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Author Topic: Freicoin: bitcoin with demurrage  (Read 28733 times)
porcupine87
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March 29, 2013, 05:48:55 PM
 #81

If you can buy an apple today with a bitcoin and two apples tomorrow with the same bitcoin. Why would you buy anything today?

Because you're hungry?

Well, of course you would expend the necessary to survive, but nothing else.

So you want to tell us, that you never ever bought a TV, a cellphone, a computer, a printer etc. because in one year you can get for the same money more value? I don't believe you! If you have a stable deflation of let's say 2% in a year, you have nothing to threaten the merchant. "Haha, now I wait and you can't sell and will gain losses. Now sell it to me for a lower price. You have to!" vs. "Haha, buy it now or you have to wait forever, because you will get more value for the same money forever."

I can imagine some peaple:
No, I don't buy the I-Phone 5 because in one year I can get an I-Phone 5s for the same money.
One year later:
No, I don't buy the I-Phone 5s because in one year I can get an I-Phone 6 for the same money.
One year later:
No, I don't buy the I-Phone 6 because in one year I can get an I-Phone 6s for the same money.

Then with the age of 86:
Hm, I still have my cellphone of 1994. Should I buy the I-Phone 34s or should I wait another year?

"Morality, it could be argued, represents the way that people would like the world to work - whereas economics represents how it actually does work." Freakonomics
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March 29, 2013, 06:17:54 PM
 #82

Well, I don't think there will be an iphone 34 or that anyone should buy any drm iphone.

In any case, ok, deflation doesn't fully stop consumption but it does halt investments.

Say you have 10,000 btc and are considering investing them on building a cell-phone factory, for example.
If you have 10% annual deflation, the factory must yield more than 10% (more than 1000 btc annually) for the investment to make sense.

Just saving you don't grow the economy, you need to invest what you don't consume (savings) in order to make that happen.
An economy without investments actually contracts, since real capital (like Freicoin and Gesell's free-money but unlike capital-money) perishes.
I think my claim "deflation reduces money velocity" isn't particularly crazy or controversial among economists.

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
porcupine87
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March 29, 2013, 06:53:31 PM
 #83

Well, I don't think there will be an iphone 34 or that anyone should buy any drm iphone.

In any case, ok, deflation doesn't fully stop consumption but it does halt investments.

Say you have 10,000 btc and are considering investing them on building a cell-phone factory, for example.
If you have 10% annual deflation, the factory must yield more than 10% (more than 1000 btc annually) for the investment to make sense.
So ist is if you hold Apple stocks which gain 10% annual "deflation". So do Apple halt investments because their stock is increasing in value? If you want to come to the solution, you have to ask ypurself why is there an deflation? Demand succeeds over supply. But why is that so? Or take gold as an example.

Do we have to destroy all durable goods to foster encourage investments? In my opinion it would make more sense to stop punish successful investments.

"Morality, it could be argued, represents the way that people would like the world to work - whereas economics represents how it actually does work." Freakonomics
myrkul
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March 29, 2013, 06:55:36 PM
 #84

In any case, ok, deflation doesn't fully stop consumption but it does halt investments.
Even if that were true, savings is a type of investment.

Say you have 10,000 btc and are considering investing them on building a cell-phone factory, for example.
If you have 10% annual deflation, the factory must yield more than 10% (more than 1000 btc annually) for the investment to make sense.
Not at all. Let's say I buy 100 shares in a company, each valued at one bitcoin. Over the next year, deflation increases the value of each bitcoin by 50% (Unrealistic, but let's run with it). Meanwhile, the company has made a paltry 1% profit, with a commensurate increase in it's stock price - 1%. So my 100 shares of this company are now worth 1.01 bitcoins a piece. But the bitcoin itself is worth 50% more...  So if I could have bought $10 000 worth of merchandise with those 100 bitcoins a year ago, I can now - after selling that stock - buy $15 150 worth. If I had merely kept those coins in a paper wallet somewhere, I could only buy $15 000 worth.

Investment is still profitable in a deflationary economy, as long as the company you're investing in is.

I think my claim "deflation reduces money velocity" isn't particularly crazy or controversial among economists.

It encourages long-term investments, such as savings, and might make investors a little more cautious, but honestly, I'd rather have that than the inflation-induced bubbles.

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March 29, 2013, 07:06:41 PM
 #85

Well, I don't think there will be an iphone 34 or that anyone should buy any drm iphone.

In any case, ok, deflation doesn't fully stop consumption but it does halt investments.

Say you have 10,000 btc and are considering investing them on building a cell-phone factory, for example.
If you have 10% annual deflation, the factory must yield more than 10% (more than 1000 btc annually) for the investment to make sense.
So ist is if you hold Apple stocks which gain 10% annual "deflation". So do Apple halt investments because their stock is increasing in value? If you want to come to the solution, you have to ask ypurself why is there an deflation? Demand succeeds over supply. But why is that so? Or take gold as an example.

Do we have to destroy all durable goods to foster encourage investments? In my opinion it would make more sense to stop punish successful investments.

Apple stocks would have to rise at least 10% in value plus the dividends to be better than just hoarding.
Apple hoards a big pile of cash, but thats unrelated to the how value of their stocks fluctuates.

Supply is the stock of wares (your own products, you don't want them). Money should be materialized demand but it isn't.
When the offer of money (demand) decreases prices rise. It doesn't necessarily mean that the supply of wares has increased, although that's another possible cause.

We don't need to destroy durable goods, I've never said that. And demurrage actually encourages long term investments by suppressing the so called "time preference" inherent to capital-monies but not inherent to humans as is often claimed by austrians.
To be more accurate, capital-money favors short-term investments over long term ones and free-money is neutral about time preference.
We've explained this in our web:

http://freico.in/about/

After "Anything that is not perishable becomes much more valuable".

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
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March 29, 2013, 07:10:02 PM
 #86

inflation is very nice see
thanks to it a government that i didn't vote for because i wasn't born made some very good investment!
Those investment where so good and yield a fantastic return. Right now i have a 30 000€ debt over my head because everybody in france have.
I'm still waiting for this very nice inflation to reimburse that Smiley

But you know what? The best would be to increase Inflation and raise this debt to 60 000€/ person. This way we can rebuild public service and made economy bounce back on the track.

Inflation is a tax of the weakest. The weakest is the one that can't avoid this inflation. Basically the middle class

The cost of mediation increases transaction costs, limiting the
minimum practical transaction size and cutting off the possibility for small casual transactions

Satoshi Nakamoto : https://bitcoin.org/bitcoin.pdf
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March 29, 2013, 07:13:54 PM
 #87

In any case, ok, deflation doesn't fully stop consumption but it does halt investments.
Even if that were true, savings is a type of investment.

No, investments are a type of saving. Lending is another way of saving. Hoarding is another way of saving, but not an investment.

Say you have 10,000 btc and are considering investing them on building a cell-phone factory, for example.
If you have 10% annual deflation, the factory must yield more than 10% (more than 1000 btc annually) for the investment to make sense.
Not at all. Let's say I buy 100 shares in a company, each valued at one bitcoin. Over the next year, deflation increases the value of each bitcoin by 50% (Unrealistic, but let's run with it). Meanwhile, the company has made a paltry 1% profit, with a commensurate increase in it's stock price - 1%. So my 100 shares of this company are now worth 1.01 bitcoins a piece. But the bitcoin itself is worth 50% more...  So if I could have bought $10 000 worth of merchandise with those 100 bitcoins a year ago, I can now - after selling that stock - buy $15 150 worth. If I had merely kept those coins in a paper wallet somewhere, I could only buy $15 000 worth.

Investment is still profitable in a deflationary economy, as long as the company you're investing in is.

Your example is wrong. If the stock rises 1% in VALUE but btc rises 50% in value, the stock you bought for 1 btc will be worth 0.505 btc after the year, not 1.01 btc.
You would be better off by hoarding the btc instead of buying the stock.

I think my claim "deflation reduces money velocity" isn't particularly crazy or controversial among economists.

It encourages long-term investments, such as savings, and might make investors a little more cautious, but honestly, I'd rather have that than the inflation-induced bubbles.

Deflation encourages hoarding not investment.
And as said above, basic interest and capital-money encourage short-term investments not long-term ones.

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
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March 29, 2013, 07:20:49 PM
 #88

inflation is very nice see
thanks to it a government that i didn't vote for because i wasn't born made some very good investment!
Those investment where so good and yield a fantastic return. Right now i have a 30 000€ debt over my head because everybody in france have.
I'm still waiting for this very nice inflation to reimburse that Smiley

But you know what? The best would be to increase Inflation and raise this debt to 60 000€/ person. This way we can rebuild public service and made economy bounce back on the track.

Inflation is a tax of the weakest. The weakest is the one that can't avoid this inflation. Basically the middle class

Who's arguing for inflation? Freicoin monetary base converges at the fixed quantity of 100 MM Freicoins.
Demurrage fees pay for security, just like transactions fees will pay alone in bitcoin. In freicoin we expect lower transaction fees because demurrage fees are already funding the security.
Gesell himself predicted hyper-inflation for usd-like currencies. He predicts that first central banks lower interest rates to zero and then hyper-inflation eventually occurs when all the hoarded money comes out to the market suddenly. Sounds familiar?

https://www.community-exchange.org/docs/Gesell/en/neo/part3/13.htm

Extrapolating his predictions, the yen should die first, then the usd, gbp, the eur...

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
myrkul
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March 29, 2013, 07:21:27 PM
 #89

Say you have 10,000 btc and are considering investing them on building a cell-phone factory, for example.
If you have 10% annual deflation, the factory must yield more than 10% (more than 1000 btc annually) for the investment to make sense.
Not at all. Let's say I buy 100 shares in a company, each valued at one bitcoin. Over the next year, deflation increases the value of each bitcoin by 50% (Unrealistic, but let's run with it). Meanwhile, the company has made a paltry 1% profit, with a commensurate increase in it's stock price - 1%. So my 100 shares of this company are now worth 1.01 bitcoins a piece. But the bitcoin itself is worth 50% more...  So if I could have bought $10 000 worth of merchandise with those 100 bitcoins a year ago, I can now - after selling that stock - buy $15 150 worth. If I had merely kept those coins in a paper wallet somewhere, I could only buy $15 000 worth.

Investment is still profitable in a deflationary economy, as long as the company you're investing in is.

Your example is wrong. If the stock rises 1% in VALUE but btc rises 50% in value, the stock you bought for 1 btc will be worth 0.505 btc after the year, not 1.01 btc.
You would be better off by hoarding the btc instead of buying the stock.

How do you measure a stock's value?

(hint: it starts with pr- and ends with -ice)

OK, to expound a little on my above example:
The company has 1000 shares, each IPO'd at 1 bitcoin. This gives them 1000 bitcoins to work with. Over the course of the year, they as I said, make a paltry profit of 1% on those bitcoins. This means the company's total worth is now 1010 bitcoins. Assuming stock price follows net worth (not always true, since there's a bit of future profit potential factored in, not to mention investor confidence) the stock's price is now 1.01 bitcoin. Selling those stocks, you'd make a killing.

Now... would it be harder for a company to make the profit in the first place? Possibly. Depends on how drastic the deflation is. Their business model would also play a part. Service-oriented businesses would be easier to maintain a profit, while production-based businesses would have to be very quick out the door with their product, since every day a product sits on a shelf is reduced profit, compared to the price they paid for the materials. Frankly, a company that can manage a 1% profit in a 50% deflationary economy would be going like gangbusters in more stable one.

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March 29, 2013, 07:27:44 PM
 #90

How do you measure a stock's value?

Say we have an imaginary currency called stablecoin that has a constant value throughout time.

Year 0
1 stablecoin = 1 share = 1 btc

year 1
1 share = 1.01 stablecoins
0.5 btc = 1 stablecoin
1 share = 1.01 * 0.5 btc = 0.505 btc

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
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March 29, 2013, 07:46:00 PM
 #91

inflation is very nice see
thanks to it a government that i didn't vote for because i wasn't born made some very good investment!
Those investment where so good and yield a fantastic return. Right now i have a 30 000€ debt over my head because everybody in france have.
I'm still waiting for this very nice inflation to reimburse that Smiley

But you know what? The best would be to increase Inflation and raise this debt to 60 000€/ person. This way we can rebuild public service and made economy bounce back on the track.

Inflation is a tax of the weakest. The weakest is the one that can't avoid this inflation. Basically the middle class

Who's arguing for inflation? Freicoin monetary base converges at the fixed quantity of 100 MM Freicoins.
Demurrage fees pay for security, just like transactions fees will pay alone in bitcoin. In freicoin we expect lower transaction fees because demurrage fees are already funding the security.
Gesell himself predicted hyper-inflation for usd-like currencies. He predicts that first central banks lower interest rates to zero and then hyper-inflation eventually occurs when all the hoarded money comes out to the market suddenly. Sounds familiar?

https://www.community-exchange.org/docs/Gesell/en/neo/part3/13.htm

Extrapolating his predictions, the yen should die first, then the usd, gbp, the eur...
my mistake for inflation.
But still i see no pointof adding rules to money.
Shouldn't it be just a mean of exchange/saving ?

Creating other rules around it just like demurge, is adding some political idea inside.

The cost of mediation increases transaction costs, limiting the
minimum practical transaction size and cutting off the possibility for small casual transactions

Satoshi Nakamoto : https://bitcoin.org/bitcoin.pdf
myrkul
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March 29, 2013, 08:08:16 PM
 #92

How do you measure a stock's value?

Say we have an imaginary currency called stablecoin that has a constant value throughout time.

Year 0
1 stablecoin = 1 share = 1 btc

year 1
1 share = 1.01 stablecoins
1 btc = 1.5 stablecoin
1 share = 1.01 * 0.66 btc = 0.673 btc
(your math is wrong, I corrected it - btc is worth 50% more, not 100%)

Well, that's just wonderful, but the company's business is not transacted in "stablecoin," but in bitcoin. So if it has made a 1% profit in bitcoin, then the actual calculation would be:

year 1
1 share = 1.01 btc
1 btc = 1.5 stablecoin
1 share = 1.01 * 1.5 btc = 1.515 stablecoin

As I pointed out, making the profit in the first place would be difficult, because of the deflation, but if it made profit, that would translate to being a great investment.
Year 0:
parts to make a phone cost 1 bitcoin = 1 stablecoin
market price of a phone is about 1.1 bitcoin = 1.1 stablecoin

Year 1:
market price of a phone is about .733 bitcoin = 1.1 stablecoin
the parts to make that phone (back in year 0) cost the company 1 bitcoin, a net loss - in bitcoin - of 0.267.

Tough to keep up with the price of your product, since you necessarily have to buy the supplies before you can sell your product.

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March 30, 2013, 11:03:27 AM
 #93

@jtimon

I think your missunderstanding with myrkul consinst of how the profit is measured (or the stock price.) Let's assume 1BTC = 100$ and at the end of the year 1BTC = 150$. Now if the company uses Dollars, they have to make a profit of 51%, if they use bitcoins, only 1% to be more profitable than hoarding.

But think about it: If you can't abolish Bitcoin and bitcoins gaining 10% in value every year then Bitcoin doesn't have to be a currency. Even today a company would has to make more profit than 10%. If not the company just would buy bitcoins, right? And that counts for the whole stock market.

"Morality, it could be argued, represents the way that people would like the world to work - whereas economics represents how it actually does work." Freakonomics
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March 30, 2013, 11:18:31 AM
 #94

my mistake for inflation.
But still i see no pointof adding rules to money.
Shouldn't it be just a mean of exchange/saving ?

Creating other rules around it just like demurge, is adding some political idea inside.

It's more an economic idea than a political one. But we believe that money should only be a means of exchange, not a so called "store of value". Silvio Gesell explains the problems caused by money trying to perform both functions at the same time.
One function distorts the other one. Personally I don't believe that an abstract store of value is even possible, but other in our community think that Freicoin should be used for exchange and Bitcoin for saving.

(your math is wrong, I corrected it - btc is worth 50% more, not 100%)

Well, that's just wonderful, but the company's business is not transacted in "stablecoin," but in bitcoin. So if it has made a 1% profit in bitcoin, then the actual calculation would be:
...

Yes, thanks for the correction. In any case, I was talking about the stock having to grow in value more than bitcoin in real terms.
And that applies to your example. The company stock hasn't grown in real value just 1%, it has grown in value more than 50% (more than Bitcoin).
I'm not saying it is impossible, just very unlikely. So less companies will be good investments (compared to hoarding) and hoarding will substitute part of the real investments.
My claim still stands: "deflation makes real investments less attractive".
I'm not saying bitcoin will destroy the economy because it is not monopoly money like gold was. Although borrowing a highly deflationary currency is quite crazy, people will just lend and invest other currencies.


2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
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March 30, 2013, 11:35:38 AM
 #95


Well i'm not economist but i see no reason of this distinction. Mainly if you have bridges between the two. Doesn't mean there is no space for other crypto, i do not know they'll raise eventually if needed. Bitcoin doesn't solve all the problems.

And gold for instance is an abstract store of value. Yep it is physical but still the value is totally abstract. It is based on faith. Find a guy who grew up in the jungle and never saw gold or silver, give him some and ask him what he want to keep, he might as well keep some silver. Gold is totally useless. yet it is used as a store of value.


The cost of mediation increases transaction costs, limiting the
minimum practical transaction size and cutting off the possibility for small casual transactions

Satoshi Nakamoto : https://bitcoin.org/bitcoin.pdf
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March 30, 2013, 12:18:26 PM
 #96

Although I disagree that gold is completely useless (it is a valuable industrial commodity), its current value compared to silver cannot derive from their differences as industrial commodities or the difference wouldn't be so big.
No matter what Bernanke claims, gold is still money to some extend. So, yes, a agree that gold qualifies as an abstract store of value. Its value could collapse if all the users wanted to extract that "stored value" at the same time. Not to zero, but still collapse.
So I mostly agree with you in your analysis.

The aim of Freicoin is to provide a crypto-currency that is good as a medium of exchange but not suitable for "store of value".
A currency that makes sense to lend at zero interest (plus risk premium). Well, if you add the inflation premium (which is negative when there's deflation), it could even make sense to lend it at negative interest (of course, never below the demurrage rate).
In our extreme 50% deflation example, not even freicoin would be invested, but the user base will eventually stabilize and at that point freicoin should be more stable than bitcoin (as there won't be much "hoarding demand", which is more variable).

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
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March 30, 2013, 12:39:54 PM
 #97

Although I disagree that gold is completely useless (it is a valuable industrial commodity), its current value compared to silver cannot derive from their differences as industrial commodities or the difference wouldn't be so big.
yep u get the point

I spoke with a friend a few day ago and his first idea of perfect money was with this demurge thing (and i send him to freicoin!). But still you create a money that nobody want ( because of demurge) hoping that they will want to use this money.
I don't understand where the value come from: Faith will be very low AND it has no physical value.

What i get of the bitcoin experiment is that SAVING and EXCHANGE goes together. Without poeple using bitcoin as a way of saving, bitcoin would have stay at a very low market cap making it to risky to use as a mean of exchange ( fluctuation ). Raising the market cap by hoarding helped to stabilize the price and make bitcoin credible.
I am not speaking of the little spark we see right now. Bitcoin was used as a saving method before 2010.
SAVING give the value to the currency that can then be used to EXCHANGE.


But again i'm not economist i'd be glad to use freicoin in 5 years if it's still around Smiley

The cost of mediation increases transaction costs, limiting the
minimum practical transaction size and cutting off the possibility for small casual transactions

Satoshi Nakamoto : https://bitcoin.org/bitcoin.pdf
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March 30, 2013, 01:10:22 PM
 #98

Thank you for pointing your friend to our project!!

Its value comes from the demand, just like with bitcoin. Of course is still to be proven if demurrage will destroy that demand or not.
Until now, demurrage currencies have been usually backed national currencies (worgl, chiemgauer...) or they were directly enforced by a state (Bernard Lietaer talks about demurrage currencies in the age of cathedrals in europe, Egypt or China; associating these currencies with long-term investments and big infrastructure projects).

I just think that if it has a price, merchants can accept it. And if merchants accept it will have demand. But although I've been investigating money for years I'm not an economist either, and even if I were I don't think anybody can predict what will happen with certainty.
It is an economic experiment in addition to a currency (well, bitcoin is a monetary experiment too as you point out).

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
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April 26, 2013, 01:00:57 PM
 #99

Well, I don't think there will be an iphone 34 or that anyone should buy any drm iphone.

In any case, ok, deflation doesn't fully stop consumption but it does halt investments.

Say you have 10,000 btc and are considering investing them on building a cell-phone factory, for example.
If you have 10% annual deflation, the factory must yield more than 10% (more than 1000 btc annually) for the investment to make sense.

Just saving you don't grow the economy, you need to invest what you don't consume (savings) in order to make that happen.
An economy without investments actually contracts, since real capital (like Freicoin and Gesell's free-money but unlike capital-money) perishes.
I think my claim "deflation reduces money velocity" isn't particularly crazy or controversial among economists.

That is correct. I do not grok why it matters. Why does money hoarding matter? it is not a real asset. Hoarding money is not like hoarding copper or food that could be productively employed or consumed. You cannot build something out of bitcoin or eat it.  Furthermore it is not necessarily the case that reducing economic activity is bad. Is it better to pump petroleum out of the ground as fast as possible or to hoard some of it? Some resources are finite and their consumption should not be blindly stimulated.

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April 26, 2013, 03:09:08 PM
 #100

Money systems are never in themselves resources, but money CONTROLS all consumption and production of resources through price signals.  Any economist will tell you that the most important price in the economy is the interest rate and the nature of the money and its supply are the drivers of that rate.  We do not believe that demurrage increases wasteful consumption of resources, if you look at the history of the industrial revolution you will see that mildly inflationary fiat has created an economy with lots of resource consumption and waste in it.  One of the drivers behind that is that interest must be payed in-order to avoid defaulting on loans.  The only way to repay all loans is to expand the economy PERPETUALLY.  Defaults would cause personal bankruptcy (bad for a few poor people) and most importantly without expansion the number of defaults would roughly equal the interest rate meaning lenders would lose in write-offs what they make from interest and all their profits would be gone (bad for very rich and powerful people).  Which reason is the one driving our expansionary paradigm, heck they seem to be very close to making it work for the later group despite the personal bankruptcies of the former.

You can also do some very simple math on NET PRESENT VALUE to see that a forest (or any other natural endowment with perpetual value creating potential) under interest bearing money is only worth a finite amount, at 5% interest its only worth 20 years of lumber production.  If you could make more then that by leveling it for a shopping mall that's what you SHOULD do according to interest.  Under reduced interest rates created by demurrage perpetual natural production is nearly priceless and you preserve it.  Likewise high upfront-low ongoing expenditures like solar, wind currently get out competed by low upfront-high ongoing solutions like goal and natural gas because future expenditure is also discounted by interest, it's well understood by renewable energy investors that financing is now the only real barrier to their cost effectiveness.

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