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Negative interest rates? Money backed by water? Charles Eisenstein wants to reform our money system.

Harrisburg author discusses ideas from his book "Sacred Economics"

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Money, or at least the desire for it, is at the root of our biggest problems, from injustice and economic inequality to environmental destruction. The need for money always seems to make us do the wrong thing: hoard wealth, strip the land.

But it needn't be so. In his 2011 book Sacred Economics (Evolver Editions), Harrisburg-based author Charles Eisenstein proposes fresh, even radical ways to think about how money is created, and even what it's for. Eisenstein, a nationally touring speaker who visited Pittsburgh last summer, recently spoke with CP by phone.

You point out that money as we know is actually interest-bearing debt.

You could say it's created through interest-bearing debt.

How does that work?

The basic picture is that the Federal Reserve creates money by purchasing securities on the open market, like treasury bonds. All of those financial instruments bear interest. On a consumer level, money is created by banks when they make a loan. Any time you get lent a million dollars, you owe $2 million [due to interest], perhaps over the course of 10 years.

Where do you get the other million dollars? If you're a hardworking person, or you have a good business idea, you're going to earn that $2 million, or hopefully a lot more, by selling things to other people.

Why is that a problem?

Everybody is competing for more money than there is in existence. Making money puts people into competition with each other, whether they want to be or not. It builds competition into the system.

The only way to avoid mass defaults … is to have created even more money in the future. With that comes interest as well -- but that's OK, because by the time those debts come due, you will have created even more money. [But] that means that you need to have everybody create more and more goods and services and sell them to everybody else. Not only does it cause competition and scarcity, it also necessitates growth, economic growth.

As long as the economy's growing, it works OK. It kinda works -- it comes at the cost of turning nature into product, and turning relationships into services. But at least you're not having mass bankruptcies, mass defaults and social chaos.

But you contend that system is breaking down.

Today the problem is that there isn't rapid growth. So debts are increasing faster than good and services, and people have to go deeper and deeper into debt, and eventually default. And that brings the system down. That's the crisis we're facing today.

But what else can we do?

Various economic thinkers have explored the idea of, What if we created it some other way? Because it is a human creation -- it's not something that exists in physical reality, except to the extent that we imbue it with value through our agreements.

A lot of people think that [money should be backed by] gold. Then you just can't create it -- it's not created through debt any more, it's created through mining gold.

[But] is it really gonna help the planet to continue mining more and more gold? It's silly to take gold out of holes in the ground and put it into other holes in the ground called vaults. And who knows whether the needs of society will correspond to the amount of gold available?

What are the other options?

My idea is that we create money out of what's becoming sacred to humanity today. If you use gold as money, you'll mine more and more gold. If you use something sacred as money, you'll have more and more of that.

So what's becoming sacred to us? Intact ecosystems, rainforest, the beauty of the planet. The integrity of indigenous cultures. The health of the watershed. The sustainability of the aquifers, and the well-being of all human beings on earth.

How could you back money with those things?

For example, theoretically, you'd have a bioregional government that exercises stewardship over the aquifers, and says, "OK, we can draw 100 million gallons a year from this aquifer sustainably. And we're holding this in trust for all the people in this bioregion, and maybe all the beings in this bioregion. So we're only going to allow a hundred million gallons, [and] we're gonna set a price for this at a level that will ensure that it's too expensive to draw any more than that."

And you can back money that way -- money can be redeemed for water, for example.

How does that help?

It changes the economic incentives, because today, there's really not much of an incentive to conserve water. But if aquifer depletion became very expensive, then conservation would have a financial incentive, and you'd be aligning money with what is sacred.

You can do the same thing with the air, with the cultural commons. There's different ways to bring the value of money in line with the value of these things.

Today it's kind of the opposite. We can make money by depleting the aquifers and polluting the environment, and making people sick downwind. And those costs need to be internalized. One of the pieces of [Sacred Economics] is about internalizing costs, so that pollution and resource depletion become very expensive.

You also point out that money is "immortal" -- it can grow forever, while everything in nature decays.

All of the problems with money that I've described are because of the way it's created, with that interest-bearing debt. It could be created as noninterest-bearing debt -- even as negative-interest-bearing debt. Then a lot of these dynamics get reversed.

For example, today, someone with a lot of money isn't going to let anyone else use that money unless that person gives him even more in return. A bank isn't going to give you a loan unless you give even more back. Because the bank could just … invest [that money] in a risk-free security, like a treasury bond, or even just keep it in the Fed, and get 0.25 percent interest, at least.

So the money stagnates. We've seen that in the economy: The money isn't being lent out, so the concentration of wealth is intensifying.

How does negative interest help?

If money had a decay rate built into it -- say it has a negative 5 percent decay rate. If the bank has, say, a billion dollars in excess reserves, the bank knows if it keeps that money as a deposit from the Fed, in a year it's only going to be worth $950 million. Then it would be in the banks' interest to lend the money out at 0 percent, maybe even at negative 1 percent, rather than just keep it around.

That has a lot of economic effects. What we understand is, the possessors of money no longer have such an advantage over the possessors of goods or of labor or of productive capacity.

Say you have 10 tons of bananas. Those bananas are going to go bad. You have this time pressure to convert them into money. And you want to take out a loan to move those bananas. Someone who has money has an advantage over you because the money isn't going to go bad, but the bananas are. This erases that advantage.

Isn't negative-interest money a lot like inflation? After all, savings-account interest rates are already well below the rate of inflation.

In theory, it's very similar to inflation. The problem, in practice, [is that] inflation doesn't treat everybody equally. Usually wages inflate slower than prices. [And] generally, inflation is good for debtors and bad for creditors.

So negative interest, or demurrage as it's also called, makes sure that it's treating everybody equally.

Some people say, "Well, what about savings? It's harder to save [with negative-interest money]; you can't make money work for you." This proposal doesn't exist in isolation; there's other pieces that go along with it. And one of them certainly would be a way to take care of retired people.

Has negative interest been used in modern times?

The most famous example is this town of Wörgl, Austria [in the early 1930s]. There was no money. The town was nearly bankrupt. So the mayor took the last 40,000 shillings the town had, and just kept it in a bank, and issued these kind of coupons instead. The town basically issued its own currency. It had a negative interest rate built into it; you had to put a stamp on it every month for it to keep its value.

So people, rather than hoarding it, if they had more than they needed, they would rather spend it. They would pay their taxes early, and the money circulated.

The town, starting at something like 40 percent unemployment, recovered to full employment, started doing public works, building bridges and roads. It was an economic miracle in the midst of Depression-era Austria.

Other towns made plans to do the same thing, at which point the government panicked, and outlawed the currency. The same thing almost happened here, too [in the U.S.]. There were hundreds of towns, I think even states, that were planning to issue their own emergency currency with this feature, until Roosevelt banned them, in 1933.

And today people are designing local complementary currencies with the same feature, [and] I think those experiments are worth doing. But usually they don't work if there's not some participation by some local or state government.

You mean local currencies like "Ithaca dollars," in New York.

You can't use those to pay taxes.

What do economists say about negative-interest money?

I'm kind of an amateur economist, but Irving Fisher, John Maynard Keynes, they really took the idea seriously and thought it was a really workable idea. And recently I even read some very prominent economists who have kind of played with the idea. It's not a half-baked idea; it's not easily dismissible.

How might negative-interest money help the environment?

It also reverses the discounting of future cash flows. Today, [imagine you had a choice between] a forest that you could either clear-cut now for a billion dollars, or log it sustainably forever for 10 million a year. It's in your economic interest to clear-cut it, because that billion dollars will generate maybe 20 million a year or 30 million a year of interest income. But that would not be true if that billion dollars were subject to a decay rate. So [negative-interest money] encourages long-term thinking.

Conceptually, it makes money in line with everything else in the universe, which decays and returns to its source. Money seems to violate this law of nature, that all things decay, the law of impermanence.

And that's a problem because it's linked to things which do decay, but money keeps growing. That means that the realm of money, all the things exchanged for money, has to keep growing at the expense of everything else. At the expense of the things that we get for free for nature, the things that we do for each other without paying for them -- watching each other's kids, cooking our own meals, doing our own work in the yard -- all of these things get turned into goods and services.

And the service sector has really driven the economy.

So much economic growth in the last 30 or 40 years has been things that people once did for themselves, or for each other. Child care's been a huge growth industry. Lawn care. Food preparation.

When we were kids, mom made food. There wasn't a supermarket deli -- there was no prepared foods. That's all new. People used to cook. That's a gift. Mom didn't bill me for that after I turned 18. But now we're paying for that.

Bottled water -- we never used to pay for drinking water.

This expansion [of] the realm of goods and services is running out of room to expand. And it's depleting community, because community can only exist when people are doing things for each other in a gift way, not just paying each other. Because when you pay someone to do something, you don't really have a connection. You don't really even need that person, because you can pay somebody else.

How does a gift economy work with nature-backed currency and negative-interest money?

It's kind of a dual vision. On the one hand, money still exists. But its domain shrinks. And money itself takes on a different nature. At the same time, the gift realm expands, so more and more life happens outside the money realm.

And people are already wanting to move in this direction. You might already have heard of movements like re-skilling. You could pay somebody to replace your roof on your house, but maybe you'd kinda like to learn that skill. Even though economically, it's supposedly more efficient to have specialists, people want to take back parts of their lives. Or they want to create neighborhood child-care co-ops, where mothers take turns.

And maybe it's not as efficient, but you get to know each others' kids, you get to know each other, and you have community then. Or people want to learn how to make their own sauerkraut, or their own beer, and learn how to cook again, and how to garden again.

It's a fairly radical vision.

And all of these things, from an economist's point of view, are a little bit insane. If you look at how much money you save by gardening, you may be making 30 cents an hour, if that. You may be spending money. For an economist, it's pretty crazy to do any of these re-skilling things.

But we're understanding that not all of the things that make life good can be measured. And anything that escapes quantification can't really be purchased reliably. There's something about people who really know you taking care of your kid, that feels a lot better than just paying somebody to do it and relying on state inspectors to make sure the kids are being taken care of right.

It is a really big piece of the picture that we want to reclaim the personal, the unquantifiable, the gift -- community, intimacy, connection -- to reclaim those from the money realm.

Does the gift economy include things like freecycling and online file-sharing?

There is a gift economy growing already, and those things are part of it: couch-surfing, file-sharing, open-source software. And even just regular blogging and journalism is in part becoming a gift economy too. A lot of the really important news isn't captured by reporters any more.

But those things are a problem for the economy as we know it.

An economist is afraid of a reduction in the money realm, because what that means is GDP is falling. And there's a word for that: It's called a recession. And that means less employment, and that money can't reach people.

That's why it's important to have some kind of negative-interest money-creation and money-circulation mechanism, so that money can circulate even when there isn't growth.

Your vision also includes a financial safety net.

I think everybody should receive what's called a social wage, or social dividend, kind of like a payment that goes to everybody, your share of the wealth of the earth. It really shouldn't belong to anybody, because it was created by the earth itself, or created by our ancestors [through] hundreds of years of technological innovation.

It wouldn't be a whole lot of money, but it would be kind of a very, very basic safety net for everybody.

What about "productivity"?

Really, we don't have to work as hard at making stuff as we do. We make so much stuff, way more than we need. But we're kinda forced to, because it's the only way to keep the economy growing.

Houses now on average are twice the size they were in the 1950s. We're not twice as happy; really we're less happy. Someone in a small Italian village, where everyone goes and hangs out, they're much happier, and their quality of life is much higher, than someone who's got that plaza internalized into a 10,000-square-foot house, but there's nobody else there. Part of what's happened is public space has receded, and people compensate for it by having these big private spaces.

So we should work less, too?

For centuries, every time there's an increase in productivity … the same amount of economic production can be done by fewer and fewer people. One way to handle that would be for everybody to work less and less. The other way to handle that would be for everybody to consume more and more, and keep working just as hard. That's what we've done, every year since 1790.

But why are we doing that? Is humanity better off if we keep consuming more and more?

When the politicians talk about economic growth, that's what they're talking about. But maybe we should work less and less. To work less and less means the economy's shrinking. We're getting more and more stuff for free, which is happening anyway -- we want that to happen, we want our garden vegetables for free. We can have software for free, and digital content for free. We don't need as much money in that case.

I'm talking about both from a spiritual and emotional level, wanting to reclaim some of life from the world of money. And also, economically, how do you make the money system work where we're not producing more and more and more?

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