Demurrage: A Miracle in the Town of Worgl

Wealth diffusion

Flickr by Camille Bouliere

Another advantage that Gesell noted was that demurrage has the potential to discourage wealth accumulation.

Today, just owning money makes you more money (through interest). But with demurrage, wealth comes with a carrying cost. The more money you have, the more money you will lose on a recurring basis. Due to this new reality, a person’s natural inclination will change from wanting to own to wanting to give.

Under demurrage, if you have more money then you are able to spend, then it would make more sense to loan out that money (even at zero interest) to preserve that wealth, rather than keep the money and lose it gradually. As a result, wealth will shift from those who have the most to those who give the most and power will shift from those who have $1000 to those who have ten people owing $100 each.

The inflation killer?

Some would argue though that inflation does the same thing as demurrage, since inflation reduces the value of your dollar over a period of time. But more important, inflation is known to ruin economies (Zimbabwe anyone?), so if demurrage is similar, isn’t it bad as well?

The answer depends on perspective. Traditional currencies tend to get devalued by interest and inflation, as both work to create larger quantities of money, which oddly reduces its wealth (read the last issue’s feature article, All the world’s a cage, to learn more). Demurrage meanwhile is anti-inflationary. Since it works to reduce the money supply, it effectively increases the value of money (because less of it exists).

The death of short-term thinking

Our accounting systems promote clear cutting forests for immediate profit instead of logging sustainably forever, while our politicians promote robbing the future to pay for the tax breaks and subsidies of today. During an age of global warming, peak oil and demographic change, one of the greatest challenges facing mankind is its inability to plan beyond the next fiscal quarter or election cycle.

That is why the most important quality demurrage may offer is its encouragement of long term financial planning.

As noted above, demurrage punishes those individuals who keep their money instead of using or investing it. As a result, demurrage will train society to focus on how they can use their wealth to generate a comfortable living by investing in the long (instead of short) term.

As explained by Jordan B. MacLeod, author of New Currency: How Money Changes the World as We Know It, “Because of the … charge for idleness, money in the future will take on greater value than the present. This would reverse the current trend, where money in the future is discounted in favor of the present. This would make interest free loans attractive to the lender as a means of planning for retirement. It would also create an economic orientation favoring longer term planning and projects that integrate the concerns of society as a whole.

This storage fee, which originator Silvio Gesell called demurrage, would encourage everyone to spend what they need, and find other ways to ensure storage of wealth, such as capital investments, loans, etc.”