I'd be interested in your thoughts about demurrage/carry-tax economic systems?

From a recent comment of mine:

Here is my preferred monetary system: demurrage based, money is created at a rate equal to the demurrage losses such that the money supply is constant on a per capita basis. Newly created money is distributed evenly to every person. Alternatively, some (or all) of the newly created money could be diverted to public funding in lieu of income and sales taxes.

I think there are a great many benefits to such a system. Most notably that it is an inherently stable system (in a mathematical systems analysis sort of way), contrary to our current debt-based, positive compound interest, fractional reserve system. I think the tax-alternative and budget aspects are pretty promising too.

The implementation would be fairly simple and straight-forward; basically banks become tax collectors and pay the government a percentage of all their deposits. (Do you think that might inspire lending?)

To prevent a flight to cash, bill issues would have expiration dates (organized in overlapping issues), and the treasury would sell them at a premium to face value to account for the devaluation incurred up to the expiration date.

To prevent systemic shock, a gradual, well defined transition should take place, consisting of the following actions:

1. The demurrage rate should be gradually increased to its final value.

2. To allow fixed-rate interest bearing instruments to be unwound and re-negotiated gracefully, the money supply will be gradually increased to it's final per capita value. This would be necessarily inflationary (but at least predictably so). Specific actions to this effect:

2a. The treasury will cease to issue debt instruments. The national debt will cease to grow from day 1. All government spending will constitute new money, without any debt encumbrance.

2b. To further increase money supply, the treasury will begin buying back its debts at a measured pace.

2c. The government will meet its social security and medicare commitments (possibly renegotiated), infrastructure modernization, and hey, how about some energy programs?

3. To compensate for excessive money generation from the policies of #2 (esp 2c!), the bank reserve ratio will be increased, which will exert deflationary pressure.

4. At the end of the transition period, a mandatory balanced budget clause will become in effect. Government budgets must be payed by carry-fees during the same fiscal period. The financial system should now be national debt free, zero inflation, and stable even in zero or negative growth periods. Yay.

The biggest problem I see with this systems, is one of perception. People are used to seeing money as an asset, rather than a tool to facilitate commerce. The two views are contradictory as was the first point of my earlier comment. That and the big banks might not like it much... :-/

Eliminating the personal and corporate income tax might be a sufficient enticement though.