The Difference between Debt-Free Money and Interest-Free Credit

by Anthony Migchels (Real Currencies)

October 11, 2013

The endless barrage of debt, debt, debt, makes debt-free money sound very attractive. But the problem is not debt: it’s interest. Interest-free, credit-based money is superior to debt-free currency. On the other hand, debt-free money could easily be repaired to again be a competitive proposition.

Debt-free money is simply unbacked ‘paper’ (nowadays it’d be mostly electronic, of course) money, printed (usually) by the State. The State can then either spend it into circulation itself, or have the populace do it; the former method is commonly referred to as Greenbackism, the latter is known as Social Credit.

Interest-free credit is credit by bookkeeping. It’s not unlike our current fractional reserve banking system, although Mutual Credit is a simpler and superior way of creating credit, as there is no need for deposits (‘capitalization’). Hence, Mutual Credit is intrinsically stable, while fractional reserve banking based lending facilities go bust routinely.

Debt-free money is spent into circulation and continues to circulate until it is retired through taxation. Interest-free credit is lent into circulation and is retired when the debt is repaid. Often the two meet. For instance: John Turmel recently gave the example of a Continental (George Washington’s debt-free money) being spent on infrastructure and retired through taxation covering the investment. In this way, debt-free money is basically used as interest-free credit by the Government, and the circulating Continental could be seen as the National Debt.

A noteworthy difference between interest-free credit (IFC) and debt-free money (DFM) is that interest-free credit can be spent as often as it is repaid, while debt-free money can only be spent once. This means IFC is more flexible.

Isn’t debt a problem?

Debt as a problem is overrated. It’s not so much the debt, but the interest that is killing us. A mortgage is a good example: we go into debt to buy a house, say for $100k, and after 30 years we have paid $250k, including $150k interest. For the repaid debt, we obtained a house; for the usury, we got nothing.

Crucial to understand is that it is not the bank’s credit. It’s just bookkeeping, and the banks keep the books for the community, who really owns the credit. It is, in reality, our brethren who are allowing us to buy now and pay later. Credit is automatic, when it is mutual.

In the news, we hear about debt, debt, debt. But nobody is ever complaining about debt-service, while all the debt could be repaid within twenty years should we stop paying interest and use that money to pay back the principal. Why is this so?

Bankers know loans can go sour. They hate to write them off, but will gnashingly do so, if they cannot avoid it. Business is business, and they are realists. But whereas a write-off is a one-time loss, ending interest payments would just kill their business case.

This is one of the reasons why I prefer an interest strike over debt repudiation too, except for odious debt, which should be repudiated always.

For the debt, real stuff was acquired; and while the bank loses when the debt is not repaid, it does not gain anything when it is: the money is just retired. The debt-money is not the bank’s: it did not exist before the loan was taken out, and it disappears when the loan is repaid.

An interest strike, on the other hand, is to a bank what garlic is to a vampire.

The reason the people don’t talk about suspending interest payments to alleviate the debt quagmire is equally clear. They still don’t understand how they are being colonized through Usury. They assume interest on the debt is natural, as they were programmed to.
Having said that, debt is a bond. The lender is the master of the debtor. Less is more – even when the lender is the community represented by an interest-free credit facility, and even when the debt is for a worthy cause like an interest-free mortgage.

So isn’t debt-free money perhaps better after all? The issue is that classical debt-free money proposals are accompanied by Full Reserve Banking (FRB). The money would not be debt-free for long, once it is spent into circulation. Once it enters the banking system, it will not leave other than as a loan – a usurious loan. Because of the usury, a quick return of money scarcity after spending the money into circulation can also be expected.

So debt-free money in itself does not end interest-slavery. Because the money will be handled by banks, there will also be money scarcity. Not only because of the usury, but also because the bankers will keep money from circulating in the real economy, most notably to feed their gambling addiction in the international financial economy.

Furthermore, a modern economy without credit is unthinkable. People will need mortgages; even more importantly, modern business is impossible without credit. Investments can be very capital-intensive, and these investments would be impossible to save up for beforehand. People will perhaps not be too bothered with businesses paying interest; but the reality is that the businesses will have to pass on these interest costs to their customers: us.

Repairing DFM

These days, we can provide FRB without interest, through JAK banking. That’s one way of solving the usury problem with debt-free money. Savers don’t get interest on their savings, but they acquire future rights to interest-free loans if they save now and allow that money to be used for interest-free loans to others.

Probably even better is demurrage, where those with a positive balance pay ‘interest’ – basically a penalty for holding money. Demurrage is based on the ways of the ancients, who used to store produce at central warehouses and got receipts in return. These receipts were used to pay others; the receipts declined in value, because the produce in the warehouses did too.

Demurrage is designed to discourage hoarding of money. As a result, velocity of money (how quickly it changes hands) is vastly increased. Not only that: the penalty gives a clear incentive to lend interest-free, which saves the cost of holding onto money. It also promotes paying in advance, which also amounts to an interest-free loan. Paying up front instead of at the time of the purchase is very beneficial for the supplier, who can use the money to finance investments interest-free. So demurrage lessens the need for credit, and provides interest-free credit.

The great disadvantage of demurrage is that there is little experience with it. The upside is: the experience there is, is very positive. The classic case is Wörgl, Austria, where demurrage money solved the Great Depression in 1934.


Interest-free credit is superior to debt-free money. It is more flexible and gets to the heart of the matter, which is usury. We will never be able to do without credit, but we can rule out interest on the debt.

Current debt-free proposals do not comprehensively solve usury, and thus do not solve money scarcity.

However, debt-free money can be decisively improved – by both interest-free JAK banking and by demurrage.

There is no tutor like practice, and ultimately we will have to experiment with different systems to know which is best.

The best part of the story is that we have several ways of solving our monetary problems overnight. Only the knowledge and the will are lacking as yet, and this is changing too.


Debt-Free Money Alone Does Not Solve Compound Interest
Debt Repudiation or an Interest Strike?
Cause and Effects of Money Scarcity

Further resources:

Jason Erb interviews Anthony Migchels:  2012-03-31  2012-07-22  2013-09-28 

Robert Stark interviews Anthony Migchels:  2012-06-27  2012-11-22 2014-01-03

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  • What happens to elderly who are no longer able to work under this system? If they are more or less fined for saving money, how do they eat? Just wondering.

  • Small matter, anonymous, demurrage would not be applied to elderly savings accounts and otherwise vast sums of money, currently the private preserve for small numbers of privately held central bankers, would be produced, flow back to the "People's Treasury", banking system, and propelled across and shared by society at unprecedented levels… Read Richard C. Cook's articles on the "Social Credit Movement" of late 19th cent. England, the American Monetary Institutes Proposals, Hugh Carey and his sons writings, and revisit T. Jefferson's sage advice: "I place economy among the first and most important virtues and public debt as the greatest of dangers to be feared. To preserve our independence, we must not let our rulers load us with public debt. We must make our choice between economy and liberty or confusion and servitude. If we run into such debts, we must be taxed in our meat and drink, in our necessities and comforts, in our labor and in our amusements. If we can prevent the government from wasting the labor of the people, under the pretense of 'caring for them,' they will be happy."

  • The main thing is that people don't save money, but clearly there are many,many (vastly superior) ways of hoarding wealth for future use. Also, because people would have vastly improved income throughout life AND the key reason for the decline of the family is taken away.

    In short: things look much better for the elderly without Usury.

  • Debt-free money is the answer. Socialized lending would be a disaster. the problems brother Migchels addresses are best solved by having all new money going only to households as a free-and-clear ex nihilo dividend where it is then spent into existence by the consumer or put into a lending bank where banks can only lend what savers have turned over to them to lend — that bank offering savers who allow their money to be spent a certain interest rate for the loan to the bank and the bank charging a higher interest rate to borrowers (entrepreneurs and home buyers). That market for loanable funds is very important — it must not be socialized. Those two interest rates permit market demand allocation of the goods and investment and labor/leisure trade-offs. Socialism cannot accomplish this. There is a fundamental psychology difference here between Europeans and Americans — which to this American appears as an unfounded blind trust in government. Let all new money to to households and let households either spend, hoard, invest directly or lend their money to banks so banks can lend money to the community. That is what we need. We also need competiton among banks so that people with cash balances can lend to banks and receive a competitively high rate and borrowing entrepreneurs can get a competitively low rate — while that market regulates and coordinates everyone's desire for goods now versus goods later and labor now versus leisure now. To Migchels what I sound here does not make sense. To me what he proposes does not make sense. Yet we agree on almost everything else in the universe. Much as I like and respect Anthony – this question cannot go unresolved. The anti-debt-money position and anti-usury position cannot both be right. People have to decide on one or the other before they can take the field against Bank-of-England/Rothschild system or the quack Austrian, Keen, Ellen Brown quackery proposals.

    is the American Populist Social Credit solution which I offer in opposition to the Guaranteed Income notion

    1. repudiate debt incurred under a fraudulent system where the amount of money in circulation is kept insufficient to repay loans

    2. institute permanent national money created by fiat (from "thin air")

    3. originate all new money exclusively in each citizen’s primary bank account, through a regular, free and clear, household-sector dividend

    4. separate banking from money creation, thus ending the fractional reserve banking system; require that money creation and distribution to households be a federal function, and that chartering and regulating banks be a responsibility of the states; eliminate the central bank, all national banks, and all open market operations by any bank

    5. require that banks (savings and loan associations regulated by the states) lend only funds entrusted to them by money owners for that purpose

    6. require that the risk of all bank-financed transactions be shared between borrower and lender, so that banks can only recoup half of the principal in the event of business loss resulting in default

    7. end all deficit finance by government; require that all government goods and services be funded by direct taxation and fees, with all government financial accounts published for citizens to examine

    Populist love to you all.