Gesell’s “free money”: why they were banned all over the world, and the author was deleted from textbooks on economics
There is not enough money in the whole world to pay off the debt they create every day. Today, people are accustomed to using credit money and do not think about the nature of their occurrence.
Credit money has replaced paper money and the "gold standard". In school economics, it is difficult to explain to children the difference between paper money and a banknote, because it is also made of paper. Moreover, any banknote in your wallet means that someone has a debt for this amount and interest on it, while with paper money the opposite is true.
The well-known British economist John Keynes once said:
– I am convinced that the future will learn more from Gesell than from Marx.
However, the ideas of the German economist Silvio Gesell are not known to the general public today. They are not talked about in universities, and the name of the author himself is not remembered and deleted from textbooks on economic theory.
Gesell first became interested in financial issues during the economic crisis of the late 1880s. His most famous work, The Natural Economic Order, consists of two parts:
- "Exercising the Right to Full Time";
- "The New Doctrine of Interest".
The work of S. Gesell "The Natural Economic Order"
According to the German economist, the cause of economic crises and social inequality is the wrong system of money circulation. In 1918 he argued that the growth of real capital is retarded by the money rate of interest.
– Contrary to all hopes for a better future, I must say: if the current monetary system preserves a percentage economy, then I will dare to assert today that even 25 years will not pass, and we will face a new, even more destructive war.
In the modern world, money performs five functions:
- the measure of value;
- medium of exchange;
- instrument of payment;
- means of accumulation;
- world money.
Gesell pointed out the dual role of money in his works. On the one hand, they act as an indispensable means of settlement and ensure economic activity, on the other hand, they are an instrument of power. Therefore, in his opinion, it is necessary to keep money as a neutral means of payment, but to exclude the property of money as a usurious instrument.
Pictured: Silvio Gesell
Karl Marx believed that the main problem of the monetary system is the surplus value that must be withdrawn from one class in favor of another. For Gesell, the main problem was in the very credit nature of money. To restore justice, he proposed not only to deprive money of the ability to bring profit at the expense of interest, but also to charge a fee for their use.
“Only that money that is falling into disrepair, like yesterday’s newspapers, can be real money. Because no one will distinguish such money from the goods that a person consumes. No one: neither the buyer nor the seller. And then, and only then, will money become what it is in its purest form: a medium of exchange, an assistant in the exchange of goods. No one will feel like a ruler simply because he has money.
Thus, the main difference between Gesell’s free money and the current ones lies in the proposal to make them as short-lived as goods. The sellers of goods are only interested in one thing – how to sell them as soon as possible, which means that it is necessary to establish the same conditions for the owners of money so that they also rush to get rid of them as soon as possible.
Gesell’s theory is of interest not only from a theoretical point of view. Many of his ideas have been put into practice. The most famous example can be considered an experiment conducted in the Austrian town of Wörgl during the economic crisis that swept Europe. 5,000 "free shillings" were issued, for the use of which a monthly fee of 1% or 12% per annum was charged. The fee was paid at the end of each month, a stamp was stuck on the banknote and without it it was invalid. Income from paying tax for the use of money went to the city treasury. "Free shillings" were paid salaries to officials, and merchants were obliged to accept them as payment. Anyone who happened to have such bills tried to spend them as quickly as possible.
In the photo: a free shilling from Wörgl
During the year, each of the 5,000 "free shillings" was in circulation 463 times. Thus, goods and services were produced and paid for in the amount of 2,300,000 conventional monetary units. The ordinary shilling was in circulation only 213 times during this time.
For half a year of paying the tax for the use of free money, 7 streets were paved, 12 roads were improved, the sewerage system was expanded, in connection with which, 50 unemployed citizens received jobs.
The Swiss journalist Bourdet, who visited Wörgl, wrote:
– I visited Wörgl in August 1933, exactly one year after the start of the experiment. Despite everything, it must be admitted that his success borders on a miracle. The streets, which were previously in a terrible state, can now only be compared with autobahns. The administration building has been overhauled and is a beautiful mansion with flowering geraniums.
When more than 200 Austrian communities became interested and expressed their desire to conduct such an experiment, the Austrian Central Bank saw this as a threat to the stability of the monetary system. The experiment is over.
In the photo: Silvio Gesell; years of life: 1862 – 1930
Although there are now several financial systems that use free Gesell money (for example, the Swiss currency WIR), however, any other attempts to create such money are suppressed by the authorities. They are banned in almost all countries of the world for several official reasons:
- free money undermines the state monopoly on the issue of money and the receipt of the corresponding income;
- Central banks lose control over money circulation, therefore, monetary policy instruments become ineffective.
But the main unofficial reason for Gesell’s ban on free money is the unwillingness of the global financial elite to lose their source of wealth.