Margrit Kennedy’s Interest and Inflation Free Money

So here comes another personal summary of a book I read. And again, it neither claims to be comprehensive nor one hundred per cent accurate. The book is Margrit Kennedy’s Interest & Inflation Free Money. I read the newest revision in German from 2006 which I think hasn’t been translated to English yet. The text is available online in several editions though.

1. Five Basic Misconceptions About Money

and the truth:

  • Three kinds of growth: A: natural (logarithmic, flattening out), B: linear and C: exponential. Our current economy grows exponentially, that is the GDP and on pair the money supply increase exponentially. Because of interest, and more importantly interest on interest, a loan of 10’000$ at an interest rate of 6% increases within 50 years exponentially to 184’000$. If the money supply wouldn’t keep growing, not all the loans plus interest could be payed back, the extra money needs to come from somewhere. So indeed, our current economy must grow exponentially to sustain itself.
  • We don’t only pay interest when we take up a loan. Because in every product we buy, 30-50% of the price goes actually into paying back the loans the producer took up for production. If he didn’t have to take out a loan, his products would be that much cheaper.
  • Through the system of loans and debt, quite obviously there is a reallocation of money happening. The rich lending out money get even richer as the poor repay their dept plus interest.
  • Inflation, the fact that our money is loosing value all the time, doesn’t need to be taken for granted. If there were no need to keep the money supply growing, there would be no risk of overgrowing it and thus no inflation.
  • The current monetary system is prone to volatilities and repeating crisis, fixed towards growth no matter what, in favour of the already rich and because every sustainable long-term investment needs to measure itself against short-term gainings and interest favours short-term thinking.

Creating Interest and Inflation Free Money


When interest is replaced by a parking fee for money.

Already towards the end of the 19. century the German/Argentinian economist Silvio Gesell observed economic cycles, fluctuations in prices although there were no fluctuations in actual demand. One explanation is that when interest rates are low, people with money withhold it (no incentive to lend) and thus less will be bought (because people cannot take up loans) and therefore less produced, leading the economy into a down turn. Because money becomes scarce then, interest rates go up again, the people with money are more willing to lend it, spending goes up and everything goes smooth again, until there is too much money (little demand for more) and interest rates start dropping again.

Gesell realized that money, as opposed to all other goods, can be withheld at no cost (no storage costs) and proposed to fight these economic cycles by introducing such an inventory cost. Instead of giving a reward to those lending money (through interest), those hoarding it should be punished by a small fee (one to five percent) on money. With this parking or holding fee (also called Demurrage) people are encouraged to spend their cash quickly or invest it in long-term deposits where the fee would be lower or zero. Instead of demanding interest they would be glad to invest it. Demurrage makes sure that the money remains in circulation and that its core function as a medium of exchange is conserved.

In 1932, during the Great Depression, the Austrian town of Wörgl gave this neutral money (or Freigeld) a try. For banknotes to remain valid, people had to pay to get a stamp applied to the money at the end of each month (this could obviously be done electronically today). Therefore everybody spent their money as quickly as possible, unemployment dropped by 25% within a year, and with the fee that the town government collected more projects were financed. Although a full success, the experiment was terminated only one year later by the Austrian National Bank because it saw its monopoly on printing money in danger. Similar experiments in other countries were (and often still are) prohibited on the same grounds.

The less money can be made from lending money the more attractive it obviously becomes to buy land and lend that. Thus the price of land increases. Therefore we do not only need a money reform but also a land reform. All land is seen to belong to everybody, the community then grants usage rights to those who are willing to pay most and this money is then distributed equally to every member of the community/citizen. This way, if somebody uses just as much land as the average, he doesn’t have to pay anything because what he pays for usage rights is equal to what he gets back from the community. If someone needs more land, he simply needs to pay more. But land wouldn’t be hoarded as property and couldn’t be used for speculation any more.

Furthermore, a tax reform could help save the environment: Stop taxes on income and put taxes only on products, based on how much harm they do to the environment (in production and usage). This way, human labour gets cheaper while new production of goods gets more expensive. It suddenly pays off to repair products instead of buying new ones, fewer employees get replaced by machines, illegal unreported employment disappears because nobody has to pay income tax anyway.

3. Who Would Profit from a New Monetary System?

Such a monetary reform would abolish inflation and the flow of money as interest from the poor to the rich, reduce unemployment, lower prices, get rid of the infinite growth imperative and boost long-term investments.

  • Politicians and Banks: are struggling to keep the current system running, infinite growth cannot be sustained forever. National debt has been rising for several years, a lot in industrialized but even more in developing nations.
  • The Rich: would be able to keep their current savings and have already enough, so most would choose a stable system over the current one.
  • The Poor: In 2001, half of the German population owned only 5% of all monetary assets, the other half 95%. While the already poor pay interest to the rich (people in a country as well as from developing to industrialized countries), the welfare state and development aid try to get some of that money back to the poor in a very inefficient way.
  • Churches and Spiritual Groups: Moses, Aristoteles, Jesus, Mohammed, Luther, Zwingli and Gandhi all condemned the payment of interest. Communities must have instinctively known some of the problems interest would introduce (like social inequality).
  • Trade and Industry: The free market economy would continue to run as now, simply without the distortion of interest. Small and medium enterprises wouldn’t have to pay more interest than global giants.
  • Agriculture: more sustainable and ecological farming
  • Artists: works of art would be a save storage of value (as opposed to money with a holding fee), so the demand for art would rise.
  • Women and children: equal chances.
  • The Ecology of Our Planet: When the economy isn’t growing, the discrepancies between poor and rich, loaning and lending, become even more apparent. But through the infinite growth imperative, we are depleting our natural ressources. And as long as every financial investment has to measure up against the profit from interest, many long-term ecological investments won’t cut a deal. If you had 10’000$ and had to choose between taking the money to the bank and getting 5% interest, or buying solar panels and earn only, say, 3% of your investment by selling that energy, what would you choose?. With neutral money there is no interest and the pressure to generate a high return on an investment would go away, too. When loaning money, you only have to pay back the amount you loaned instead of paying the interest on the interest on the debt which increases exponentionally the longer you wait.

6. Three Models of the Future

  • Infinite growth: To keep the economy growing, the state has to loan ever more money into existance and fall in debt ever more. Infinite growth cannot be sustained forever. The model will reach its limits either when natural ressources get too scarce or when the trust in the state gurarantee on its money fails.
  • No growth at all: While many people talk about stopping growth while ignoring the current monetary system as the root cause (this is only fighting symptoms), others see monetary reform as the cure to solve all problems (which isn’t true neither, we need to change our lifestyle, too).
  • Qualified growth: What we really want is a limited, flattening out growth in the material, physical domain while having an exponential growth in the immaterial, informational, social, ethical and cultural domain.

7. Practical Cases Today: Embryos of a New Economy

Three examples:

  • LET-System: Local Exchange Trading Systems are initiatives, all over the world, to foster the local economy. There is no physical money, instead the system is based on central bookkeeping. Each participant has an account and when he pays another participant, the amount is simply subtracted from his account and added to the other’s. This concept can also be thought of interest-free loans and connects supplies and demands that the ordinary market doesn’t serve.
  • WIR: Founded in 1934, WIR is a complementary currency in Switzerland supporting small and medium-sized businesses.
  • JAK: is a Swedish member-owned bank that in order to give interest-free loans, demands interest free savings from its members. So while you pay back your loan, at the same time you also save. These savings can then be used to give interest-free loans to other members.

What most of these initiatives have in common is a central bookkeeping account (electronically or with pen and paper), an alternative currency (points, local Dollars, etc.), the account is allowed to go into debt up to a limited amount (people with positive balances then act as debitors), no or low interest and legal tender can usually be exchanged for the alternative currency but not the other way around. These systems currently constitue the best experiments we have on what kind of monetary systems work in what size.

8. Complementary Currencies

The goal of complementary currencies is to fill the nieches that the current system doesn’t serve and are usually tailored towards a specific need. Examples include small businesses, care of the elderly, education or to serve economically underdeveloped regions. They are meant to solve specific problems without pressuring the national budget and often create or strengthen communities at the same time.

9. What Can I Do to Help in the Transition Period?

  • Inform yourself and spread the knowledge
  • Invest your money in ethical projects or give interest-free loans.
  • Stimulate modell experiments like complementary currencies or LETS
  • Political lobbying to introduce neutral money on a larger scale

5 thoughts on “Margrit Kennedy’s Interest and Inflation Free Money

  1. Rodrigoso says:

    The 3 desadvantages of money, independently of the system created, are:
    Cyclical consumption – The monetary system has to be maintained so the over consumption will produce over waste.
    Self interest/Social stratification – there will be allways someone with better quality of life then others;
    Technological inertia – When science finds a solution or new project about to solve our problem, there is allway the ignorant (but forced) reference to the manual rule: and what about money to do it?

    We already have the knowledge ( and scientific development) to solve all the problems of the world. But if they are not taught at the university…

  2. mb2100 says:

    So you don’t think the ‘neutral money’ described above would counter these three disadvantages? why not? and what else do you propose? I couldn’t find any post about that on the referenced blog..

  3. mb2100 says:

    I’ve watched the video you linked to. And while I agree with most of the things (the analysis of the current monetary system and its social implications for example), there are also a couple of ideas I’m fundamentally opposed to.

    For example abolishing democracy and replacing it by a central computer/database. While a computer can and should be used as a tool to process information, it can only tell you what it estimates are the probabilities of when a certain action is taken a given result will be. To decide then what action should be taken then is to evaluate these different scenarios and their probabilities. And while we would all agree that the AI should be programmed to favor a scenario where less people get killed than in an alternative scenario, there are sometimes decisions to take that aren’t that easy. For example, which scenario is favorable, the one where no human being but say a hundred horses get killed, or the one where one human but no horses get killed? If National Socialism has taught us anything, it is that a completely logical framework of though doesn’t automatically lead to the right moral decisions. As mentioned in the video itself, moral isn’t absolute but always changing with society. That’s why we always need to redefine public opinion and laws (best in a most inclusive and democratic process) as opposed to having a few people programming a central AI. Because that elite of people would have the power to write law. And additionally, just as people are manipulated by advertisement, computers can get hacked or fed with false information.
    I believe that the system of human individuals interlinked through communication usually generates a better result in governing themselves than a computer. Additionally, on large scales, I almost always favor decentralized (peer-to-peer) systems that are redundant and far more resilient than a centralized system with a single point of failure. Human society is such a peer-to-peer system.

    I do share the believe that if current technology were applied to the right ends in a social system more just and equal than today’s, that not too soon personal scarcity would be overcome (probably then when we redefine our needs and wants). That future might be a lot like Star Trek: high technology, no money and everyone working for the good of mankind, etc. But even in Star Trek philosophical, social and moral problems still exist and there is no reason to believe they would magically vanish if you just throw enough science and computer power at them.
    There is no way around the fact that physical resources and time are limited. While personal scarcity probably can be overcome, there will always be arguments on how to best allocate scarce resources, what projects to favor and which problems humanity should tackle first.

    The question is whether we need to change our values in order to solve the ‘monetary problem’ or whether we need to change the monetary system in order to be able to change our values. Thinking of the video which says criminals should be treated as patients, maybe we all are patients falling victim to the cruel current system and the easiest (and maybe only) way to cure us is to change the system. Fight the root of the problem, not the symptoms. And maybe ‘neutral money’ as described in the blog post is the first step to get us off money.

  4. muadib25 says:

    Concerning money, as long as there is a concept of a medium that replaces, or can be replaced by resources, you will always have Artificial Scarcity, and mainly because, the existance of money itself has no meaning without being scarce…Neutral nomey might be good, but only as a transitional tool, not as an end goal.

    As for Democracy, unfortunately there is no such thing today, due to the fact that whoever has most the purchasing power to advertise his position, gets the most of TV time, the most of the pamphlets he can type, etc. I can not see how there can be democracy inside the monetary system. It is obvious that the main opponents in nearly every political system in the world follows the ‘dualities’ standard, e.g. Republicans-Democrats, Reds-Whites, etc. Together with the above, one can logically see that there is something wrong with this scheme. Corporatocracy might be a better word.

    Concerning computers and the video, if you watch it better you will observe that there is no Government there, merely automation, where needed. Imagine yourself in that world, where you could log in and propose your very own project about your local society, and that every other member of the society with a certain relevance to the aspects that it applies to, could really vote in favour or against it. Wouldn’t that be far more better? I know that many people, when they come in contact with the Venus Project, think and look at it as a prequel to the ‘Terminator’, but you have to admit that in a society without Social Stratification and Class conditioning, there will be no such motives as to ‘control’ people. This has always been the product of scarcity-baced economy systems. Fortunately, there is no ‘human nature’, only ‘human behaviour’, and this is scientifically proven.

    Imagine computers as tools. Our brains can come up with ideas, can take initiatives, can plan projects, but our brain also produces emotions, useless thoughts and noise, that, while can define an individual’s identity etc., cannot take us very far, in terms of sustainability.

    Let’s say you are a musician. From the beginning of your training, you start playing with a metronome, because it is a stable reference of time, not only for you, but for all musicians, else it would need extremely longer effort for you to work with other musicians.

    You are right there, that we need to change our values. Some time ago I was hearing that ‘working makes you a man’ or something similar…Maybe tomorrow we recognize obligatory, repetitive labour as ‘economic slavery’ or ‘economic prostitution’… Maybe tomorrow we recognize that we are not that different from other people that live in another part of our globe…Maybe tomorrow we won’t have to be anxious of debts and loans, just because we needed a home…Maybe tomorrow we wouldn’t have to ‘go to work’ just to prove to the, until now ruthless and cruel, society that we ‘deserve to live’…Maybe tomorrow we won’t have to take someone else’s job, just because we have more papers, or we can promote better (isn’t that prostitution?) our abilities…

    My kind friend, educate yourself towards what a computer can and cannot do, search the net for the Zeitgeist Movement (, read what it is and what it isn’t, because we are all designing our future…

    Because maybe tomorow will be too late…

Leave a Reply

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

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

Google+ photo

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

Twitter picture

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

Facebook photo

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


Connecting to %s