Degrowth Money

The following text is an excerpt from “Towards an Ecology of Care: Basic Income Beyond the Nation-state (unpublished). Even though the degrowth movement has shown the limits of our civillization’s obsession with growth, and has promoted and proposed complementary currencies, the degrowth critique has yet to consider the role that money/credit creation plays more explicitly. Ecological economics has still to develop a monetary theory of its own, as well  Our call for an ecology of care aims at outlining the relationship between growth and monetary creation, and to lay the foundation of what we call degrowth money. We argue that money’s ‘nature’ itself also has to be changed and expanded in order to avoid the growth imperative from destroying the diversity of the world’s ecosystems.  Silvio Gesell is considered to be the first person in the modern era to develop the idea of free money (freigeld), where money would  “rot like potatoes, rust like iron and evaporate like ether”. The notion of a rotting money or to “make money worse as a commodity if we wish to make it better as a medium of exchange” was later termed demurrage. Embedding Gesell’s decaying free-money within the degrowth framework, we argue that a degrowth money can help us solve our current economic, social and ecological crisis for the following four reasons: 

1. Time Horizon: The way the money system works today affects our time horizon, as the short term is valued over the long term. Any investment which provides profit faster is given priority over long term production and planning. Because money today is made scarce through the production of credit, people have to compete over the interest in labor markets, making humanity’s time on earth an endless cycle of debt. In contrast, demurrage or degrowth money incentivizes long term decision making via discounted cash flows. Demurrage is a way of going slow, valuing the long term present value of things over the short term. Using the words of an economist, we have a situation where money has a negative interest rate embedded in its design. 

2. Liquidity Trap: Modern central banks are theoretically responsible for setting interest rates and managing the supply of money, in order to control inflation. These are the initial conditions which private banks use to issue credit to people. But as it is widely known, capitalism is prone to boom and bust cycles. A liquidity trap is a term economists use to describe the situation when money in an economy stops circulating regardless of the actions of central banks to increase the supply of money and affect interest rates. As trust in the economy disappears and a financial crisis starts, people start to hoard any money they can get their hands on. Degrowth money solves the liquidity trap by putting a limit on the amount of time that money can carry value. As complementary currency expert Bernard Lietaer put it, it is like charging ‘a parking fee on money’. Because people do not want their money to decay, they start to circulate it, as the many historical experiences during the Great Depression demonstrate.  

3. Integrating Entropy: We know from thermodynamics that energy can neither be created nor destroyed, just transformed. Degrowth money integrates the second law of thermodynamics into monetary theory by designing a money that is meant for circulation rather than accumulation. Money today expands through bank credit creation. Debt produces a vacuum for the extraction of value which sucks wealth back into the hands of the lender at the expense of the planet’s resources and most of humanity’s labor power. The accumulation of wealth made by our current systems of production implies the production of a lot of waste, or energy that irreversibly increases the total level of entropy of the planet. Increasing levels of (compounded) interest in money thus increase the entropy levels of the planet, which in turn lead to an overshooting of our planetary boundaries and the useful energy needed to reproduce life. Put more simply, wealth is waste. By making the value of money have a life-span, a degrowth money system has the potential to change the way energy is distributed and reintroduced within the system (and hence reduce its waste). This not only increases perceived wealth due to the higher velocity of money in circulation but also makes the deterioration of the quality of energy (entropy) slow down.

4. Ending the Material Growth Imperative: The way money is designed today favors money lenders and money holders. Positive interest on credit creation necessarily leads to more economic growth. A degrowth of money would stop the imperative to increase our material output as the effective interest rate on a yearly basis is zero or negative in comparison to previous years, instead allowing for qualitative growth in individuals and communities alike.  As Gesell himself put it: “Supply is something detached from the will of owners of goods, so demand must become something detached from the will of owners of money”. Detaching demand from the owners of money allows for complementary monies to be used for investment in local infrastructure, basic services, health and education. Degrowth money is fundamentally a different type of money which has the potential to make our human ecosystem more resilient as a whole through the introduction of monetary diversity, separating money’s functions in multiple money forms.