Why money hoarding should be banned

Is money expiration fair? Many first time readers of One Month Money have answered this question with a clear “no.” They claim that prohibiting money hoarding is fundamentally unjust, that since we earned our money through hard work we should do with it as we please — splurge, save, stick it under the mattress for forty years, whatever we want.

While I offer a number of counter arguments in the book, one approach was lost in the redrafting process, and it recently came up in a heated discussion with a former colleague. The key question is: why should money I earned forty years ago have value today? In a moneyless world, this would not occur. My goods and services of forty years ago are worth far less or worth nothing at all. My forty-year-old oranges have long since rotted away. Even durable goods like hammers and nails have rusted over four decades. It is only due to our current (and flawed) rules of money that through hoarding we can always ensure our work is worth something long into the future. We haven’t earned it, because that money no longer represents something of real value. We’ve simply exchanged it for something — a piece of paper — that’s a bit too good to be true. It doesn’t spoil, it doesn’t rot, it doesn’t rust.

Now let’s think of how someone transfers their income (the value of their work) to the future in a world without money. One way is to trade our produce for a durable commodity that we hope will maintain its value in the future. Another way is to save. I might lend 10 oranges to a friend and ask to be repaid 18 oranges forty years from now. In this transaction, my friend benefits from the value of my work in the present so I can benefit from the value of his work in the future. I sacrifice today, he sacrifices tomorrow.

The money world equivalent of this transaction requires me to lend my friend money. In forty years, he repays the loan. That money is still worth something because he is sacrificing his real income in order to pay me back. By spending his income, I am cashing in the value of his work. In this case, I truly did earn this money, because my friend benefitted from the value of my work I sacrificed forty years prior.

But when it comes to cash hoarding, something very different is happening. If I put my cash under my mattress, no one benefits from the value of my work in the present. I have not lent anyone my income. So when I decide to spend that cash in forty years’ time, what is it worth? No one is sacrificing their income so I can utilize the value of their work. And if it doesn’t represent the value of something I or someone else produced in the present, then what does it represent? It represents nothing. It is only worth something because our rules of money say it is so.

My key point is this: we need to think of money as representing the value of some underlying real production. If we conceive of money in this way, it is easier to understand why it is fair that our hoarded money should be worthless in the future. Money should represent the value of actual work, not work from half a century ago. The only way we should be able to transfer the value of our work to the future is if we trade it with someone else. They spend our work now, we spend theirs later.

And that’s all that neutral money does: it ensures that every act of saving transfers income to a borrower. The borrower will benefit in the present, and the saver will benefit in the future.



Money needs to have three properties in order to make it useful. One. It is a unit of account. Two. It is a means of exchange. Three. It is a store of value. Because these properties are absolutely essential, this would be a sufficient argument to discard the proposal of neutral money. Neutral money is not a store of value. People will resort to other items and use them instead as money if neutral money is becomes legal tender. Making an idea work is the major challenge as you admit, and you feel that your proposal is lacking something.

You also plan to end fractional reserve banking, but fractional reserve banking brings down interest rates as it makes more funds available for lending. Fractional reserve banking is just a specific form of matching maturities of deposits and loans. To make the system really stable, all mismatches between deposits and loans should be banned, which will push up interest rates even further. Making banking more difficult in general will make markets for money and capital less efficient, and therefore push up interest rates, which seems to be the opposite of what you intend to do.

I have worked with the ideas of Silvio Gesell for years, and based upon his ideas, I have come up with a proposal that might work. It is money with a holding tax like Gesell proposed, combined with a ban on charging interest on loans. This money can be a store of value as most money currently exists in the form of bank deposits in a fractional reserve system. Banks can lend out this money so that the holding tax does not have to be applied in full. This means that the interest rates on bank deposits may be -2% per year, which is acceptable as a store of value. As there is no inflation, and the value of money may even rise because the economy may grow without the need for more money, the real interest rate on bank deposits may be positive and even better than we currenly have.

There is also a better mechanism to reign in credit than banning fractional reserve banking. It is the maximum interest rate of zero. People would normally be willing to lend out money at interest rates below zero if they can evade the holding tax in this way, unless the economy tends to overheat, so that equity promises better rewards. This will then curb credit so that the economy will not overheat. There might be a reserve requirement based on the velocity of money, which means that if the economy does well, and money circulates faster, the reserve requirement rises, so that inflation will be suppressed. And this will never be a problem because the holding tax provides a constant stimulus.

If you are interested, you might want to read the article Money of the Natural Economic Order, which can be accessed via the following link: http://www.naturalmoney.org/full-theory.html

I have not written a book because there are too many books already, and because I am still working on the concept, so that the book I would write now is different from the one I would have written a year ago. But as you already have written, the issue is too important to ignore, as a new financial crisis is looming. I believe that the primary cause of financial and economic instability is interest on money. On my website I make an effort to get this message accross. I hope you appreciate it, and if you see problems with this idea, be free to say so.


    Hi there,

    Sorry: I just saw that you commented now.

    All I’ll say is I don’t agree with your axioms of money. Those three “necessities” of money are simply observations. The only reason money needed to store value is so it could be used again and again to grease the wheel of the economy. Obviously, an economy with money that crumbled away in your pocket would not function.

    Neutral money doesn’t take away the properties of money that allow a functioning economy. Under the system I propose, money retains value for an entire month. It then disappears if it remains unspent. Next month, there is new money available. In other words, the economy is able to benefit from money without allowing it to store value for longer than is beneficial to the macroeconomy. Yes, under neutral money, people might look to durable commodities to store value over the long-term. But that’s not a problem — only storing value in money is.

    So here’s what I’m saying: rather than list those three functions of money as though they are absolutely necessary, why not ask what is it we need to ensure a perfect money? Does money need to store value forever? Absolutely not.

    As to your second point: you’re right, fractional reserve banking is very important for the reasons you suggest. But that is in the CURRENT SYSTEM. As you can see, I don’t only propose abolishing fractional reserve banking. It is in fact very important that this change is combined with money expiration. By combining these two changes, all savings must find a borrower. The system automatically matches savings and borrowing. My book explains everything in much more detail.

    I am looking forward to reading about your idea.


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