This action might not be possible to undo. Are you sure you want to continue?
By Robert P Minz IFS (Retd.) There is global concern for global warming because we are gradually moving towards a world that would become a place where human beings would not survive and no other planet in this solar system can support human beings. Many people realize that there is a need to put a stop to the steady warming of our planet. We know that we must reduce our green house gas emissions we also know that we must not only preserve our forests but we must also increase the forest cover. However, despite our serious concerns no one is really able to do anything about. The developed countries are not willing to restrict their own development but look to the developing countries to restrain their development and to preserve the forest cover. The developing countries on their part do not feel that they should be forced to forego development activity. In this tug-of-war the only gainer is global warming. But does anyone really know the real reason why we are not able to tackle global warming? Once we are able to identify the real cause then we can take appropriate measures to stop global warming. It may surprise you that it is the monetary system, which all the countries are following, is the stumbling block that is preventing us in tackling the problem of global warming. You might ask how the monetary system can be responsible for global warming? Most, if not all, countries are having fiat currency i.e. currency that has no intrinsic value of its own but acquires induced value by virtue of fiat of the government. This fiat currency takes the form of paper money or coins, printed or minted respectively, by the government, or book-keeping money created by banks when they give loans. The banks accept deposits at a lower interest and give loans at a higher interest but contrary to what the common man thinks the banks do not lend money only out of deposits lying with them. They lend money that is nine to ten times more than the actual cash with them. The additional amount lent actually does not exist but it is created as book-keeping money. Now the borrower is required not only to pay back this money but also to pay interest on the borrowed money. The borrower, as well as the bank, must satisfy themselves that the project in which the funds are to be invested, would give returns that would be sufficient to pay back the loan plus interest and also give a margin of profit. But what has this to do with global warming? Now any project that you may devise for preservation of the environment, be it protection of forest or afforestation, or research, or other activity to prevent global warming, would be a long term project that can not be expected to give any monetary returns and it would be rejected by any bank. The banks would, however, readily give loans for industries that are viable, i.e. capable of giving sufficient returns to pay back the loan as well as the interest regardless of the fact that the industries may destroy large tracts of forests or produce pollution on a large scale. So long as the banks go on a lending spree in this manner the world will be doomed. Thus the monetary system in which money supply is dependent on loans made by banks that charge interest will never allow the preservation of our environment, and it is meaningless to talk about any long term project to preserve our planet.
What if we could change our monetary system so that there is a negative interest? Money invested in any bank would gradually decrease in value over time so it will become wiser to invest in assets that will retain a constant, if not increasing, value over time. In these circumstances it may be wiser to preserve a forest rather than cut it down because the money realized from sale of the forest would decrease in value over a length of time while the value of the forest would remain more or less constant. Thus the money system with a negative interest would tip in favour of preserving assets rather than in destroying them. In the present monetary system positive interest causes the flow of money towards the bank and the industrialists, but negative interest causes the money to flow towards the people and encourages the preservation of forest and nature. The banks and the vested interests would not take it lying down and they would oppose any change in the monetary system, as it exists today. They would say that negative interest would cause industrialization and trade to come to a stand still. People, who do not know how the money system works, and this includes many politicians, would nod and agree. However, history tells us another story. Negative interest, contrary to what the bankers would say, actually increases the velocity of money i.e. trading and industrial activity increases manifold. This causes an increase in employment and prosperity of the people. In ancient Egypt, when people brought their bags of corn to a storehouse, a piece of pottery called on ostraca was given to them as a receipt. These ostraca were more convenient to handle than bags of corn, and so they began to circulate as currency. At the storehouse, depositors were charged a 10 per cent storage fee for the privilege of having their corn stored and protected from vermin. So, if they deposited ten bags of corn, six months later they received only nine bags back. The effect of this was rather like a negative interest rate, and the result was that Egyptians didn’t save their money but instead spent it on things that would last. They constructed pyramids and an agricultural system so sophisticated that Egypt became the breadbasket of the ancient world. This monetary system remained in place for over a thousand years. The second example of a currency with a circulation incentive from history occurred in Europe during the period 1150–1300. At this time silver bracteates (thin plates) were issued by nobles and bishops to circulate as currency. The bracteates were recalled at regular intervals and later reissued with a lower silver content in a form of tax collection by the nobles, the rate of reduction of silver averaging around 2–3 per cent a month. As a consequence of this, people preferred to spend the currency rather than hold on to it. And so we find that during the period when bracteates circulated, art and culture flourished, craftsmen worked five days a week and the standard of living of workers was high. As Bernard Lietaer says, ‘Is it a coincidence that cathedrals flourished as the most grandiose symbols of community solidarity in Western history, yet declined as soon as the brakteaten system was replaced with the king’s monopoly on the creation of currency?’ Closer to our times in 1932, in Austria the town of Wörgl was seriously in debt and unemployment was 12%. The parish was ten times as indebted as the town. The mayor of Wörgl, Michael Unterguggenberger, convinced his community advisory board that ‘slow money’ was the cause of the economic paralysis and that they had nothing to lose by trying emergency scrip. He then convinced local businessmen and the newspaper to back the idea. Four days later the town started work on their overdue street repairs, and by the end of the month they had issued their first ‘work confirmation certificates’, also called local schillings. Wörgl issued 32,000 local schillings in three denominations, and deposited the same amount in the bank in national currency. The currency had to be validated every
month with a stamp worth 1 per cent of the nominal value of the note (a ‘misery payment’ for the local welfare committee). If people wanted to exchange their local currency for Austrian schillings, they could do so with a 2 per cent penalty, high enough to act as a discouragement. All city employees, including the mayor, were paid 50 per cent of their salaries in scrip and the new emergency workmen were paid 100 per cent in that form. Despite initial scepticism, the booster effect soon began to work. Taxes, in arrears since 1926, were repaid. Seven streets were rebuilt and asphalted, 12 roads were improved, the sewer system was extended, trees were planted and forests were improved. The construction of a ski jump was started in January 1933, along with a water basin for the fire department. In her book Interest and Inflation Free Money, Margrit Kennedy says: ‘Within one year, the 32,000 Free Schillings circulated 463 times, thus creating goods and services worth over 14,816,000 Schillings. The national Schilling by contrast circulated only 21 times.’ Unemployment in Wörgl dropped 25 per cent, when in the rest of Austria it had risen 10 per cent during the same time period. Predictably just 15 months after the currency was put into circulation, Austria’s state bank pressurized the Austrian government to make the Wörgl scrip illegal and the experiment that had transformed the Wörgl economy was brought to an abrupt end. Worgl reverted back to unemployment and indebtedness of the people that prevailed in the rest of Austria and Europe. So, contrary to what the bankers may say, negative interest works for enriching the vast majority of the people whereas positive interest only benefits the banks and a small group of capitalists while it improvishes the people and takes away their assets. Should we not, therefore, get rid of the present money system and introduce the time tested money system that would help the people to get richer and also preserve our forests and environment and thus make our planet a safer place for all times? But nothing short of a revolution can bring about a change in the money system. If you wish to save the environment and prevent global warming there is no alternative but to change the money system. Act now before it is too late!