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Mutual Credit and Inflation

by on November 14, 2012

One of the key issues that is still under debate in the Mutual Credit community is the management of the money supply. Are rising prices a threat with Mutual Credit?

In the discussion on the JAK Bank an interesting point was made by John Turmel and Larry:

“John Turmel: Yes, how stupid to limit your chips in your game to old chips saved when you could have brand-new interest-free zero-reserve poker chips. How stupid to run a piggy bank dependent on finding scarce funds for the loans when you could run a casino-style bank dependent on only the collateral for the loans. How stupid an interest-free model is a piggy bank model compared to a casino bank model? Really stupid those JAK people.”

What Turmel is saying is that in a Mutual Credit environment all the credit required could be generated without having a need for savers. Larry reacts to this with the key reason why this is a popular notion with the MC community:

“I agree, there is no need to limit the creation of new money as long as the creator (borrower) backs the new money with collateral and adequate credit-ability.

In this scenario, we are simply “changing the state” of wealth like fluids change from a solid state (ice) to a liquid state (money). A person’s equity (assets) can be converted to chips (money) just like in a casino.”

So this is the basic idea: because MC will be backed by assets, there is never a problem with value of money.

The question is: is this really true?

Consider this.

In an MC environment we would have interest free mortgages. When buying a house the situation could be that the borrower has absolutely zero assets.
This is actually the case today also. It is the house to be acquired that will function as the asset backing the newly created money.

Yet it is true without a shadow of a doubt that we have real estate and other asset bubbles. How come? Because if both the banks and the people believe that prices will continue to rise, they will fuel these price rises by going ever deeper into debt when  buying a house, creating an (price) inflationary spiral.

This would happen in a MC environment also. Prices would start to rise because people would have vastly increasing purchasing power (no interest!) and they would fuel these price rises because they can afford it: they can simply say: this house is going to cost this or that and use that as collateral for ever bigger loans.

Asset bubbles are a real risk under these conditions.

The point is that value is not static. It is not absolute, but a function of the volume of money. Stable prices can be expected with a stable money supply, but if the money supply would be allowed to grow indefinitely value would erode.

So how should the volume be managed?
It should be both stable and flexible. Credit based units provide that: loans being payed off deflate and new credit inflates, providing flexibility that, well managed, more or less evens out.

This means there is a limit to the amount of credit that can be offered by MC facilities. They can lend out no more than the required money supply.

This also creates the question: who gets the credit. Credit-ability can hardly be the only criterium: it would favor the affluent.

So it would have to be shared evenly. For instance: every American has the right to 100k interest free credit every so many years. Something like that.

Stable does not imply the money supply must remain the same for ever. It should grow as fast as the volume of transactions in the economy. Otherwise the net effect would be deflationary, with all the negatives that that entails.
In this way the money supply would provide stable prices while allowing full economic growth related to population growth and technological advances.

This scenario, however, means that there probably will be a greater demand for credit than can be provided with new money. This is the case in the current system also: every dollar in circulation has been borrowed not only when it was created, but a few times more after that. Of course, in the current system a large part of this process is fueled by usury and the fact that there is never enough money to finance both all necessary trades AND interest payments. Meaning every dollar has to be borrowed ever more often, combined with an ever growing money supply.

However, even in a non-usurious monetary system, there is probably more need for credit than there is for money.

It is for this reason that I believe that the JAK system is important: it can provide a non-usurious way of relending already existing ‘chips’.

Mutual Credit implies management of volume. It cannot be left to the market’s devices: it would lead to ever growing volume, with rising prices as a result.

Asset bubbles would be difficult to avoid.

A modern monetary system probably needs to be a hybrid: several tools are at our disposal, none of them are complete or comprehensive and thus we should discard none of them, but look for ways of combining them in the search for a Grand Unified Theory of Money.

The JAK Bank: Interest Free Full Reserve Banking!
Mutual Credit, the Astonishingly Simple Truth about Money Creation
Forget Schools of Thought: Study them All and then Create your Own



  1. The Anarchist FAQ talks about this as well.

    I am mutualist BTW.

  2. No central management!!
    Mutual credit is based on voluntary agreements between private parties. There shouldn’t be interference. No one should be entitled to credit (your 100k usd example) if no one trust him.
    I think there’s two separate issues here. Does mutual credit cause price inflation for other currencies? Yes, even if it is denominated in another unit. Just like competing currencies do, just like barter does: because they all compete as media of exchange. Gesell talks about this (well, not specifically about mutual credit, but about credit and barter) here:

    “Wares reaching the consumer by way of credit or barter are lost to the demand for money.”

    Scarce money/cash (just money for Gesell) does not only depend on its own supply, but also on its demand, which in turn depends on the usage of alternatives to it. If we had a gold-money monopoly again, using LETS, Ripple or even bitcoin (which is also cash, just like gold) would cause gold to price inflate.
    Stable prices for cash is not only impossible, is not even desirable. Our fellow austrians have investigated unelastic supply in depth. They’re right, we should try to manage cash supply. A fixed supply is desirable. They miss that basic interest causes produce cycles though. With a fixed cash supply (assuming monopoly for simplicity) and 100% bank reserves, we would still have cycles. Because real capital yields naturally drop with prosperity and competition while capital money mandates a minimum basic interest (or liquidity premium). Capital-money re-establish the rentist situation in which yields are above the basic interest through destructive deflation (most austrians are also blind to the fact that deflation can be very destructive for investments). Cash needs demurrage, but not an elastic supply: I disagree with Gesell on that point.

    The other issue is…Can be mutual credit price stable?
    Not if it’s denominated in cash, but sure it can. Since it’s based on private agreements, the unit can be anything. Hours should be inflation resistant, but is not as international and convenient as it may appear. You could also denominate the credit line in 1970usd and just apply the Fed repported inflation or shadow stats CPI. Lieater proposed the terra as an actual currency, with backing and all, but I see more value in just using it as reference. As denomination of credit, without the unit actually existing as a real currency or having the basket of commodities stored anywere. The basket can be bigger and more representative of value if there’s no need for storage.

    -How much do I owe you?
    -3 terras
    -Can we settle in usd?
    -Sure, that’s what we agreed.
    -Ok, 3 terras in usd…let me look at market prices of the commodities in the basket and make the calculation
    -Look, here’s a web that does that automatically and in real time, it says 1 terra are 11.57 usd, but make the math for yourself if you want.
    -Great, here are your dollars

    • This answer is late, but perhaps you have notification on.

      Interesting points.

      “They’re right, we should try to manage cash supply.”
      Interesting point. I don’t think I agree, but could you share the basic reasoning behind this? I don’t see its rationale.

      “The other issue is…Can be mutual credit price stable?
      Not if it’s denominated in cash, but sure it can.”
      This is the whole issue of the article: It does not matter what the denomination is. Say it’s hours, how does that change that more and more hours will be borrowed into existence, with eternal price inflation as a result?

      Just look at the current system: people can use the house they are buying as collateral, using the price they pay as ‘value’ of the house/collateral. Hence there is no practical limit to what they could pay. We would see asset bubbles and hours would buy less and less goods: rising prices due to inflation.

      • Actually, the “should” should be a “shouldn’t”.

        “They’re right, we shouldn’t try to manage cash supply.”

        About the stable mutual credit, I don’t think your getting my point.
        The unit I’m proposing doesn’t exists, it’s just an index on real markets.
        Or a basket of commodities.
        Say 1 house = 100 barrells of oil = 1,000,000 loafs of bread.

        If you define one Valun like this:

        3,000,000 valuns = 1 house + 100 barrells of oil + 1,000,000 loafs of bread.

        It doesn’t matter how many valuns are loaned out.
        You look at market prices (that must be on cash).
        Imagine they say

        1 house = 5,000,000 freicoins
        1 barrel of oil = 5000 freicoins
        1 loaf of bread = 5 freicoins

        Then you know that

        3,000,000 valuns = 15,000,000 frc
        1 valun = 5 frc, that’s what the index says when people look at it

        You want to buy bread, so you have to pay 1 valun in mutual credit or 5 frc in cash.

        By creating new valuns, you’re making the price of frc fall, because it’s new money competing as media of exchange and only frc (I’m assuming cash monopoly for simplicity) but valuns will remain stable because they’re just a formally defined unit, not a currency.
        The actual currency for mutual credit is the pair (issuer, unit). Sure you can destroy your own valun denominated currency by issuing to much (by getting too indebted), but valuns will stay just fine.
        You can break the motor of your car, but kilometers and miles (the unit, not the private currency) won’t notice it.

  3. Ummer permalink

    The JAK system only works for those who have money as opposed to those who need money. On top of that it acts as a pyramid type of scheme of whoever wants to take out the loan can ruin all those who are putting all their savings into one pot.

    Trust is something you can’t be casual with.

    • In JAK Banks there is no other incentive for people to save than the ability to access credit later, so it is a level playing field. The majority of the population are working/middle class with at least some savings. And more JAK Banks (and Mutual Credit) will emancipate the poor, as they are less vulnerable to Usury, which hurts the poor most, because they have no rents to compensate their losses with, like the middle class.

  4. Abu Aardvark permalink

    deleted: see our Comment Policy.

  5. Abu Aardvark permalink

    Anthony, you wrote, “Why are you always so worried about your comments being posted?!??! You know I’m not quickly insulted and prefer a little wrestling over silence!”

    OK, let’s see. You posted something on a PUBLIC DOMAIN in your language, and I translated it in all good faith and now you tell me to “go take a hike.” Some “wrestling”.

    Anthony Migchels: “You know how we know.”

    AA: I have never met a single elf and am not paid by them. So how then do you know?

    Anthony Migchels: “Don’t think that people don’t know that the elves manipulate the debate on many sites with handles that are seemingly unrelated to them.”

    AA: What are these “handles,” please. There are THOUSANDS of libertarian websites. And I don’t work for any of them.

    Anthony Migchels: “Unlike your elve boys.”

    AA: I do not know such boys, their names, countries or backgrounds. I am interested in their ideas. That’s what brought me to the field and then here.

    Anthony Migchels: “I was disappointed and even ashamed, because I had foolishly created expectations. the Gelre is tough project.”

    AA: Sorry to hear, Anthony. Good luck in the future to you, your endeavors and investors …

    Anthony Migchels: “This has not stopped me, it has slowed me. The Gelre, including its groundbreaking combination of convertibility and interest free credit, in effect allowing a printing press buying euro, will have its impact, God willing. Because this is not about, or even the Gelre. It is a mission, and its not mine.”

    AA: Look, you keep alluding to what you are creating but you NEVER fully explain it. Whose mission is it? Why is stitching it to a failing currency like the euro so attractive?

    Anthony Migchels: “So there: too bad: nothing to blackmail me with Abu, and I know you and your friends were a little sorry to have to have come to the same conclusion.”

    AA: Blackmail! You are incredibly paranoid. I translated part of a public document that YOU provided. Now you explode with accusations?

    Anthony Migchels: “Listen, go take a hike, ok? I allowed you to troll here because my devious side enjoys slaughtering your silly ‘arguments’ with the blindingly obvious. I was a little touched too, by your perseverance.”

    AA: Anthony, my posts have ALWAYS been aimed at figuring out what you consider groundbreaking popular economics and almost none pertain to a particular website or your business background. And I’m sorry you have a “devious” side.

    Anthony Migchels: “But now that you have openly shown what we had suspecting for a long while, my patience is running low.”

    AA: I haven’t “shown” anything. (Also … Why do you always want to sound like some sort of cinematic royalty? “My patience is running low.”) I do what I do because I believe in it. You always seem to want to attack the messenger rather than the message. And unlike you, I’m not so quick to want to cut off dialogue. In many ways you don’t seem like such a bad guy but now you are sounding quite violent. (“Bash their skulls? …” “Blackmail …” “My devious side … “) I guess I was hoping that you’d change.

  6. Abu Aardvark permalink

    Anthony, you wrote:

    “What it all comes down to Abu is what money is. Austrians assume it’s a store primarily. Interest Free economics maintains money is a means of exchange. As such, it is not private property or wealth. Wealth is real assets, money is the modicum to exchange these assets. Money is more a public utility (I know this must hurt…..)”


    No, Anthony, what it comes down to when we discuss your contributions to monetary debate is this:

    False assumptions lead to wrong conclusions! Look, once more you demonstrate that you build your ENTIRE case – heck, SEVERAL websites now – on presumptions about Austrian Economics that are not only wrong, but the very opposite of what Austrian Economics teaches in actual fact.

    What’s so puzzling about this approach is that it would be so easy, a matter of minutes, that is, to find out, and let your readers know, what Austrians REALLY assume (here: what money is).

    And yet you insist, again and again and for years now, that up is down, left is right and 2 + 2 = 5

    Why is that?

    Why do you erect one straw man after another that all burn down in your very hands?

    You claim that “Austrians assume it’s (money is) a store primarily”

    Well, here’s Ludwig von Mises for you:

    “The function of money is to facilitate the business of the market by acting as a common medium of exchange”

    (‘The Theory of Money and Credit’, p. 29, originally published in 1912)

    “It was in this way that those goods that were originally the most marketable became common media of exchange.” (…) It is the most marketable good which people accept because they want to offer it in later acts of impersonal exchange”

    (‘Human Action’, p. 398, originally published in 1949)

    And here’s Murray N. Rothbard for you:

    “The emergence of money was a great boon to the human race. Without money–without a general medium of exchange–there could be no real specialization, no advancement of the economy above a bare, primitive level.


    “Many textbooks say that money has several functions: a medium of exchange, unit of account, or “measure of values,” a “store of value,” etc. But it should be clear that all of these functions are simply corollaries of the one great function: the medium of exchange.”

    (‘What Has Government Done to Our Money?’, Chapter II, 4., originally published in 1963)

    You’ll find these and numerous other original works of Austrian Economists here:

    • Ok, I’ll slightly rephrase: Austrianism assumes good money is a good store of value.
      To be widely accepted, it is reasoned, it must be a good store of value. This is one reason why they’re so fanatical about inflation.

      However, experience shows that depreciating currency circulates far quicker. And thats why interest free economics suggests this means it is a better means of exchange: the market shows it prefers to use the depreciating unit. That is also the real secret behind Gresham’s law.

      • REN permalink

        Actually demmurage doesn’t depreciate the unit. Think of it like a bucket of grain, the volume of the bucket is constant. But because Rats eat the grain, the grain inside of bucket diminishes. Therefore, in order to bring the bucket back up to full, the owner must add some more grain. That is the analogy for demurrage money. The money value is actually constant, like the volume of a bucket. The owner has to fill said money bucket with a tax, where tax is analogous to adding grain. In order to use the bucket to trade our output, the bucket must be filled. The rotting and eating of grain makes demmurage money stand in as a good, which is what velocity money is meant for.

        By contrast, inflation actually makes the bucket grow smaller, the unit itself has become fungible. Ironically, demurrage money as a unit holds its value better than “asset” money, which demands interest. Our Austrian friends would do well to think hard on this. With demmurage money, prices can remain constant. Whenever positive interest (usury) is demanded, the money unit is soon debased with inflation. With asset type usury money – if the supply does not grow to compensate for usury transfer, then money supply will concentrate toward holders of financial capital, and depression will set in.

        Demmurage taxes the holder of money, but it doesn’t tax the unit. The unit is made to become full and “stable” by the holder.

        • Abu Aardvark permalink

          REN, you wrote:

          “Actually demmurage doesn’t depreciate the unit. Think of it like a bucket of grain, the volume of the bucket is constant. But because Rats eat the grain, the grain inside of bucket diminishes.”


          A compelling analogy indeed. Hats off, REN!

          • REN permalink

            Your right Anthony, he’s an idiot.

          • Dark Dirk permalink

            “Actually demmurage doesn’t depreciate the unit. Think of it like a bucket of grain, the volume of the bucket is constant. But because Rats eat the grain, the grain inside of bucket diminishes.”

            Really ? Where did the new grain came from ? It came from another bucket and when another bucket is empty it is destroyed. So the number of bucket diminishes.

            • REN permalink

              New grain enters the supply when government sells new demurrage tickets. Gov uses their self limited funds, and spend as needed. By law it could be on infrastructure or some other wealth mode. New tickets are not emptying a bucket, they are created.

            • REN permalink

              New demurrage money enters the supply the same way the original money entered, they were spent into the supply. Gissel had a system where merchants kept track of daily purchases/exchanges, which were then reported to the money authority. This would be similar to watching the CPI, as done today. In that way, new money could enter the supply as scientific direct spend. So, new stamp tickets are spent into the supply, and new money as needed is spent into the supply. Old used “fully stamped” money, is recycled, e.g. traded out for new, meaning its a 1 for 1 swap.

              The bucket value of demurrage money is then filled with new grain, and said grain is made available. In the same way the sun grows grain, the monetary authority must spend into the supply to compensate for the “negative” tax. The supply is not allowed to shrink. The loop of negative tax flows back to the treasury, and recycled money, it is debt free if re-spent back into the economy. And why wouldn’t government spend it, especially on infrastructure and the commons?

              OH yeah, the government is evil and all money systems should not involve them. But, lets forget the law basis of money – yet private bankers, including gold, want to usurp the law for their benefit.

    • By the way: that last quote by Rothbard is useful: it’s a great annoyance to me also that they fuss about these other functions.

  7. Dark Dirk permalink

    100k limit ? And what will happen if some people decide to save mutual credit unit and leave other to reach that limit ? What they should do to obtain more credit ? Borrow mutual credit at interest ?

    Anthony, mutual credit system will never work. It will be converted to basic money system after some time.

    And you forget the fact that nobody will give credit to unknown people. The whole idea of money is to have central government and police and they will force contract payments to be paid.

    Mutual credit system is unmanageable. It is waste of time.

    • Eventually money will have to go Dark Dirk, because you’re right: it involves some form of Government.

      But until we reach that enlightened state as a species, we can settle for a completely non usurious money supply.

      If people need more credit they can go to a JAK bank.

      We can also combine Mutual Credit with demurrage, that would also be a very interesting experiment.

      You mistake Mutual credit: no savers or deposits are required: all credit is provided by bookkeeping.

      • Dark Dirk permalink

        Two primary reasons a mutual credit system to fail are 1. People do not spent their mutual credit (save money) 2. Hyperinflation, because money are created too easy.

        You can beat these two only with Silvio Gesell’s system. Money are spent into economy and have destroyed with demurage tax. Only in that way you can have control over quantity of money in circulation.

        And NO, money will NOT be gone ever. Money facilitate separation of labor. If there is separation there have to be money to ease exchange of good and services.

        And there always will be government and justice and police, because we are animals who fight for survival on this planet. We are NOT some not enlightened species from other dimension.

        • These are indeed limitations Dark Dirk. However: there are limitations also to demurrage based units. One is that it is difficult to organize interest free credit.

          That’s why we need to look further than the hackneyd approaches and combine the several systems to provide a fully fledged alternative.

          Btw: a little demurrage on MC would hinder saving and the volume can easily be managed.

          • Dark Dirk permalink

            Yes, I agree with you. It will be difficult to have interest free credit at the beginning of system. Silvio Gesell also sad that. It will take time. But I still have doubts for mutual credit system. Everybody who enters the system will be given 100K credit. If he is greedy he will buy many items with them. Then default and leave system. There will be 100K money left in the system not backed by debt. We only have to hope that we will sell his collaterals for high enough price to cover that debt. If we do not cover it, we fill be forced to rise demurage tax on currency to destroy them. I personally do not like the idea that everybody who enters the system will be given with credit. This sounds like current money system – money created by debt. And who will be the judge to decide who get credit and who don’t ? In Argentina they had given everybody with some money to begin with, but have happed exactly that. They have spent the money and they have left the system. So the system collapsed because of hyperinflation. That system do not had demurage. If you introduce demurage in the system the question is how big it should be ? to be able to destroy the excess money left in the system. I think that entering the system should be hard. You have to earn the money from somebody else or you should give some collateral. Easy credit equals easy money equals hyperinflation.

  8. Abu Aardvark permalink

    Anthony, you write ….

    “But It has nothing to do with ‘Keynesianism’. Wat the demmurrage did was to get the scarce cash out of hiding and people started to use it for what it was actually meant: to pay with.”

    But B.M. showed clearly that what people did with the currency was pay taxes. Is that the greater good in your view … Get rid of interest so people can pay back taxes?

    And you write: “Austrianism is only concerned with the sacred rights of those holding money. This ‘Entire society be damned, it’s MY CASH and I CHOOSE’ kind of mentality is really very hard to get rid of.”

    Anthony, why are you so opposed to letting people do what they want with their money if they earn it?

    Why are you generally so opposed to letting people handle their own affairs? This is one of the main suspicions, I think, that people have about these populist schemes, that they are really intended to introduce a further level of control, and thus benefit the same Money Power that you are trying to fight.

    Because I take you seriously as a serious person, I read many of your articles, which are often irreverent and well written.

    But then I get to stuff like this and it stops me:

    “(Gottfried) Feder was a great light and implementing his idea’s today would solve basically everything”

    (Anthony Migchels in a comment at his article “In defense of Ellen Brown”, October 2010)

    This guy seems to have been a command-and-control Nazi of the first order.

    Why go out of your way to praise him? Are you sending some kind of subversive message to supporters?

    It’s a bit like your determination to call people who believe in freedom and see logic in certain economic messages “Satanists.” It’s almost as if you want to be as extreme as possible and polarize the conversation whenever you can. There are many reasons you might want to do this that I can think of, none of them good.

    But I’ll let your readers decided (if you allow this post!).

    Now who is Gottfried Feder? ….


    “Gottfried Feder (27 January 1883 – 24 September 1941) was an economist and one of the early key members of the Nazi Party. He was their economic theoretician. Initially, it was his lecture in 1919 that drew Hitler into the party

    “In February 1920, together with Adolf Hitler and Anton Drexler, Feder—who also was a member of the Thule Society[citation needed]—drafted the so-called “25 points” which summed up the party’s views, and introduced his own anti-capitalist views into the program. When the paper was announced on 24 February 1920, more than 2,000 people attended the rally.

    “Feder took part in the party’s Beer Hall Putsch in 1923. After Hitler’s arrest, he remained one of the leaders of the party and was elected to the Reichstag in 1924, in which he stayed until 1936 and where he demanded freezing of interest rates and dispossession of Jewish citizens. He remained one of the leaders of the anti-capitalistic wing of the NSDAP, and published several papers, including “National and social bases of the German state” (1920), “Das Programm der NSDAP und seine weltanschaulichen Grundlagen” (“The programme of the NSDAP and the world views it’s based on,” 1927) and “Was will Adolf Hitler?” (“What does Adolf Hitler want?”, 1931).

    “Feder briefly dominated the NSDAP’s official views on financial politics, but after he became chairman of the party’s economic council in 1931, his anti-capitalist views led to a great decline in financial support from Germany’s major industrialists. Following pressure from Walther Funk, Albert Voegler, Gustav Krupp, Friedrich Flick, Fritz Thyssen, Hjalmar Schacht and Emil Kirdorf, Hitler decided to move the party away from Feder’s economic views; when Hitler became Reichskanzler in 1933, he appointed Feder as under-secretary at the ministry of economics in July. This disappointed Feder, who had hoped for a much higher position.

    “Feder continued to write papers, putting out “Kampf gegen die Hochfinanz” (“The Fight against high finance”, 1933) and the anti-semitic “Die Juden” (“The Jews,” 1933); in 1934, he became Reichskommissar (Reich commissioner).

    “In 1939 he wrote Die Neue Stadt (The New City). This can be considered a Nazi attempt at Garden City building. Here he proposed creating agricultural cities of 20,000 people divided into nine autonomous units and surrounded by agricultural areas. Each city was to be fully autonomous and self-sufficient; detailed plans for daily living and urban amenities are taken into consideration. Unlike other garden city theorists, he believed that urban areas could be reformed by subdividing the existing built environment into self-sufficient neighborhoods. This idea of creating clusters of self-contained neighborhoods forming a mid-sized city was popularized by Uzo Nishiyama in Japan. It would later be applied in the era of Japanese New Town construction.[3]

    “However, despite his implementation of the blood and soil ideology of the Nazis, decentralized factories, generals and Junkers successfully opposed him.[4] Generals objected because it interferred with rearmament, and Junkers because it would prevent their exploiting their estates for the international market.[5]

    After the Night of the Long Knives in June 1934, where SA leaders like Ernst Röhm and left leaning party officials like Gregor Strasser were murdered, Feder began to withdraw from the government, finally becoming a professor at the Technische Hochschule in Berlin in December 1936, where he stayed until his death in Murnau on 24 September 1941.”


    • REN permalink

      Federgeld. Historical experiments in money systems should not be ignored because we don’t like some of the players. This was a very important period in monetary history.

    • Hi Abu,


      People paid much more than Taxes with the certificates.: more than half of their wages were paid in certificates so they used it for their groceries also. But this is difficult to measure, hence there are no records of it.

      What it all comes down to Abu is what money is. Austrians assume it’s a store primarily. Interest Free economics maintains money is a means of exchange. As such, it is not private property or wealth. Wealth is real assets, money is the modicum to exchange these assets. Money is more a public utility (I know this must hurt…..).
      It must circulate to be effective. The community has every right to organize the system in such a way good circulation is maintained. Everybody would benefit, except for the few opulent avaricious bastards messing up our affairs by sitting on their cash to cause deflation so they can bust our balls with our labor and assets declining in value.

      Keep in mind that money has value because we accept it as a means of exchange. Because we accept it, it can exist. This fact alone already gives all participants in the system rights, not just those holding it.

      We’ll not even mention the fact that it’s vital to the survival of all involved. It’s one of those things in Austrianism that annoys me so much that they don’t give a damn: let all handle their own affairs! If someone chooses to rot in the gutter, why stop him? It’s freedom!

      And yes, I realize most libertarians don’t understand that their fancy is ultra favorable to the ultra rich and disastrous for the poor.

      This obsession with the perceived rights of those few holding money is what stopped BM from noticing that within a year unemployment in Worgl was gone, whereas it stood at, what? 30%? 40%?
      Interest Free Economics maintains this is a good result. Notable.

      Deflation must be stopped to defend the rights of those who don’t have money, which is the great majority.


      About Feder: The nazi party had a left and a right wing. Feder was the leader of the left wing: the real anti capitalist. The right win, consisting of the Junker/IGFarben/Standard Oil/Big Business cartel won the struggle for power in the nazi party. That’s why Feder was sidelined in the thirties. Clearly these people don’t mind interest.

      I can understand his anti jewish agitation is a little impalatable these days, I was referring purely to his economic ideas which, I believe, should be clear from the comment you refer to.

      In general I don’t go along with the nazi bashing. They were just a bunch of stooges like all the rest. Not worse, not better.

      Here are the first three points of his famous 25:
      1) We demand the nationwide discontinuation of interest payments, which is nothing more than robbery of the nation on behalf of global finance.

      2) Specifically we demand revocation of the privilege given a certain private corporation, namely the Reichsbank, to print money anywhere in the country.
      This revocation should be accomplished through the nationalization of the Reichsbank.

      (3) We demand nationalization of all those banks that no longer perform their valid socioeconomic task of facilitating the circulation, movement and transfer of money.
      Those banks have ruthlessly taken command of our economic life. They are extorting tribute from the productive sector of our economy in the form of ever-increasing interest.

      I don’t assume you agree with this, but reading Real Currencies you will appreciate that I’m pretty impressed wit them…….
      True: I would close all banks overnight and kill all CB’s instead of nationalizing them.

      Why are you always so worried about your comments being posted?!??!

      You know I’m not quickly insulted and prefer a little wrestling over silence!

      I don’t call everybody satanists Abu. But I live with a worldview in which Satanists (the Jewish/Masonic conspiracy, the Money Power, Illuminati) rule the world. I don’t consider you a satanist, although you certainly defend many of their positions!

      • Abu Aardvark permalink

        deleted: see our Comment Policy.

        • Memehunter permalink

          AA: “You’re associated directly with individuals that provably make false accusations and never retract them (even when they are factually proven wrong) create bogus charts accusing people who believe in freedom of being “Satanists” and have even created a website dedicated directly to attacking certain parties in the freedom movement … ”

          Are you talking about me by any chance? I will repeat what I replied to you on the Daily Knell: please show me where I was “factually proven wrong” or what is “bogus” about my chart. Otherwise what you claim is just wind. Also, please drop the “freedom” buzzword: Agora and the Daily Bell are just gatekeepers, the only difference is that they pretend to be on the “alternative” side.

          By the way, the mission of the Daily Knell is to expose libertarian lies. If the Daily Bell was composed of real truthseekers, they would have reacted differently when I first exposed all the elite connections of Austrian economists such as Mises, Hayek, and Rothbard. They would at least have considered the evidence I presented. Instead, they insulted me, ridiculed me, compiled a list of my “errors”, and continued to claim that the elites “HATE” Austrian economics. So, if anyone on the Daily Bell suffers from what I exposed on the Daily Knell, they know exactly what they have to do to avoid this: 1) tell the truth and 2) be willing to discuss topics related to their focus of interest with an open mind (including Austro-libertarianism and Zionism).

          AA: “Because he was getting the better of you, you recently accused Kaj Grüssner of being an agent of “Austrianism” and a specific publication as well (“Answering Tom Woods”) – just as with me.”

          You must be kidding. I completely debunked Kaj Grüssner, from A to Z, even though he will never admit it. I even used quotes from his idol Hülsmann to show him that he was wrong about Mises.

  9. Hi Anthony,

    I posted this on the Worgl article, perhaps you missed it…

    What do you make of this mention of your article and critique of Worgl?

    This was the original:


    • Hi Summer,

      Well, it was far from impressive, was it not? It’s really strange to write two articles on Worgl and not notice that velocity was the key issue.

      It has nothing to do with ‘Keynesianism’. Wat the demmurrage did was to get the scarce cash out of hiding and people started to use it for what it was actually meant: to pay with.

      But this is a very difficult concept to grasp for those infested with Austrianism, which is only concerned with the sacred rights of those holding money. This ‘Entire society be damned, it’s MY CASH and I CHOOSE’ kind of mentality is really very hard to get rid of. The fact that ‘the fear of demurrage’ solved unemployment and the associated profound suffering is really irrelevant in the face of the fear of that great ogre of Austrianism: INFLATION.

      By the way: there was no threat of inflation in Worgl: the endgame would have been that all backward payments would have been settled and then the certificates would have been converted back to Schilling and out of circulation.

      BM doesn’t mean badly, he tried to write an even handed article, he just completely missed the point.

      • Thanks Anthony.

        BM argues that eventually people may have rushed to convert the certificates into Schillings (even with a 2% penalty because they keep depreciating), making the long-term possibility of the system continuing an issue (even though this did not happen!).

        Also, I think BM’s point contradicts experience – in instances where demurage is in use today too?

        However, if people in Worgl,were paid in a ‘second round’ of certificates, I guess this could/would not happen as they would lose 2% again (if the experiment were extended)?

        Anthony: “the endgame would have been that all backward payments would have been settled and then the certificates would have been converted back to Schilling and out of circulation.”

        If, after all payments were settled what effect do you foresee the certificates would have on the economy if they were reissued? (BM made the point that the one off events – payments the certificates were used for were the/a main factor in the success…)

        Thanks again!

        • Hi Summer,
          People will pay with the certificates as long as they have plausible ways of doing so. That’s why it’s important to have a ‘penalty’ for converting: to motivate people to pay.

          As long as shops and the local government accepted the unit, it would have continued to circulate.

          Should a situation have arisen that people had payed all backward bills and payed so much tax in advance that there would no longer have been a point, a certain weariness against the unit could have developed: without being able to pay with them people would have been forced to keep them, in effect ‘saving’. Under these conditions one could say too many certificates would be in circulation and the money supply should be going down.

          This would be easy to organize, but of course the management of volume remains a concern: as you so eloquently put in a recent DB comment: the boom bust cycle (which is what we think about normally when discussing volume) is caused by racketeering.

        • Let me rephrase a little:
          It’s just a matter of volume. With such a high velocity, only a few certificates have to be in circulation. Sufficient to finance the local economy. What is sufficient? It would be unclear, but could be ascertained through trial and error. There would be an incentive for the city council to over issue though.

          the real point is that the Worgl ended the destitution of the community. Trying to do away with it with ‘what ifs’ and the usual obsession with fear of inflation (which is irrelevant in a demurrage environment) both uninformed and a little disingenious.

          It sometimes seems it is because people want to uphold their own thinking that we have so many problems………the solutions are staring us in the face.

        • REN permalink

          There was also the Wara, which predated Worgl money. Earliest example may have been Egypt:

          During the Famine years, people were issued pottery shards that were marked with how much grain they deposted. As the grain was rat eaten and molded, the shards were marked down. This Demmurage system lasted many 100’s of years (1500 yrs? -needs research), and is likely why Egypt retained so much wealth for so long. Upwards of 70 million bodies were mummified, and astonishing figure and indicative of their societies wealth in that era.

          Friedrich Preisigke is the historian, I don’t have his book, but is quoted above at link.

  10. Anthony, thanks for responding to John and my comments. When I think of the need for private individuals and business concerns to borrow money, I think of banks which I will loosely define as entities that have the power to create money by monetizing instruments of debt.

    There are many money recyclers who act as intermediaries in connecting people with extra money with others who need to borrow. Essentially, they are match makers and since they do not create any money, I don’t consider them banks. There is need for such credit exchanges but they alone cannot supplement the need for banks. So the JAK Bank should probably be called the JAK credit union or something.

    Usury (charging of interest) on the creation of new money must be stopped in order to have a sustainable monetary system. If you simply eliminate interest on “money recyclers” you won’t solve the problem as the gap (more debt than money) will continue.

    Anthony wrote:

    Yet it is true without a shadow of a doubt that we have real estate and other asset bubbles. How come? Because if both the banks and the people believe that prices will continue to rise, they will fuel these price rises by going ever deeper into debt when buying a house, creating an (price) inflationary spiral.

    This would happen in a MC environment also. Prices would start to rise because people would have vastly increasing purchasing power (no interest!) and they would fuel these price rises because they can afford it: they can simply say: this house is going to cost this or that and use that as collateral for ever bigger loans.

    The reason for the housing boom and subsequent bust was not the result of speculation as you contend, but rather the result of three systemic breakdowns:

    Credit requirements were greatly reduced – unworthy borrowers were routinely given loans. We know how to properly qualify potential lenders but the rules went out the window as mortgages were said to be guaranteed by Fannie, Freddie, Sallie, etc. The risk was removed from lenders.

    Down payments were eliminated – in the past, 20% was required as a down payment and in some cases, 10% was allowed (depending on credit-ability). Suddenly, mortgages were being issued with no money down. People had no skin in the game and if the real estate value went down at all, people owed more than their house was worth. Many simply walked away. If they had 20% equity, and the real estate value dropped by 5%, the property was still worth more than the loan amount.

    Doubling down – mortgages were issued and bundled to be sold to others. In many cases, NEW money was issued based on the same equity – yes… the same equity was pledged for multiple loans. In some cases, money was created three and four times based on the same equity.

    I don’t see any reason to limit the amount of money available to willing and worthy borrowers. If they qualify, why artificially limit their access? Gatekeepers are neither needed nor wanted. If we maintain reasonable and prudent credit terms and conditions, the economy should run smooth as long as usury (interest) is eliminated from the money creation process. If it is not eliminated at the source, no amount of recycled money at 0% will fix it.

  11. Natasha permalink

    It seems to me that earnings over reasonable time frames are the most plausible real world limit on loans, under just about any rational system. The asset for the the credit emitting entity (bank) is your signature on the ‘contract itself for the revenue stream’ generated by the real world goods or service, which you own for the entire term of the contract.

    So in the present system it is the contract itself (to pay back a mortgage) that is the bank asset, not the house. Or am I missing something? If the house is suddenly destroyed, the original contract to keep on paying off the mortgage would remain. And it was contracts not bricks that collapsed in 2007/8. So surely contracts to pay in the future are the real asset?

    • In terms of ‘repayability’ you are probably right Natasha, but when the credit is also the money supply we have the complication that that would be growing. Normally speaking a non usurious money supply growing faster than the economy would lead to higher prices.

      Adding ‘non usurious’ is necessary, because under the current system, it is not because of a growing money supply that prices rise, but because of ever higher cost for capital.

  12. The answer to mutual credit is recognizing that is what money is!! All money originates from debt which is a form of mutual “credit”. I suggest reading the book, MONEY: The 12th and FINAL RELIGION. Thanks Rduanewilling

  13. So the concept of MC is not totally defined yet. Thank you for this insightful writing.
    There is a new effort in creating local currencies. Could you comment on this?

Trackbacks & Pingbacks

  1. More on Inflation, the Value of Money and Money as Part of the Commons | Real Currencies
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  3. How to manage the Volume of Money in Mutual Credit | Real Currencies
  4. Mutual Credit for the 21st century: Convertibility | Real Currencies
  5. Interest-Free Credit (including MPE!) and the Management of Volume | Real Currencies

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