Resolving the Binding Constraint on Circular Economy: Principal Return Rate as Interest-Free Monetary Architecture
Green growth through circular economy is the dominant institutional response to ecological breakdown. Yet its insufficiency is structural: material flow arithmetic prevents loop closing at scale in a growing economy, thermodynamic constraints make completely closed loops physically infeasible, and circular material flows account for only 1.4% of global GDP while CE-principled service activities generate around two thirds of GDP without arresting ecological overshoot. The binding constraint lies not in production organisation but in the monetary architecture that structurally compels throughput expansion regardless of how production is organised. Six independent scholarly traditions, from ecological economics and post-Keynesian monetary theory to the historical critique of usury, have converged on interest as the central structural problem in any economy that does not require perpetual growth. Yet no existing proposal has specified a technically coherent mechanism to replace the monetary control function that interest currently performs, a gap unfilled across nine decades of sovereign money proposals. This article introduces the Principal Return Rate (PRR) as that mechanism. The PRR replaces interest not as a cost of credit but as a rate of return instrument: sovereign money, anchored to productive demand, is returned to central bank reserves at rates determined by the PRR. Inflation is controlled through central bank PRR adjustment, analogous to interest rate policy but acting on return velocity rather than borrowing cost, without the cost-push channel that interest itself generates. The PRR system closes the functional design gap open for nine decades. The article also introduces the hypothesis that positive time preference is partially endogenous to the interest-bearing system, generated by the inflation interest produces, making its conventional justification partially circular.