguing. Did I ever convince anyone of my political views as a teenager? Probably not. That lesson I had learned already as a young man.

Few people are willing to change their lifestyles for the welfare of animals or future generations. Blocking roads would make people angry. People want to drive cars and don’t care about climate change. Strohalm proposed a tax on air travel because air travel is highly polluting and a luxury. Environmental taxes would raise prices and infuriate people. Taxes have caused revolutions. People aren’t willing to give up their right to murder their children. I didn’t give up on environmentalism just because we were heading for the apocalypse, but annoying people wasn’t the way to solve the problem. Only that wasn’t particularly satisfactory. If you accept doom, you might as well commit suicide right away. And so, there must be a way, even if there isn’t.

And there were issues with interest-free money. Why would you lend out money without interest if you could receive interest elsewhere? If you can borrow money at an interest rate of zero, you could borrow as much as you can and put it in a bank account at interest. That is not going to work. That was my grinding mind, looking for failures. It is an occupational hazard if you work in IT. A programme always has errors, and it is better to find the bugs before running it. Cleaning up the mess afterwards is far more work. Still, if interest is the root cause of social and environmental problems and can destroy human civilisation, we must make interest-free money work, even if it never will.

And perhaps it could work. During the Great Depression, a small Austrian town, Wörgl, had money featuring a holding fee. It was a stunning success. A similar money had existed in ancient Egypt for over a thousand years. The Egyptians used receipts for grain stored in the granaries as money. These receipts had a holding fee to cover storage and putrefaction. A Strohalm book related it to the biblical story of Joseph, who supposedly had introduced these granaries to weather seven lean years. If it can work for a thousand years, it can work forever. If only we could uncover the key to these successes. That was a reason not to let go of the idea. Maybe the impossible is possible.

In 1997, I moved to Sneek to live with my wife, Ingrid. Sneek had no local Friends of the Earth group, so I stopped being an active member, but I kept using public transport. Not owning a vehicle while working in IT consultancy for 10 years was a considerable sacrifice. Living in Groningen had made that possible. It was a remote corner of the country. My jobs were either in Groningen itself or so far away that I had to stay in a hotel. In Sneek, I could use Ingrid’s mother’s car if needed. Still, life without a car is quite uncomfortable. And my sacrifice was pointless. More and more people drove SUVs. They didn’t care. They figuratively gave me the middle finger, and their message was, ‘If you don’t ruin this planet, we double down our efforts.’ That was not what these people were thinking, but terrorists at least believed they were doing it for a good cause, and these SUV drivers must have known that they were doing something wrong, at least if they had a conscience.

If you can do an IT consultancy job for ten years without owning a car, few people really need one. But who will tell them to ditch their cars and move closer to their jobs, or cram into crowded buses and trains for a journey that lasts up to twice as long? We can replace vehicles with public transport, but few people would do that voluntarily. The Dutch nickname for the car is ‘Holy Cow’ for a reason. In 2003, Ingrid’s mother’s vehicle broke down, and she didn’t buy a new one. Having never aspired to higher moral standards than others, at least if they are pointless, I bought a car. It must help. Otherwise, you are just having a hard time, with nothing good coming of it. We used the car to go to my parents’ home in Nijverdal or the forest in Rijs, as there was no forest near Sneek.

Becoming your avatar

Between 1998 and 2002, I was a freelance IT specialist. Lots of money came in, so there was some capital to invest. My first investments were small and unprofitable because I believed that profits mattered. At the time, loss-making internet startups did well in the stock market, while profitable corporations did poorly. Understanding financial markets seemed challenging, which made me think I had to stay informed and join the IEX investment message board. At the time, I still occasionally said, ‘With SuperB***,’ when picking up the phone. That once led to a hilarious moment when I expected a call from Ingrid, but it turned out to be from Martien. And so, that name became my avatar. I also took the Financial Markets course at the Dutch Open University.

Later, I changed my avatar name after someone noted that SuperB*** sounded arrogant. From then on, I never answered the phone, saying, ‘With SuperB***.’ That was no longer needed to feel better. A strange thing about avatars is that you somehow become this person, SuperB***, on the message board. People don’t know you, only the avatar. Readers began to expect serious commentary and strong writing from SuperB***. And so, I introduced a few other avatars with fanciful names like IEKS! (a Dutch exclamation of shock that sounds like IEX) or Schaduwschaap (shadow sheep) to be someone else and have fun. And I wasn’t the only one. Others also came up with fanciful names like mooiepipo (beautiful clown), danger money, !@#$!@! (some curse) or Schraalhans (a Dutch joke). Some also used multiple avatars, so the message board became a playground for practical jokes.

Usually, the name had some witty meaning. It could be something like this, ‘Buy And Hold (BAH) is for sheep and sheep say bah and like to live a calm life in the shadows, hence shadow sheep.’ Walhalla Raaskalla, which means something like mad ravings in the heavens of the Viking gods, just sounded funny. And it rhymed. MMWOPS stood for ‘Making Money While Other People Sleep.’ It was the name of an American scam company defrauding the Dutch shipbuilder RSV, which went bankrupt in 1984 despite receiving two billion guilders in government support. Most of my avatars didn’t last long, except Dikkevettebeer (big fat bear), who believed the stock market would crash to zero and the gold price would rise to infinity. Bears believe that stocks go down, and the stock market went down at the time, so the bears grew fatter.

Some people were promoting certain stocks and hoped others would buy them, so they could profit. Some people were there to defraud others. And you couldn’t see each other face-to-face, which promoted paranoia. You see that on social media today. Can you trust other posters? Do they have a hidden agenda? There is a lot of misinformation. Some governments and corporations pay people to spread their propaganda. Some believe other posters who disagree with them get payment.

A colourful investment fund manager, Michael Kraland, ran the message board. He wrote entertaining commentaries. At the time, he rode the hype of the internet and telecom bubbles. His strategy was risky and not sound advice to inexperienced investors. It was even more irresponsible because his boasting made uninformed people invest in these crappy stocks. And because he was a boaster, he received nasty negative comments on the message board, including unproven accusations of wrongdoing. And perhaps also because he was a Jew, which seemed not accidental, as he worked in finance, and there are many Jews in finance. And even though, as far as I know, he never did anything illegal, I considered him a dubious character.

You could witness what Keynes called ‘animal spirits’ on the message board, experience the fear and greed of small investors, and become part of it. You hope your investments do well and fear they will not. I traded in stock options and made a few huge gains, but overall, I lost. Human emotions often drive the decisions people make about their investments. I was not much different. Those who had success imagined they were geniuses. And then they lost it all when the bubble collapsed. I wasn’t good at picking stocks or trading, but I didn’t take many risks.

Introduction to conspiracy thinking

After some time, a day trader named Cees joined the IEX message board. A day trader is someone who tries to make a living out of trading rather than investing. About 90% of the people aren’t successful in trading and lose money, including me, for I have tried trading stock options for a while. Cees began sharing conspiracy theories from US message boards and websites. One was about the Plunge Protection Team. If the markets were about to collapse, a secretive group called the Plunge Protection Team would come to the rescue. A stock market crash could undermine confidence in the financial system run by Wall Street. They couldn’t allow that to happen.

Many ridiculed Cees at first, but after the internet bubble had popped and even more so after 9/11, markets often miraculously recovered due to massive buying in the futures markets just before they crashed, so his credibility gradually rose. It probably wasn’t entirely true, as the stock markets declined dramatically between 2001 and 2003 during one of the most epic bear markets in recent history. Still, something fishy was definitely going on there. And the gold price regularly plummeted due to sudden selling at irregular hours when most markets were closed.

Cees believed central banks were orchestrating this to bolster confidence in their currencies. He wrote that if the gold price were to rise, the public would lose trust in central bank money. In times of thin trade, you can sell a bit of gold to make the price drop. The trick was to break a trend. Trend followers, called technical traders, would join the bandwagon and sell more gold, lowering the price further, in a manipulative cycle. The purpose of the trade was to bring the price down, which made sense because if a rational investor planned to sell gold, he would seek the best price. And these sales at quiet hours caused the price to crash. These kinds of intriguing posts kept the reader’s attention.

The gold market was rigged like most markets, but not in this spectacular manner, other pundits explained. They would look at traders’ positions in the Commitment of Traders (COT) report to predict price movements. So, if the category of small speculators had loaded up on precious metals, prices would probably go down. Gold mining corporations sell gold in advance on futures markets to make their budgets predictable and plan their operations. The bullion banks were the intermediaries. These banks sold that gold in futures markets to hedge their risk and played the market to enhance their profits. Successful traders exploit our emotions with deception. They spread false information about central banks selling gold to scare suckers on gold bug sites into selling. Once the bullion banks had sold all their inventory on the futures market, they might crash the price to repurchase it at a lower price. And so a veritable conspiracy theorist should have asked, ‘Who profits from these conspiracy theories?’ You can ask the same question about many other conspiracy theories. Who profits from undermining trust in society and its institutions?

Meanwhile, I found alarmist websites about Peak Oil, claiming that oil production was about to decline. There were also websites denying global warming. Most people wouldn’t take them seriously and believe what the scientists say, but I looked into them to see what they had to say. Having studied the philosophy of science, it was not hard for me to uncover the brazen lies, falsifications and misinterpretations of the facts in the climate change denial scene. And they claimed climate scientists committed fraud. People want to believe it. Like my sister once said, ‘I will believe in Santa Claus as long as he brings me presents.’ The benefit of denying climate change is having the comfortable feeling of not needing to change your excessive consumerist lifestyle. The Internet proved to be an ideal platform for cranks to spread their nonsense, making me think there would soon be, like Peak Oil, a time of Peak Bullshit, where the truth would have gone lost entirely. Only, I never thought of what would come after that. The name suggests that after reaching a peak, bullshit would decline.

There was reason to be suspicious. The United States was the centre of a global empire financed by the US dollar’s reserve status, so the Powers That Be (TPTB) would, in all likelihood, protect the financial system at all costs. A collapse could mean the end of their trade and usury empire and their insane profits. I had already bought gold for other reasons and didn’t trust financial markets or those who operate them. And so these stories intrigued me, and I began to visit the sites Cees mentioned. American gold and bear websites complained corporations pumped up profits with frivolous accounting, thereby abandoning the tedious Generally Accepted Accounting Principles or GAAP, which made me smile because GAAP is Dutch for yawn. For the record, a bear is an individual who believes markets will go down and invest accordingly, while a bull thinks markets will rise and invest accordingly.

Those running the financial markets might be pulling out every lever to keep the Ponzi scheme of interest-bearing debt going. Debts continued to grow, as did interest payments, so there could soon be a day of reckoning. I had read ‘The Limits of Growth,’ so I knew that collapse was inevitable. The bear websites reminded me of that. If the sky has come down on you once, as it did to me as a student, you worry it might happen again. It made me on edge concerning my investments, which wasn’t helpful for profits. Gold was a long-term investment, as owning gold could help weather a financial collapse, so I didn’t care much about gold price swings. I sometimes hoped that the corrupt system would collapse, but that was because I hadn’t fully considered the consequences. If you come to think of it, it is unlikely that something good would come out of it.

Back then, conspiracy websites appeared reasonable because they investigated issues that the mainstream financial press did not. But it is a slippery slope. There are all kinds of secret goings on, but the imagination of the conspiracy theorists has no limits. You can go nuts if you don’t perform a regular reality check. Your beliefs will get farther from reality. When I revisited these sites in the early 2020s, they had gone delusional, disseminating misinformation about vaccinations, global warming and the 2020 US elections. The Dutch would call them Wappies. They never ask themselves, who profits from our nuttery? But also, if you rationally look at reality, you might go insane as well. The world is insane.

In 1999, I had already bought my first gold. The gold price had reached historic lows. Gold mines were loss-making and closing, making me smell total apathy toward precious metals, suggesting a generational low point. It made me think that it could be the beginning of a long-term trend of rising gold and silver prices that might last a decade or more. And feeling that an apocalypse could come, it was an insurance. And so, I went to my bank to open a gold account. They sent an investment advisor to talk me out of it. He said, ‘No one does that anymore. I know a man who has had a silver account with us for two decades. Silver has gone nowhere all that time. Gold mines are making losses because the price of gold is only going down. You should invest in the stock market instead. Stock prices only go up.’ It reinforced my belief that it was the perfect time to buy gold, so I pressed on and opened a gold account. Perhaps the investment advisors at the bank office had a good laugh that day.

Nijverdal, where I lived as a child, was the scene of a gold rush in 1901. It was the only place in the Netherlands that ever had a gold mining operation. The rush was short-lived because the ore concentration was lower than previously thought. In Sneek, I bought a goldsmith’s home. That is an interesting set of coincidences. There are no precious metals accounts anymore. Today, precious metals ETFs are essentially the same. I had gold coins in a safe-deposit box at a bank to weather a possible financial collapse. Later, I also acquired silver bars and coins, about 75 kilogrammes in total, and stored most of them in a safe deposit box at another bank. I did this, fearing financial collapse due to reckless debt creation and humanity’s depletion of resources.

A thought that didn’t die

In 2001, after the Internet bubble had popped, I pitched interest-free money on the IEX message board. My lack of financial knowledge didn’t deter me. Everyone can participate in a debate on a message board, so you can exchange thoughts with people you wouldn’t meet otherwise. Others rebuked me time after time and pointed out my errors, so I gradually learned. Lengthy exchanges over several years resulted in unwieldy discussion threads. As these arguments proceeded, my knowledge of finance improved. If you are trying something new, you learn more from open discussions on the Internet than academic debates, often occurring in closed circles under rigorous standards that don’t allow you to speculate. Seeing the issue from different perspectives is more helpful than having in-depth knowledge of a narrow field. My persistence came from an unwavering belief in the insanity of ever-expanding debts and interest payments.

Interest payments destabilise the financial system because borrowers must return more than they borrowed. That money isn’t there, so someone must borrow the difference. If no one else borrows, the government or the central bank must borrow or print new money. Otherwise, a financial crisis and possibly an economic depression will ensue. That is why debts accumulate and why inflation happens. Interest-free money can be sound money because banning interest promotes responsible lending, stabilises the financial system and ends inflation. You don’t lend to someone you don’t trust if you receive no compensation for the risk of not returning the loan. You don’t need to incur more debt to pay off existing debts. That is the theory, but practical issues stood in the way. The market sets the interest rate. If you have money to invest and can receive interest, you won’t lend without interest. That is why economists never took interest-free money seriously. It was a domain of eccentrics like me.

The gold websites familiarised me with the Austrian School of Economics and their adherents, another eccentric bunch. Many were libertarians who saw government, rather than the love of money, as the root of evil. Usually, the private sector can produce a product or service more efficiently than the government, so they believe the government shouldn’t impose regulations or provide public services. They also had ideas about sound money and preventing irresponsible lending. They question banks’ money creation and dispute the need for central banks. Banks create money, which causes inflation. Central banks help banks in trouble, which promotes irresponsible lending. They hoped to limit money creation or return to a gold standard to enforce financial discipline.

They didn’t want governments or central banks to interfere with economic cycles, thereby accepting financial crises and economic hardship to cleanse the excesses. They argued that these corrections are necessary and beneficial as they would terminate poorly run businesses. And things would only worsen if you didn’t allow these natural cycles to run their course. They would argue that the central bank, the FED, had exacerbated the Great Depression and that its policies had contributed to the 2008 financial crisis, as its support for commercial banks had promoted reckless lending. They have little regard for mainstream economics, which underpins government and central bank actions to manage the economy, or what economists call fiscal and monetary policies, thus running government deficits, setting interest rates and printing money.

These issues troubled me as well, as did reckless lending. And so, we had a common ground. Paying interest on existing debts with new ones is fundamentally unsound. To me, funny accounting is an abomination and the basis of corruption. Banks profit from creating money. Inflation is the price we pay for their profits. Banks steal from us, most notably people with low incomes and those who don’t own stocks or real estate. If real estate values rise, so do rents, benefiting homeowners at the expense of renters. The underlying cause is usury, thus charging interest on money and debts, but few people notice. By their lending, banks create money and demand more in return, so we need more money to prevent the scheme from collapsing. And if the scheme collapses, like it nearly did in 2008, that could be the end of civilisation as we know it. For adherents of the Austrian School, charging a fee on currency and banning interest are out of the question, as they run counter to their view of ‘free’ markets. Those who accept a wage below subsistence level are free in their view, even when slaves have a better life.

They were a cult, with their own particular universe of facts. They believed the fairy tale that once the government had disappeared and markets were ‘free’, we would live in Paradise. Even though they were on opposite sides of the political spectrum, a comparison to communists is apt indeed. Both ideologies are like religions. Like communists have their prophets, such as Marx, Lenin, and Engels, libertarians have their own, such as Von Mises, Hayek, and Rand. Both have holy books. Communists have Marx’s Das Kapital or the Communist Manifesto, and libertarians have Rand’s Atlas Shrugged or Ludwig von Mises’s The Theory of Money and Credit. I didn’t read these books, but I have read several of their articles and had discussions with them, so over time, I learned about their beliefs. And perhaps that works better. You can better understand Islam by listening to the opinions of Muslims than by reading the Quran. That is my conclusion after reading the Quran and having had exchanges with Muslims on message boards. I also never read Karl Marx’s books.

If their ideology fails, communists blame the capitalists, while libertarians blame the government. The problem is that humans are unfit for communism, but also for free markets. Regardless of the system, people take advantage of each other’s weaknesses and the system itself. If you held alternative views like me, they accused you of being Keynesian, which seemed worse than being Satan himself. They would argue for ending minimum wages and sell it as a way to help the poor. So, if you can’t earn a subsistence-level income in the so-called ‘free’ market, letting you starve would help you.

If their ideology fails, communists blame the capitalists, while libertarians blame the government. The problem is that humans are unfit for both communism and free markets. Regardless of the system, people take advantage of each other’s weaknesses and the system itself. If you held alternative views like me, they accused you of being Keynesian, which seemed worse than being Satan himself. They would argue for ending minimum wages and sell it as a way to help the poor. So, if you can’t earn a subsistence-level income in the so-called ‘free’ market, letting you starve would help you. To illustrate the mood among these people, on 23 February 2026, someone posted on the Austrian Economics subreddit, ‘It’s time for welfare reform: Maybe food is so expensive because 42 million people get it for free.’ Letting people die of starvation will lower food demand, which might lower food prices. Letting poor people starve for lower food prices for the rich is their line of thinking.

These Austrians may come up with all kinds of charitable motives as to why poor people should starve to pay for the boob jobs of rich women. It is how free markets work. If they were to run the world with their 19th-century views on economics, we would end up in an Oliver Twist novel. They were preoccupied with money like me, but in a way as if only money mattered. From that narrow perspective, their views make sense. Like them, I looked for a sound monetary system, so their views had my interest. Yet, they are a gathering of Scrooges McDucks fearing rot in their money vaults. A funny coincidence is that their hero, after whom they named their website, is Ludwig von Mises. So Mises for misers. Wall Street may be much more evil than they are, but they represent money worship in its purest form. Something isn’t quite right about these people. Central bankers may be the high priests of the money religion, but the Austrians consider them heretics. They are the true faith of Mammon, that is. And the great thing about them was that they had an unparalleled religious zeal to prove me wrong in monetary matters.

They raised new arguments and brought to my attention every error in my thinking they could find. And so, my mind kept grinding. Whatever these people say, the root of frivolous accounting is charging interest on money and debts. It may not be possible to end it because if you do, lending might stop, and the economy might collapse. However, if you investigate a problem, you must at least correctly identify the root cause. Otherwise, the solution will remain out of sight. Charging interest leads to crises. Only you can’t tell Scrooge McDuck. He thinks there is no life after usury. And so, I learned as much from the Austrians as from Strohalm. And perhaps it is no coincidence that the miracle of Wörgl happened in Austria. The answer to the issue that kept the Austrians awake at night, sound money, had been quietly gathering dust in their backyard all along.

In this way, two opposing fringe ideas, which were interest-free money with a holding charge and the Austrian School view, challenged each other in my mind. It was Hegelian Dialectic at its finest. I wasn’t constantly brooding over this issue, but I couldn’t let it go either. In 2008, this resulted in the synthesis of Natural Money. In a gold standard, you need positive interest rates to get the economy going. As a result, you end up with debts you can never repay in gold. At some point, you must face collapse or leave the gold standard. The latter is the easy short-term solution, so you can leave the problem for future generations to solve. Like Keynes said, ‘In the long run, we’re all dead.’

When you do that, the sky is the limit, and debts escalate to infinity, which we have seen happening, most notably after the end of the last remnant of the gold standard. The long run is now over, and Keynes is dead. It is up to our generation to address the problem. Limiting the interest rate to zero can curb money creation and stop irresponsible lending. If the money supply is stable and the economy grows, prices, including the gold price, would drop. And so, a well-managed currency with a holding fee could be stronger than gold. The economy can perform better without interest, allowing interest-free money to yield better returns. That was the beginning of Natural Money. Over the following decade, I developed a more comprehensive theory using modern monetary economics.

Latest revision: 21 April 2026

Featured image: Arab farmer taking straw to his farm. Public domain.

Master of my own destiny?

It’s a miracle

In early 1993, I began looking for a job. The first application was for an IT traineeship at Cap Gemini Pandata. The company was in the process of merging with Volmac, the largest Dutch software consultancy company at the time. Cap Gemini was an international company. The new company’s name soon became Cap Volmac. Years later, it became Cap Gemini again. They had sixteen vacancies. Some 1,600 people applied, of which they selected 200 for intelligence tests. One of them was me. Before the tests began, other applicants shared discouraging tales about assessments and job interviews they had undergone. The economy fared poorly, so there weren’t many jobs. Many graduates had been searching for a long time. It was discouraging, so I expected to remain unemployed for quite a while. But that wasn’t meant to be.

The intelligence tests went well, despite my impression that I had messed them up. They were mostly about pattern recognition, which was to my advantage. They then invited me to an interview and to take some additional psychological tests. On my way to the appointment, Dirk from dormitory DANT took the seat across from me on the train. That was a bit of a coincidence. I hadn’t seen him for years, and I lived in Hengelo at the time, so not on the campus. Dirk asked me why I was wearing a suit. I told him about the interview. He started laughing loudly. ‘Your tie is a mess,’ he said, ‘Let me fix it for you.’ He then arranged the tie correctly.

Had this particular event, which appeared purely accidental at the time, not transpired, Cap Gemini may not have hired me. The interview and the tests also went well. My misfortune, stemming from not fitting in during my student years, led me to investigate and understand cultures and cultural differences, so it wasn’t hard to translate Cap Gemini’s expectations for its future employees into test answers. The tests demonstrated that I fit perfectly into Cap Gemini’s new corporate culture, which they had just formulated during the merger process. Many senior employees didn’t fit that profile, it soon turned out. Cap Gemini also stressed that I was the master of my own destiny. It was one of their company slogans. Master of my own destiny. Wow! I had never felt like that before.

Cap Gemini hired me and sent me to a junior programming class to prepare for the first assignment. My self-confidence was low because I had manipulated the test to make it seem like I fit in. And it was after five years of everything in my life having gone wrong, leaving me with zero self-confidence. I felt unfit for the job and was afraid to turn up. But then again, if you don’t show up, you have already lost, so I took my chances. These feelings receded once the class had started. They taught us that programmes need a structure: a setup to do things like initialising variables, the body where the real action is, and a conclusion where you report on the results, so like printing output. They also said that it was good practice for the programme’s name to say what it does. So, if the programme prints output, you could name it PrintOutput. That helps make programmes easier to understand.

We learned to work with Oracle by creating screens and reports. I made jokes about a programme nicknamed DoeAlles (DoEverything) that I planned to write. It was to have a setup, a body and a conclusion, so much was already clear at the time. The programme was supposed to do everything, as the names suggest, and everything really meant everything. I was starting my career, so there seemed to be plenty of time to work on it. It is noteworthy because we exist inside such a programme. It was, of course, a practical joke. Programmers make them quite often. More were to follow. I could indulge myself in test scripts, like making a SOAP call containing a message called ‘Good Times Bad Times’, the name of a soap series on television in the Netherlands. Or Mr Huge Overweight Bear ordering an automatic bee milking machine.

My classmates usually discussed what car they would choose once they were on the job. They hardly talked about anything else. I was the only one planning to use public transport. Not surprisingly, I was not a model employee. One classmate, Ad, a cheerful guy from the Eindhoven area, expressed his amazement at the company having hired me. ‘There were 1,600 applicants. And they picked you? How could it happen? It’s a miracle!’ Ad and I had a good laugh about it. His last name, Bourgonje, referred to Burgundy. In the Netherlands, a Burgundian lifestyle denotes enjoyment of life and good food, most often found near Eindhoven. And Ad radiated this lifestyle. He seemed the personification of it. His first name, Ad, and his coming from the Eindhoven area are a noteworthy coincidence as A******* D****** chose to live there, and AD are Her initials.

With regard to the work that awaits us

My first assignment was on a project at the former Cap Gemini’s Groningen office. Volmac had been a centralised corporation with a large office in Utrecht. Groningen was a remote corner of the country, so they didn’t have much business there. The people working in Groningen all came from the Cap Gemini Pandata branch. The Groningen office became vacant as the merger company centralised in the Utrecht office. That made it possible to station programmers in the office in what would become a new concept called a software factory, putting us at the cutting edge of innovative organisational development.

The Volmac people wore suits. Cap Gemini Pandata was the product of mergers of smaller software corporations, so it is a mixture of cultures. Some wore a suit, but most didn’t. The merger company Cap Volmac didn’t require you to wear a suit unless it was the dress code of the corporation they sent you to. I had worn a suit at the programming classes, but arriving at the Groningen office in one made me an oddball. The office was close to home, allowing me to change into casual clothes during the noon break.

On the first day, my colleagues asked me to familiarise myself with the functional designs of a project system named PROBIS that we were to maintain. These were folders with diagrams and formal language. After browsing them for several hours, I was done. Someone said, ‘Oh no! You have depleted your work stockpile for this month entirely.’ On the wall was a printout of the PROBIS data model. It was a tangle of arrows named relations and blocks named entities with obscure names. And inside these blocks was a list of the entity’s attributes.

I had become part of a team of six with a few colourful personalities and a project leader, Arno. KPN’s real estate department, a Dutch telecommunications company, hired us to work on Oracle screens and reports. Only, they didn’t come up with work. There was nothing to do for several months. But we had a lot of fun, and I had far more fun in five months than in five student years. Our project manager, Arno, was an ambitious career guy wearing a suit. He was not a local and stayed in a hotel. Arno organised project meetings and demanded progress reports he could present to senior management, even though we did nothing.

One team member, a graduate linguist, produced eloquently written progress reports. He once wrote, ‘Concerning the work that awaits us, we can only assume a wait-and-see attitude.’ We also mocked the new corporate culture and measured each of us against the scales of the corporate values. I was definitely ‘daring’, a colleague noted. Another team member, Pieter, was an anarchist. He had previously been in the squatters’ movement and always wore the same orange sweater. Perhaps he had two orange sweaters and switched them regularly, but that remains unclear. He was the type of guy who might wear the same sweater for months.

Pieter lived 400 metres from the Cap Volmac office and walked to work. When the project ended, he had to go to another office building in Groningen. He complained jokingly that the distance was twice as long. Pieter often mocked Arno and his ambitions. Once, when Pieter was in the elevator with Arno and a few others, he said, ‘Arno, as the project leader of this project, you have it doubly difficult.’ You could see Arno cheering up. Finally, some recognition. And then Pieter continued, ‘First, you have absolutely nothing to do, and second, you don’t radiate any authority.’

At the time, Windows was gradually becoming the standard operating system. It had new features, like WAF files for sounds. Some team members played around with these features, so if I started my computer, it sometimes made an unexpected noise. I had so much time on my hands that I familiarised myself with Oracle database administration. I also took some courses and did a few exams. But there was so much time and nothing to do, so I sometimes went out late and then caught up on my sleep at the office. Once, I lay down underneath my desk to take a nap.

Then, Arno came in. He planned to give me a pointless assignment, but didn’t see me sitting behind the desk. So he asked Bert-Jan, who sat at the desk opposite, ‘Does B*** sit here?’ In Dutch, sitting can have the same meaning as being. This particular choice of words gave Bert-Jan an escape, so he answered, ‘No, he does not SIT here.’ And that was correct. I was lying there. And so, Arno proceeded to bother someone else with the redundant task. Bert-Jan also came from a remote place, Enschede, close to the German border, so when there was an assignment in Poland, they offered it to him. The managers in Utrecht may really have thought that Enschede was close to Poland.

At some point, high-ranking managers from Utrecht came over to visit us. They planned to set up a software factory in which people at the Cap Volmac office would develop software for the company’s customers. We were the only team in the entire company already doing that. Okay, we weren’t doing that already because work hadn’t come in yet. In any case, we were at the cutting edge of innovative organisational development, and Groningen was the place to see it happen. And so, the Utrecht management big shots, for once, made the arduous trip to the edge of civilisation, Groningen.

Arno was soon busy preparing the office for the visit. He divided the team into departments, including functional design, programming, and testing, each with two employees, and management, which was himself. Arno ordered us to clean up the office, create signs for functional design, programming, testing, and management, and display them on the doors. The managers from Utrecht came by and were impressed. They said, ‘This is how we are going to do work in the future.’ We later made jokes about it, ‘This is how we are going to do work in the future. Doing nothing all day.’

After a few months, the work came in, so Arno was busy managing our work. He constantly demanded progress updates. It soon became apparent we would miss our deadline at the end of July. Before Arno went on holiday, he discussed the situation with our customer and arranged a new deadline for the end of August. Once Arno was gone and no longer bothered us, things suddenly went smoothly, so we met the original deadline in July. When Arno returned, the programmes were already running at the customer’s site. His superiors praised him for delivering a month ahead of schedule. He was on his way to a stellar career. Perhaps he received a nice bonus as well.

There is room for improvement

After nine months, the project ended. My manager was a good one, which proved a stroke of luck, as management roles attract individuals pursuing status and money, so not the best people. And so he took a hint. The next assignment would be in the COBOL programming language. Having only experience in Oracle, I was about to do another course, this time in COBOL. My manager gave me a bulky COBOL book. I browsed it for a while. COBOL seemed tedious compared to Oracle. A few days later, he asked me my opinion about the book. I answered that it didn’t inspire me and that Oracle seemed more fun. He immediately cancelled the course, and from then on, I only worked with Oracle.

My next job was restructuring a database at the telecommunications company KPN. I had some database knowledge. And my managers were impressed that I had familiarised myself with database administration. And so, I did get that job. The company doubted the capabilities of their database administrator, so they hired me to reorganise one of their databases. They took this delicate task out of their database administrator’s hands and gave it to me, a novice with little experience. And so, their database administrator didn’t like me from the start. And I didn’t follow his advice because he was a bungler. After all, that was the reason they hired me. And he showed off his expertise using incomprehensible language, so I often had no clue what he was talking about anyway.

It was a politically sensitive environment. The telecommunications company had previously been a government operation. It was also why the office was in Groningen, as the government had relocated its headquarters to promote regional economic development in this lagging outskirt. The government recently privatised it and put its shares on the stock market. The board wanted to purge the old-fashioned government bureaucrats from management positions to replace them with boastful people in suits. At least, that seemed the plan if you looked at KPN’s job advertisements. A former fellow student of business administration recognised me, even though I didn’t recognise him. He asked me what I was doing there, so I said something about my IT job. That was clearly beneath his station. He worked at KPN as a manager and boasted about the number of people working under him. He fitted the profile of the people KPN was recruiting.

Six years later, KPN nearly went bust because of excessive risk-taking during the Internet bubble. Mission accomplished. Billions of euros went down the drain. And burdened with 55 billion euros of debt, the company had to fire thousands of employees. But that was six years into the future. The head of the department I worked for was a risk-averse bureaucrat fearing for his job. If something went wrong, his head might roll. The database administrator might have felt that his position was on the line, too. He often complained about me to the department head. And the head passed on these complaints to Cap Volmac. I also had a team leader who more accurately reported how I was doing to the department head and my account manager, so they didn’t take me off the job.

Yet, I caused a major accident. To reorganise the database, I needed a list of the tables in the production database and their sizes. Production is the database that matters. The data in the production database is precious. For that reason, I had no access to the production database. There are also databases for development and testing. However, the job required production data, so I prepared a file named tablelist.sql containing a query that returned it. And for once, they allowed me to access the production database using a tool called SQL Plus. I could start the script by typing @tablelist and pressing enter. I started typing @t. The system didn’t respond.

And so, I pressed enter to see if there was any response at all. A few seconds later, the system responded: table dropped, table dropped, table dropped. I cancelled the script, but it was too late. Some precious data was already lost. Back then, in 1994, it wasn’t possible to restore the database to the moment before the accident, which was a new feature that was about to be introduced. Today, you also don’t need to perform database restructuring because the database software does it automatically. The operators had to restore the backup from the previous night, so a day’s work was lost. The database administrator had left a file named t.sql in the SQL*Plus directory, which dropped the tables. Only a bungler would do something like that. It thus wasn’t my fault. Everyone knew, but it reflected poorly on me nonetheless. And it was odd. How much bad luck can you have?

The fuss made Cap Volmac send me to the Professional Skills course. I was not politically sensitive. I was aware of that because of my troubles during my student years, so I found it a good idea. And the course taught me something. Positive framing can contribute to a better atmosphere. You can call it political correctness. If it is a complete mess, you can say, ‘There is room for improvement.’ It is the same mess, but it sounds a lot better. A consultant’s primary responsibility is not to solve problems but to make money for Cap Volmac by making the customer happy. Careers depend to a large degree on social skills. That comes with a drawback. Problems don’t get solved if the required measures are unpopular. I let it all pass me by, focused on my task, and finished the database restructuring job.

The next assignment was at the real estate department of the same telecommunications company. They had hired me to make database queries in their financial system for management information and assigned me to the financial department. Usually, managers or salespeople desired their reports promptly. It was always very important and, of course, very urgent, so I jokingly called them life-and-death queries. It took a few hours to write a query, verify the output, and deliver the report. By then, it was often no longer needed. The availability of the data, rather than necessity, created a demand for these reports. In other words, the reporting usually wasn’t that important. Over time, I found patterns in their requests, so I made a set of standard queries with parameters and delivered 90% of the reports on the spot. No one had ever thought of that, so they saw me as a genius and hired me for longer.

There was a reorganisation at the time. All the departments laid off people, and the financial department I worked for had assigned one employee for dismissal. Then came the accountants to check the administration. And there was, as you can say, ‘Room for improvement.’ Only one individual had done his work properly. It was the man who was about to be fired. That didn’t matter. They fired him nonetheless. He was in his late fifties, about six years away from retirement, and had received a sizeable inheritance. He probably also received severance pay, allowing him to retire early, so he didn’t care. Someone must have selected him. He was a loner. It made me think that the best employees can be the least popular with management.

There was also an opportunity to learn from the department’s management, which usually took a wait-and-see approach. Once, I alerted them of a looming problem, and they answered, ‘We will address the problem when it arises.’ At the time, I jumped on looming issues like a tiger, trying to surprise the problem before it surprised me, so I found their attitude quite funny and jokingly called it ‘management by doing nothing’. But most problems you anticipate never materialise, and if they do, often in a different manner than expected. And so your preparations are nearly always in vain. I was too on edge and had to calm down.

Hit the moving target

Cap Volmac emphasised employability. You were responsible for your employment by ensuring your skills remained in demand and up to date. That was what they meant by being master of your own destiny. And in the constantly changing market for skills, you had to ‘hit the moving target,’ they called it. You must go where the demand for skills is, and anticipate what is coming. During a company meeting, they once gave us toy guns to aim at moving targets on a large projection screen in the front of the room. Times were changing, and I had been working on the real estate department’s obsolete systems for a few years. My manager and I agreed that catching up with the latest developments was better than maintaining outdated software.

In 1995 and 1996, Oracle introduced two new development tools, Developer/2000 and Designer/2000. They sent me far away from home, to Zeist, where Cap Volmac had just started an Oracle Developer/2000 software factory modelled after the example we had previously set in the Groningen office when we were pioneering on the cutting edge of innovative organisational development. They were a group of people working with Oracle Developer/2000. Zeist was far from home, so they put me in Hotel Heidepark in nearby Bilthoven. On Mondays, I took the first train from Groningen to Den Dolder, where I had a parked bicycle at the train station. From there, I went to work at Zeist.

In the evening, I went to the hotel in Bilthoven, where I parked my bicycle between the expensive cars. I stayed there during the week, and on Friday afternoons after work, I took the bicycle back to Den Dolder and took the train from there to Groningen or Sneek to visit Ingrid, or to Nijverdal to visit my parents. You could eat at the hotel, and they had a posh lady with a German accent who would advise you on the menu. The Cap Volmac budget allowed me to eat there only twice a week, and only the cheapest menu, so she soon left me alone. Bilthoven was the posh village A******* came from, and She had repeated the word Zeist many times for no apparent reason. That was peculiar, a bit magical even. If witches did exist, which seemed unlikely, A******* had to be one. It intrigued me.

There was a booklet issued by the university with the home addresses of the students’ parents in my belongings. Because I stayed in Bilthoven for several months, and had a lot of time on my hands, I cycled to the street where A******* had lived and looked at the house where She had lived two or three times, and once checked the name on the front door to see if the name tag matched Her last name. It was not far from the hotel. Her parents still lived there, it seemed. I didn’t expect to run into. It was a weekday, and She would probably visit Her parents during weekends. On one of those trips, an elderly lady walked a dog near that house. The dog pooped. I saw it happening. The lady said, with that typical hot potato in her mouth, ‘He never does that.’ It was the kind of village where dogs don’t poop. It illustrated how different A*******’s life must have been from mine.

After a few months, Cap Volmac relocated the software factory to Utrecht, so I moved there as well and ended up in a posh neighbourhood, Maliebaan. The rent was high but less than a hotel. The latest tool was Oracle Designer 2000, which Oracle introduced around that time. It had a promising future. Designer/2000 could generate Developer/2000 programmes, so you didn’t need to write them yourself. I gained experience with Developer/2000 and Designer/2000 and took several additional courses. The Cap Volmac management hyped a new buzzword, OTACE, which stands for ‘On Time Above Customer Expectations’. With a fixed deadline, you could lower the customer’s expectations by promising less than you plan to deliver. Making as few promises as possible is always a good idea, as lowering the bar increases the chance of success.

After a year, I hoped for a Designer/2000 assignment near home. My manager agreed. Yet, there was trouble brewing once again. An account manager came up with a prospective assignment. I knew him. He was a rough guy who only cared about his bonus. People like him might have done well in the Wild West, playing poker, staring down opponents and engaging in brawls in saloons. I told him I had specifically aimed for a Designer/2000 assignment because I had invested a lot of time and effort in it. He said, ‘The customer is planning to switch to Designer/2000, and you can play a role in that process.’ He didn’t disclose any additional information. His vagueness put me on high alert, and I presumed he was planning to dupe me. And so, I warned him that I would decline the job if it weren’t Designer/2000.

I contacted my manager and discussed the situation with him, telling him that something did not seem right. I had invested a lot of time in Developer/2000 and Designer/2000 and had been away from home for a year. I would rather stay in Utrecht for a few months to get a proper Designer/2000 assignment. Designer/2000 was just released, so work had yet to come in. If you intend to hit a moving target, you must aim just in front of it, considering the direction of the movement. It takes time for the bullet to arrive at the target. By then, the target had already moved a bit further. So, I was already there, where the target would soon arrive. And there was plenty of work at the software factory. And so, I asked him if I could decline the job if it weren’t Designer/2000. He said that sales targets were important and we all must do our bit. But I was supposed to be the master of my own destiny. Knowing that my Designer/2000 skills would soon be in high demand, I said I would look for another employer if that was his stance. He then gave in.

The account manager pressed on, ready to make the kill. Before the interview with the customer, another department of the telecommunications company, we once more discussed the assignment. And again, he didn’t say much more than, ‘They are planning to switch to Designer/2000, and you can play a role in that process.’ It seemed he was planning to ruin my career for his bonus. Once more, I warned him in no uncertain terms. And despite his name being Warner, he didn’t appear to understand what a warning was. Then came the interview. The department manager told me they planned to use Designer/2000, but their people would do the Designer/2000 work. They needed me to maintain their obsolete systems. And my resume was perfect as I had been looking after the old programmes of their real estate department for a long time. That was the role I could play in the process. And the account manager knew that all along.

Assuming the account manager was ready to close the deal and seal my fate, I declined, saying I hadn’t been informed of the assignment’s nature. And so I humiliated the account manager in front of the customer, making Cap Volmac lose face. The account manager probably believed he could get away with it. Indeed, I didn’t want to cause a fuss again, but I thought Designer/2000 to be crucial for my future employment. Life is a bitch. If you end up with obsolete skills, you end up unemployed. Later, my manager said that my actions had raised several eyebrows in higher management. I was a model employee, a true master of my destiny, but more than Cap Volmac had hoped for.

A job in Groningen soon came. At the KPN pension fund, they were in the information planning stage, determining whether rebuilding their pension system in Designer/2000 would be possible. I was there for only a few months to make the pilot programmes in Designer/2000. Their data model missed a crucial component, registration dates, allowing you to recalculate claims using the most recent data or go back in time and do the pension calculation based on the available data of that time. People could make errors that need correction or change the calculation rules, perhaps even retroactively, making registration dates a crucial feature in pension calculations. You also needed a complete account of the previous registrations so you couldn’t overwrite them. It was not that difficult to figure out. Once I had done it, a pension fund employee told me the old system had that feature as well. If the wheel hadn’t existed yet, I might have invented it.

Soon afterwards, I went to the Niemeijer tobacco factory. The head of the production department desired a planning system. He didn’t trust the old-fashioned IT department. He had the budget and preferred to spend it on a system he wanted rather than on what the IT department would offer him. And so we had a room in the factory rather than in the office building where the IT department was. Niemeijer had hired an information analyst, Feikje, from a local IT bureau named Vertis. Vertis primarily operated in the province of Groningen. It specialised in factory production and Oracle, as it was a spin-off from a local potato-flour factory’s IT department, which ran its systems on Oracle. And so, they knew factory production planning. That was indeed a specialism.

The system dealt with products and production lines. The production lines had speeds and options that allowed them to produce specific products, so if there was a production requirement for a period, such as a week, the system could plan production, knowing which production lines could make these products and at which speeds. I could never have designed such a system. Feikje was unwilling to compromise on quality, so the system became much better than the head of production had anticipated. It showed all the possible options for which production lines to use for which product, some of which no one had ever considered. Feikje had the backing of the production department, so there were feuds with the IT department. Their chief information architect was near retirement and didn’t understand what we were doing. He bothered Feikje with silly questions that annoyed her.

Feikje had married a dentist. She had previously lived in the same neighbourhood, Lewenborg, where I lived at the time. There, she had a conflict with the same dentist I had left because I didn’t trust him. After moving to Lewenborg, I selected this dentist. At the first visit, he took X-rays and said a cavity was developing beneath a filling. He showed me the picture and pointed at a dark spot. Another filling had a similar dark area beneath it, which he claimed was not a cavity. I was unqualified to evaluate these X-rays, but the areas were alike, so the dentist lied. Feikje was already dating her future husband, who was a dentist-in-training at the time. They also realised something was wrong there, which adds some credibility to my suspicion. In hindsight, it was a noteworthy coincidence.

Walking out of Paradise, once again

Ingrid and I began planning to live together. Meanwhile, I considered becoming an EDP auditor as my graduation assignment was on EDP auditing. It could benefit my career, as programming would not lead to higher ranks or salaries. That made it a dubious choice as I like programming, not desk work and telling others what to do. EDP auditing also meant switching employers and joining an accountancy firm. Despite having heard about those firms’ long work hours and elitist attitudes, I applied to Moret Ernst & Young. They invited me to an interview. They expected me to work at least 40 hours per week and then study 20 hours without compensation. Had the idea of becoming an EDP auditor truly inspired me, I would have done it, but programming was fun, making the sacrifice unattractive. Their arrogant attitude also turned me off. I said that the prospect of working such long hours didn’t excite me, and expected not to hear from them again.

A few weeks later, at 11:30 PM, the telephone rang. The phone awoke me, making me wonder what kind of idiot was calling me in the middle of the night. It was Moret Ernst & Young begging me to work for them. The guy on the phone said he couldn’t discard my resume. I had skills that were in high demand. He seemed to consider midnight regular working hours, so I declined again. He didn’t realise that calling someone in the middle of the night was insane. I remember him saying they were desperate and even tried to hire leftists like me. So, people who didn’t like to be called at night were leftists. Shortly afterwards, their firm had a recruitment advertisement in a magazine with a giant picture of a salmon with an arrow pointing at its nose and the text, ‘We are only interested in the salmon’s nose. We have no interest whatsoever in the rest of the salmon.’ They only wanted the cream of the crop and were not at all interested in the remainder. Ingrid and I laughed about their smug arrogance while they had been begging me to work for them.

In 1997, I moved to Sneek. After moving, I looked for a job nearby because the long bus rides to Groningen soon proved a drag on my physique. There was a vacancy for a functional designer at FBTO, an insurer in Leeuwarden. They invited me for an interview, but I wasn’t entirely sure whether the job was right for me. It was not programming but writing out specifications, so I hesitated. The salary was also low, leading them to think that was the reason, so they raised the offer, which was still low. Taking a job only because it is close to home is not the wisest of decisions. Months later, I decided to do it against better judgment as there were few jobs in the area. And because they also lacked alternatives, they hired me despite my hesitations, which wasn’t the smartest idea either. I later learned that the personnel officer had warned them against it. Once on the job, my task turned out to include serving as a project leader, which also proved quite uninspiring.

The insurer had split the IT department into smaller teams working for a business unit. Every three weeks, we planned our tasks for the coming three weeks, and a business unit representative determined the priorities. It worked well because there were fewer political games, such as business units competing for resources. The IT department was exceptionally well organised compared to what I had seen elsewhere. They had done an excellent job. This way of running IT departments became commonplace in the following decades and is known as Agile.

The people in the team knew what they were doing, making me redundant as a project leader. There is no point in managing people who know what to do. The atmosphere was friendly. Having grown accustomed to challenging conditions and people trying to make my life miserable, I soon felt out of place. I could get used to the friendliness, but not the job itself. All those documents, meetings, and priorities were dreadful, making me jealous of the cat, Sandor, who didn’t go to work and lay around doing nothing. I had cheerful thoughts like, ‘Only 35 years left until retirement.’ If that is optimism, then that is not a good sign. Programming was much more fun. I was qualified for Oracle, but FBTO didn’t use it. I decided to try my luck as a freelance Oracle specialist in Designer/2000 and database administration. And so, I walked out of Paradise again, but this time out of free will. After all, Cap Volmac had taught me to be the master of my own destiny. But an ominous incident would soon suggest I was not.

Freelance jobs

After contacting a few freelance bureaus, which led to an ominous incident that further suggested A******* interfered with my life using magic, I began working for a small bureau named Betamax, led by Martien, a retired manager. He talked as if he had a hot potato in his mouth, so an elite accent, but was nonetheless an agreeable man. He made lots of money but was probably in it for fun, to have something to do rather than watching out of the window at how the grass grows on the neighbour’s lawn and playing bingo with his colleagues-in-age in some hall with orange juice on the table.

He had a sense of humour, so we had a good laugh after I had once answered the phone with ‘Superb***’ because I had expected a call from Ingrid. And he said that I was a man of few words, but that everything I said was meaningful, meaning that I didn’t engage in small talk, so a keen observer he also was. The first year, I worked at the insurer Univé in Zwolle. They were outsourcing their IT department and needed someone to monitor their remaining databases until the system transfer was complete. I was there just in case something happened, so there wasn’t much to do. To pass the time, I studied to become an Oracle-certified professional database administrator.

It was easy money. I made €70 an hour for doing close to nothing. My colleague, a regular employee, might have been jealous, and understandably, as I made twice as much as he did for doing nothing. He constantly criticised me. I regularly did extra things I wasn’t supposed to do to prevent problems. If you get paid handsomely, you make the most of your task. His criticism began to annoy me, so on one occasion, I did not fix an issue. I could have done so, but it was not my job. He criticised me for that also. Having extensive experience with similar situations, I said, ‘If I had done it, you would have criticised me for that, as it is not my job. Whatever I do, I can’t do it right anyway. So, what is the point of trying?’ He took the hint, and the criticising stopped.

Univé was one of the few organisations that still had a time clock. You had to check in if you arrived at work, and check out if you left. I had not seen that for a long time. I had no car, but one of the Univé employees lived in Sneek, so I often drove with him and paid for the trips. It was quite a distance, and I didn’t like travelling every day. Travelling wore me out, even when someone else drove. And so, I rented a room outside Zwolle in the countryside and stayed there a few nights every week. The landlady, Ms Mallinckrodt, was a divorcee, and as I remember, her former husband had been a CEO or owned a business. He ran off with his secretary, who was probably much younger than she was and likely good-looking as well, so it was a classic script. She had two sons who were already grown up and no longer lived with her. She had an air of elite status and sometimes said her home was worth over a million guilders. One remark made it clear she viewed me as a kind of peasant. ‘He is not a man of the world,’ she once confided to my wife, Ingrid. Ingrid was pregnant at the time, and sometimes came over, later also with our baby.

Ms Mallinckrodt told me that she had little income and needed tenants for that reason. She also seemed to desire male companionship, not for a relationship, but a man in the house to talk with. And as a woman alone in a home, with strangers roaming about, you never know. She lived in the countryside, so I cycled to work and sometimes went on bicycle trips in the area, thinking my life had turned for the better. I had a family and was making a lot of money. I couldn’t have imagined that in late 1989. It wouldn’t get any better than that, I surmised. Ms Mallinckrodt was also kind. She once lent us her car during an emergency. Ingrid had come over, but she had left the heating on because we had a tenant, the infamous Mr V, but she had closed the radiator valve near the thermostat, making me fear the installation would overheat. We returned home late in the evening. If we had used public transport, we might not have made it home.

At the end of 1999, a software consultancy firm named CMG hired me to work on the euro preparations for the Friesland Bank, a small independent bank in Leeuwarden. It was still independent, perhaps because the Frisians were proud nationalists. They had their own language and supported local businesses, such as their bank and insurers. The people from CMG wore suits, and since the job was at a bank, I wore one too. One of their systems required special attention as it was a perfect example of feature creep. The bank had a system bloated with exotic features but lacked people who understood it. It was the marketing department’s wet dream, but the IT department’s nightmare. It was a company savings system. Its customers were employers who could open savings accounts for their employees. The account managers at Friesland Bank offered their customers a wider range of options than those at other banks.

On top of that, Oracle had built the system on a fixed price, so Oracle had given minimal effort to maximise its profits. Oracle had used inexperienced programmers and cut back on testing. As people at the bank didn’t understand the system, they got away with it. And so, there was as much room for improvement as there could possibly be. The following issues made the conversion complex:

  • Each account could have three monthly balances: a savings balance, a premium balance and an accrued interest balance.
  • Employers could negotiate interest rates and their terms, so there were hundreds of different combinations.
  • The interest could be added to the month’s balance, paid out, or deposited on a separate interest balance in the account.
  • There were bugs in the system, so the balances didn’t add up, and, as it later turned out, the system didn’t calculate the interest correctly.
  • The balances were the sum of all the transactions on that balance. One euro was 2.20371 guilders, leading to tricky rounding errors.

Converting that system to the euro was cumbersome because all transactions and balances had to be in balance, month by month and by category within each month, whereas the other systems had only one balance. And, contrary to the other systems, many balances didn’t already match due to system bugs. The project leader from CMG first asked me to investigate the system and write a plan, which I did. It was a global plan with approaches to known issues. It was impossible to foresee what other problems might arise, but the plan had the promise of success.

It took me over a year to build the conversion, and the conversion programme ran for four days, while the other euro conversions ran for a few hours at most. The programme could crash due to insufficient memory, perhaps caused by a leak in Oracle PL/SQL, which was relatively new at the time. Yet, the programme was restartable and would resume where it had stopped. The project leader didn’t like the idea of the conversion taking so long. He pressed me to improve the conversion’s performance.

That was a waste of time and resources, so I told him that it took so long because of the system’s complexity. It was not a current account system that had to be operational, but a savings system that could be down for a week without customers noticing. There was no internet access to bank accounts at the time. The contributions came in once per month, and at the end of the month, so it could remain out of operation for four days. There was no reason to worry. He wasn’t satisfied with my answers, so he hired a performance expert to review the programme. The expert couldn’t make it run faster, either.

The bank was close to home, so I took the train every day. One day, on the way to Leeuwarden, the train suddenly halted in the middle of the countryside. The train driver hared into the meadows to a sheep in distress. It lay upside down. After returning, the driver explained on the intercom that the sheep might have died otherwise. If it couldn’t get upright, it might suffocate. Then, the train continued its trip. It was the first time I had seen a sheep upside down and also learned what to do about it. That came in handy, a few years later, when Ingrid and I were walking with my son Rob near the Weerribben, when a sheep had ended up in this unfortunate position. I jumped over the fence and put the sheep on its legs. That was my first sheep saved.

Meanwhile, a serious calamity had occurred. An overzealous account holder with some calculation skills had verified the complex interest calculations and found a discrepancy. And it soon proved to be a symptom of a much bigger problem. Many interest calculations had gone wrong. Some were too low, while most were too high. The bank had paid 500,000 guilders in interest too much, which it then decided to collect. Account holders received letters requesting them to refund the excess interest. Some employees found it unwise because it wasn’t much money and would reflect poorly on the bank. It might have been better to fix the problem by quietly giving people what they were due when their interest calculation was too low, and leaving the rest as it was.

That was not what the bank’s board decided to do. They gave me the task of correcting the interest calculation, as I was the only one who understood the system. It included calculating discrepancies in collections or payments. The problem was not only in the interest rate calculations but also in data faults, such as missing or duplicate interest rates or balances that didn’t add up. As they would have said at the professional skills course, there was room for improvement. More plainly stated, it was a total mess. No one understood what was happening. And no one seemed to care. I found myself in a morass, alone. No one else could help me. That didn’t unnerve me, but I had to be careful. If I made a mistake, no one would notice until it was too late. Patching the interest calculations became nearly as time-consuming as the euro conversion.

There was even more room for improvement than I had previously feared. Once the improvements for the interest calculations were ready, the tester ran the usual test cases and gave the changes her blessing, much to my dismay. I was amazed at the sloppy attitude of the people responsible. These test cases hadn’t uncovered these errors in the first place. I told the manager responsible for the operations, ‘If we make another error, and the bank has to correct it again, you will have a major public relations disaster. More testing is required.’ I proposed doing the tests myself by loading a selection of data covering all known situations into an Excel sheet, performing the interest calculations in Excel, then running a test and investigating any differences to determine whether the error was in Excel or in the system itself. My manager agreed, and so we did it like so. It was not 100% testing, but in all likelihood, all the significant errors would manifest. After performing these tests, we implemented the changes. Subsequent interest calculations showed no errors. After the euro conversion had finished in January 2002, they let me go.

It seemed that not everyone liked me. I focused on getting the job done and had to work around other people’s sloppiness. I never used harsh words, but saying that the testing is insufficient can rub people the wrong way. You could interpret that as incompetence. It doesn’t necessarily mean the tester was incompetent. The system was far more complex than those at larger banks, so the decision-makers had made a judgment error to begin with. And I had a deviant working schedule, and worked fewer hours. When my manager once grilled me on the train for leaving 30 minutes early for an appointment, I answered that the bank only paid me for the hours worked and that it wouldn’t cost them anything. And that it was agreed upon.

She didn’t seem okay with the answer. I had made the agreement with the software bureau CMG, so not with the bank itself, so she may not have known about it. They had their rules, and deviating from them was not appreciated. Ingrid had once worked at the bank as a cleaning lady before we met. She sometimes took her mother’s car. They didn’t allow her to park in their garage, saying it was for employees, but they had already left the building. Only after Ingrid quit her job and the bank couldn’t find a replacement did they offer her a parking spot. I had tried to get a regular job there, but they had turned me down. That turned out to be my good fortune. The bank went under after the 2008 credit crisis. A larger bank took over their operations.

The economy fared poorly. I couldn’t find a new project, and remained unemployed for several months. Officially, Betamax still employed me. I had worked for Betamatch on temporary projects for more than three consecutive years, which automatically made me a regular employee. Martien, the owner, asked me to quit my job, but that would make me ineligible for unemployment benefits. And I had warned Martien several times about the situation that might arise, which he believed was so remote a possibility that he didn’t seem to care, and so he let it happen. I asked him to fire me instead. There is no work, so that wouldn’t be an issue. Martien, a gentleman whose business was still doing well, didn’t like to fire people, so he offered me a contract with a low salary and a bonus if I brought in money. Yet, without improvement in sight, I started seeking regular employment. After a few months, I found a job at a government agency that processes traffic fines.

Latest revision: 7 April 2026

Featured image: Cap Gemini logo

The future of interest rates

There is a relationship between the amount of capital in a market economy, wealth inequality, savings, the level of debt, and interest rates. If an economic depression or a world war can be avoided, this relationship may decide the future of interest rates, and interest rates may go negative. If this makes you yawn, you have read the message already, and you can proceed with more exiting ventures like checking out what your friends are doing on Facebook or Instagram.

If instead you are thrilled by the idea of knowing more about this relationship, you may continue reading. Interest rates are the result of supply and demand for money and capital. Money and capital differ from consumer goods like coffee and services like haircuts. Money is a medium of exchange. You use money to buy and sell consumer goods and services. And capital isn’t consumer goods or services either. Capital is used to make these consumer goods and services. Hence supply and demand for money and capital need a separate explanation.

The price of money

A kilogram of coffee might cost € 7 in France and $ 8 in the United States. But what does that mean? Is coffee more expensive in the United States than in France? That entirely depends on the price of the dollar and the euro. If one dollar is worth € 0.80 then $ 8 is € 6.40, which is less than € 7. The price of the euro and the dollar change every day because of changes in supply and demand in the market for euros and dollars. But the price of euros and dollars is not the price of money, at least according to economists.

When economists talk about the price of money, they do not mean the price of dollars and euros. They talk about the interest rate. The supply and demand for money and capital determine the interest rate, hence the interest rate is the price of money. This price has a relation with the returns on capital because investments in capital are an alternative to lending. Money isn’t produced and consumed like coffee. If you borrow money, you may have to return it with interest. Borrowers may pay for the use of money, not for the money itself.

There are people and corporations that have savings as well as people and corporations that need money for consumption or investment. So there is supply and demand for money. But what determines the supply and demand for money and therefore the interest rate? It begins with the choice people have when spending their income. They can choose between consumption and saving. Savings can be used for investments in corporations to make products and services in the future.

Consumption versus investment

Economists sometimes use a simple model consisting of only households and businesses to explain things like consuming and saving. Households consume the stuff businesses make. In order to make that stuff, businesses need investment capital provided by households from their savings. It is important to notice that some households borrow and some businesses save, but on balance households save while businesses borrow to invest.

Households can do two things with their income. They can either use it for buying stuff, which is consumption, or save so that businesses can invest. For example, if you are a plumber and need to buy a new van for your business, which is an investment, you may have to forego a new car for your family, which is consumption, to save money for the van. You could also borrow the money for the van so that you can buy the family car too, but in that case someone else has to save so that you can borrow.

If people spend a lot of money on consumption, businesses sell a lot of stuff and make great profits. Businesses may be willing to invest so that they can sell even more and make even more profits. But if there are only a few savings because people spend a lot of money on consumption, so businesses might fear they can’t borrow and may be willing to pay higher interest rates, so that interest rates go up.

When interest rates go up, some businesses may abort their investment plans as they don’t expect to make enough money to pay for the interest. At the same time, more households may be willing to save. So when interest rates go up, the demand for money goes down and the supply of money goes up.

On the other hand, if households save a lot of money and do not consume, there are a lot of savings, but businesses are not willing to invest because they have trouble selling stuff and making profits. In that case households fearing that they don’t receive interest on their savings are willing to lend at lower interest rates, and interest rates go down. But how do households choose between consuming and saving?

Time preference

Economists believe that your choice between saving and borrowing depends on your time preference as well as the interest rate. Time preference is your willingness to forego your needs or desires in the present in order to fulfil your needs or desires in the future. An example can illustrate this. Assume that you want to buy a new car. You want that new car now but you don’t have the money. You can either wait and save to buy the car later or you can borrow to buy the car now.

Assume the car costs € 10,000. If the interest rate is 10%, you may realise that borrowing money to buy the car will cost you dearly. If you pay back € 1,000 each year, you repay the loan in 10 years. Over that period you pay € 5,500 in interest so the car will cost you € 15,500 instead of € 10,000. The alternative is to wait and save money to buy the car.

If you can manage saving € 1,500 per year and the interest rate on savings is also 10%, you could buy the car after less than six years. But then the car only costs you € 8,250 because you receive € 1,750 in interest. At an interest rate of 10% borrowing money to buy this car costs nearly twice as much as saving.

That may convince you to save and drive your old car for six more years. If the interest rate is lower, you may find borrowing more attractive than saving because you would rather have the new car now. Your time preference tells how strong your desire is to have the car now rather than later. It determines the interest rate you are willing to pay. Not surprisingly, different people have different time preferences.

Time preferences affect interest rates. Suppose that you want to borrow money for a new car. Suppose that you can only borrow the money from John. John has € 10,000 but he wants to buy a car too. Time preferences are going to decide whether or not John is going to lend you this money. If your time preference is 7% and John’s time preference is 5%, he will keep his old car for a while and lend the money to you. He may do this because he expects to buy a bigger car once you have repaid your loan with interest.

The interest rate could be anywhere between 5% and 7% depending on your and John’s negotiating skills. You won’t borrow at interest rates above 7% and John won’t lend at interest rates below 5% but any interest rate between 5% and 7% is acceptable to both you and John. In this way time preferences affect interest rates.

When interest rates go down, more people may borrow and fewer people may save because of their time preferences. If the interest rate is 4%, John may buy that bigger car now and borrow the money to buy it. If the interest rate is 8%, you would save to buy the car. When interest rates rise, more people may opt for saving instead of borrowing. The interest rate may move to where supply equals demand, which depends on the time preferences of lenders and borrowers but also on the demand for investment capital.

Capitalist spirit

Time preference only works for ordinary people. There are other people too. They are called capitalists. You probably have heard about them. Capitalists think differently. They suffer from a condition called capitalist spirit, which is having little or no time preference. Capitalists think that money spent on a frivolous item is money wasted, because when you invest your money, you end up with more money that you can invest again.

Capitalists save regardless of the interest rate. They rather invest in the distant future when they are dead than spoil their money on frivolous items during their lifetimes. Consequently capitalists end up with a lot of money when they die. What’s the point of that? Capitalists invest in businesses that make the frivolous items ordinary people enjoy. Ordinary people wouldn’t have invested their money, but spent it on frivolous items instead so that these items wouldn’t have been produced in the first place.

Perhaps you think that all capitalists are wealthy. But that isn’t true. Anyone who saves as much as he or she can regardless of the interest rate can be called a capitalist. What is important here, is that the capitalists as a group own most capital, and because capitalists own so much money and capital, and keep on saving and investing, there is a surplus of savings. And if there is a surplus of savings at an interest rate of zero, the interest rate should be negative according to the law of supply and demand.

Convenience

When you lend money to someone else you can’t use it yourself. There may be a new mobile phone you want to buy, but alas, you have lent out your money. This is not convenient. But then you remember with a smile on your face that you will be able to buy the phone but also an additional hip phone cover next year because you receive interest on that loan. So, if you don’t receive interest on your money, you may not bother lending it out because you may suddenly need it. Interest rates on long-term loans are higher than interest rates on short-term loans because the longer you can’t use your money, the less convenient it is.

When you deposit money at a bank, you lend it to the bank but you can still use it any time. That is possible because when you make payment, for example for legal advice, this money ends up the account of the lawyer. The bank will then be borrowing this money from the lawyer instead until she uses it to pay someone else. This is convenient so you are willing to lend money to a bank. For that reason interest rates on current accounts and checking accounts are low. Having money in a bank account is more convenient than cash so the bank may even charge you for having an account.

Risk

Lending out money can be risky. There are two types of risk. First the borrower may not pay back the loan. That could make you reluctant to lend. So if someone of questionable integrity wants to borrow money from you, and you fear that she may not pay back, she could offer you a very high interest rate so that you might think, ‘Well, she may not pay back, but the interest rate is very attractive, so I’ll take my chances and do it anyway.’

Second, money may become worth less in the future. This is called inflation. If there’s a lot of inflation then the money that buys a mobile phone today may only buy a phone cover next year. In that case you may spend your money right away on a mobile phone before it is too late. That is unless someone wants to borrow the money from you and offers a very high interest rate, so that your can buy a better model next year.

The business of a bank is to know its customers. For that reason lending money to a bank is less risky than lending out money to an individual or a corporation. And because banks are supposed to be good at managing risk, they can borrow at lower interest rates, meaning that interest rates on bank accounts are lower than those on loans.

And because banks know their customers and lend to many different people, they can manage risk better than you can and lend at lower interest rates than you are willing to because if you lend money to a someone you don’t know, you may desire a higher interest rate because you don’t know whether he or she is going to repay the loan.

Returns on investments

If you have money, you could invest it in corporations or real estate. Corporations pay dividends and real estate pays rent. If the rents and dividends are higher than the interest rate you get by lending out your money, you may prefer investing to lending. But investing is more risky than lending. If sales are sluggish, profits may go down and dividends may be cut, but lenders still get their interest. Nevertheless investments are an alternative to lending, so if investments offer better yields, you may opt for investing.

If someone wants to borrow money from you, the interest rate must be high enough otherwise you may invest this money instead. Other people who have money are in a similar position. Borrowers need to offer attractive interest rates in order to be able to borrow. Similarly, if dividends and rents are low, people with money may prefer lending to investing, so that borrowers can negotiate lower interest rates. In this way the returns on investments affect interest rates on loans.

The type of money used

The properties of money can affect interest rates. Just imagine that apples are money and you are saving to buy a house. If someone wants to borrow 1,000 apples from you, and promises to repay those 1,000 apples after 10 years when you plan to buy your house, you would gladly accept this generous offer. You may even accept an offer of 900 apples because that is better than letting your apples rot. In this case you would settle for a negative interest rate. But you would only do so if there are no alternatives.

If you could make 10% per year in the stock market, you could exchange your apples for Apple stock because their gadgets are in great demand and outrageously expensive. In that case, it doesn’t matter that apples rot and you could demand interest on a loan. But if returns on the stock market are low or when stock prices are fluctuating so wildly that you can’t sleep at night, you may prefer the offer of 900 apples.

If the money had been gold, you would never accept such an offer, even when the stock market is doing terrible. You can always keep your gold in a safe deposit box. Similarly, you wouldn’t accept negative interest rates on euros or dollars because you can take your money from the bank and store the bank notes in a safe deposit box. The problem with this is that if you put money in a safe deposit box, other people can’t use it for buying and selling stuff. And this can cause an economic depression.

Central banks

It is often said that central banks set the interest rate. But how do they do that? Central banks can print money. If central banks believe that the interest rate is too high, they print more money so that there is additional supply and interest rates go down. On the other hand, if central banks believe that the interest rate is too low, they print less money so that interest rates go up. If the central bank says that it sets the interest rate to 3%, this means that it will print precisely enough money to keep the interest rate at 3%.

Why do central banks print money? Money isn’t produced and consumed like coffee. If you borrow money, it has to be returned with interest. Most money is debt so where does the interest come from? Capitalists let their money grow on their bank accounts so the money to pay the interest from must come out of thin air. Individual borrowers may be able to repay their debts with interest but on aggregate borrowers can’t.

More money needs to be borrowed to pay for the interest. That’s why the total amount of debt increases each year. And if people aren’t borrowing enough, the central bank may print more money to prevent a financial crisis.

Sometimes people don’t borrow enough to keep the economy going and sometimes they borrow too much so that the economy is overheating. Central banks adapt their money printing to prevent these things from happening. Central banks raise interest rates and print less money (or stop printing money or even destroy money) when they want people and businesses to borrow less and they lower interest rates and print more money when they want people and businesses to borrow more.

The future of interest rates

Interest rates went down because capitalists acquired more and more capital over the years and kept on saving and investing regardless of the interest rate. In the past returns on capital have mostly been higher than the economic growth rate while most returns were reinvested so that a growing part of total income was for capitalists. As capitalists reinvested most of their capital income, this is not sustainable in the long run.

interestvers
Capital income (red) versus total income with capital income growing faster than total income

The graph above shows how total income and capital returns (in red) develop if the economic growth rate is 2%, the return on capital is 5%, capital income starts out as 10% of total income, and all capital income is reinvested. After 25 years the economic pie has grown faster than interest income and more is available for wages. At some point interest income starts to rise faster than total income, and less becomes available for wages. And after 80 years there’s nothing left for wages.1

This graph explains a lot about what is going on in reality. When wages started lagging, people couldn’t afford to buy all the stuff corporations made. As a consequence business profits, which is capital income, went down. In the short run it was possible to prop up business profits by allowing people go into debt to buy more stuff. But at some point people couldn’t borrow more unless interest rates went down. As capital income went down, capitalists became willing to lend money at lower interest rates, allowing people to borrow more to buy stuff. As interest rates went lower, more and more people went into debt because interest rates moved below their time preferences.

Nowadays most people are borrowing from the capitalists, for instance via mortgages, car loans, and credit cards, but also via governments as governments borrow from the capitalists too. Many people and governments can’t afford to borrow more. Interest rates are already near zero and may need to go negative if the law of supply and demand is going to do its job. In that case capitalists may start handing out money to the rest of us so that we can keep on buying the stuff their corporations make.

Capitalists may only lend at negative interest rates if money is like apples and not like gold.2 When interest rates are negative, people may buy land or real estate so that the prices of these properties may rise. Property taxes are often based on the value so properties may become less attractive at higher prices. Alternatives are gold or bitcoin, but at some point gold or bitcoin may become so expensive that the risk of losing money on these investments could deter people from buying more. Nevertheless, these alternatives put a constraint on how low interest rates can go. Interest rates must remain attractive for investors.

1. The End Of Usury. Bart klein Ikink (2018). Naturalmoney.org. [link]
2. Feasibility Of Interest-free Demurrage Currency. Bart klein Ikink (2018). Naturalmoney.org. [link]