Interest, Inequality and Sustainability
(submitted to the Coalition for Economic Justice - 19th March 2013)

Somewhere in our history we took a wrong turn and today we are reaping the consequences. If we don’t step back to evaluate the root causes of the rolling economic crises, our civilisation is in danger of collapse. The orthodox economic framework within which we operate has blinded us to the inbuilt systemic drivers of inequality and instability, while offering no durable remedy to the problems we face.


While the brief for this paper is to make recommendations to address the flaws in the banking and monetary system, it cannot be considered in isolation. The banking system was established on top of the appropriation of land for private benefit allowing bankers (wealthy merchants) to capture their share of the rents. Rising rents are collected by landlords without enterprise or labour on their part while interest is levied by banks on (debt) money created from nothing. Both are manifestations of parasitical behaviour of minority interests at the expense of society.

Expanding population and rising productivity mean full employment is neither achievable nor desirable (over-production leading to needless waste and pollution, creation of “non-jobs” or destructive jobs). But we have an economic system in which the means to life is contingent upon paid employment. This is an irreconcilable paradox other than by recognising that the means to life cannot be conditional. Why should “rent seekers” collect a growing share of interest and rents while the remainder fight over a diminishing number of jobs which attract progressively lower pay?

Elimination of “cheating” (private land rents and interest) would release sufficient bounty to provide the basic means to life for all.  Consequently, the ideas in this paper are to be considered part of a package founded on three fundamental principles:
• Sharing the surplus (free) bounty of land and resources
• Abolishing interest
• Citizens income

 Interest and Inflation Free Money – Margrit Kennedy

1. Everybody pays interest irrespective of whether they borrow money. For example, the cost of a rail ticket includes the interest element to service the capital investment in rolling stock, track, infrastructure etc. But not everyone is treated equally by interest – the bottom 80% (by income) pay twice as much interest as they receive whereas the top 10% receive twice as much as they pay, ie. the top 10% collect all the interest paid by the bottom 80% - the top 0.01% receive 2000 times the top 10%. Interest drives inequality by allowing those with money to exploit those who need it.

2. When banks create money, only the principal is created not the interest. To feed the system, ever more debt needs to be created to provide the interest to service the pre-existing debt which leads to exponential debt growth. The interest on the expanding debt grows faster than the income to needed to service it. In Germany between 1968 and 1989 government income and average wages rose 400% while interest on government debt rose by 1,360%.

3. The banking and monetary system drives and demands exponential economic growth (and wasteful over-production) which is unsustainable. GDP growth at 3% pa means the economy doubles every 24 years.

4. Interest on money discounts the future which is why we’re depleting our resources and damaging the environment at an accelerating rate. Future returns are calculated with reference to Discounted Cash Flow (DCF) which means for example, a forest is worth more as logged timber today than at some point in the future.  

5. Inflation and interest are closely related and the former is used to justify the notion of a “time value” for money. Interest and inflation are self perpetuating – we need interest to compensate for inflation which wouldn’t normally exist without interest. If you have a token or a ticket for something in the future, whether you buy today or in the future, it remains valid without you having to pay more. Money should operate in the same way.


To achieve economic justice and a sustainable future which fosters cooperation, community cohesion and protects the commons, we need a radically different banking and monetary system.

(a) Interest free national currency - (possibly backed/anchored by land) which is created and controlled by a democratically accountable central monetary authority but not accountable to the government of the day. The national currency will provide the capital and revenue base for infrastructure investment, public services and a basic income for all adult citizens

(b) 100% of land rents accumulated for the common good – will provide the revenue base for public services and the citizens income (below)

(c) Citizens income for all adults

The national currency would be supplemented with a range of local and community currencies to foster local activity and social cohesion. Examples: WIR (in Switzerland), Gradido, LETS and other localised currencies. In addition, there would need to be access to international trading currencies such as the Ormita and initially at least, some form of exchange control to ensure the national currency doesn’t dissipate overseas.

A world without interest

Infrastructure – create sufficient national currency to finance development – running costs paid from land and resource rents
Private enterprise – funded by equity investment, co-operative and mutual models (could be supplemented by regional development finance)
Housing – indefinite security of tenure subject to payment of land rents
Employment and enterprise alongside a citizens income
Abolition of state pension and unemployment benefits – basic standard of living provided by the citizens income
Work becomes voluntary with negotiating balance restored between employer and employee
Abolition of income, corporation and employment taxes.

Initial proposals:
Land backed national currency – all land to be held in common against which the national currency would be issued. This currency would be spent into the economy by the state on infrastructure investment to the extent needed. A democratically accountable, independent national monetary authority would regulate the money supply according to the needs of the economy. Rent would be payable on all land according to location value and would accrue to fund public services and a basic income for all adults.
International trading currency – one (or more) international trading currencies, backed by a basket of commonly traded commodities – building on the current multi-lateral trade and initiatives such as the Ormita. Converting between the international and national currencies would be no more complex (an arguably much less so) than current foreign exchange arrangements but without the complication of interest.

Local currencies – there are a number of different models and there should be room for experimentation. This could involve time banking (exchanging time) and other ideas to foster community activity. Income tax would no longer exist and so convertibility to the national or international currency becomes much less of an issue. Nonetheless, there is no particular reason why it shouldn’t be possible.

To foster private investment and enterprise, equity participation would be the model ie. The providers of capital will share both the risks and rewards with the entrepreneur. Where important projects fail to attract funding, the state could step in (funding projects without interest).

Banking would become a simple utility involving the recording of values held and conducting transactions; technology will satisfy most of the requirements which will release valuable talent to think creatively of a better future.


The major obstacles to change in the economic system are:
the power of banking interests over politics, business, media, economics and public institutions
exclusive land and resource rights for private accumulation
the means to life being conditional on employment

Only by removing the power of banking interests can essential reforms be implemented. Failure to address these fundamental distortions which benefit vested interests will lead to economic collapse or World War Three. Civilisations which collapsed in the past were those in which elites drew a disproportionate share of the power and wealth allowing them to make critical decisions in favour of their selfish, short-term interests at the expense of everyone else and ultimately themselves. (See Jared Diamond, Collapse)