Sergey Golubitsky , published in the Business Journal, October 02, 2007.
"I am convinced that the future will learn more from Gesell than from Marx.
John Maynard Keynes
Last week we ended our biography of the U.S. dollar on a somber note: flirting with private central banks and unsecured credit money will sooner or later end in disaster, which, given its status as a global reserve currency, will be universal: the entire global economy will sink into the abysses of oblivion.
This prophecy has nothing to do with clairvoyance, because it is based on commonplace arithmetic: the growth of debt due to the credit nature of modern money is exponential, and every exponential in this world has a definitely nasty end. Regular write-offs by governments of the debts of their citizens, and by creditor nations of the debts of the Third World, change nothing, merely postponing the coming financial catastrophe. We are not even talking about the morally corrupting aspect of such write-offs.
Since there are many alternative systems to unsecured and credit money, which means that in theory there is a reason to avoid a catastrophe, everyone wonders whether this catastrophe can be prevented by peaceful or violent means. Environmental romantics like Marguerite Kennedy, whose book Money Without Interest and Inflation became the bible of Silvio Gesell's free-money proponents in Russia, advocates a peaceful transition and the patient persuasion of the financial elite to voluntarily give up their main trough, credit money. It is difficult not only to agree, but even to imagine the measure of nerdy idealism required to cultivate faith in the very possibility of such a development.
A violent resolution of the situation seems equally unrealistic, since the apparatus of repression, equipped with modern technology and in the service of "old money," is so outmatched by any opposition that it rules out even the hint of a meaningful armed confrontation. Not to mention the fact that an effective system of total brainwashing through the media will never allow the "wrong ideas" to arise in numbers sufficient for mass confrontation.
Thus, like it or not, the most probable course of events appears to be the rooster pecking, the very financial disaster that seems to be unavoidable. Under such circumstances, the temptation is great to suggest that the narrative of alternative monetary systems is nothing more than idle knowledge, devoid of practical implications.
The peculiarity of the topic, however, is that all models of free money were originally created not as an alternative to the global financial system, but as a local initiative capable of facilitating the life of a small community, a town, a city, at most a region or a county. There is even a synonym for Silvio Gesell's varieties of Freigeld - community currencies, local currencies. The idea of full replacement of national currencies by free money came much later, in the period of the final departure of the monetary fantasy from the reality of goods and services (in the early 80s of the last century).
It is in the local aspect of free money, the possibility of its use in the most limited segment of the market space that we see the practical interest of the topic for the readers of the Business Journal. At least - for the most inquisitive part of them. After all, the schemes of introducing Freigeld are so elementary, and the effectiveness of their application is so clear, that it's a sin not to try! Father
We open "The Great Encyclopedia of Cyril and Methodius - 2007", which has 88 thousand articles, enter "Silvio Gesell" and ... we find nothing! Is it really possible with respect to the man, put by Keynes, the patriarch of modern capitalism, above - it's scary to think about! - Karl Marx himself?! It turns out that it is possible, and not only in the domestic information space.
It may seem that the name of Silvio Gesell is shrouded in obscurity on both sides of the ocean due to biographical circumstances: the author of Natural Economic Order (Naturliche Wirtschaftsordnung, 1906) was self-taught, which by definition should evoke contemptuous derision from the masters of academic science.
Such an assumption, however, is far from the truth. Three years after Gesell's death (1930) Irving Fisher, a professor at Yale University and a leading expert in the theory of money and credit, expressed his admiration for Gesell's theory in Stamp Scrip: "Medicine owes a lot to untrained minds, at least to minds untrained in medicine. Even Pasteur, as a professional scientist, was not a doctor, and the laryngoscope was perfected, many claim - even invented - by the prominent Spanish singer Manuel Garcia. The recently deceased Silvio Gesell was a German entrepreneur and quasi-economist. He lived in Argentina and wrote many of his works in Spanish. In 1890, while in Argentina, Gesell proposed replacing money with "voucher certificates, "2 the same ones that are so widespread in our country today.
Following Irving Fisher, Gesell's theory was recognized by other academics, including the British authority John Maynard Keynes. In the mid-1930s Freigeld was being successfully introduced in Austria, Switzerland, Germany, and - almost universally - in the United States. The case of Silvio Gesell seemed to have a stellar future, but very quickly both his name and his theory were erased from the public consciousness. Why?
All attempts to put the theory of free money into practice during the 1930's had a common fate: in the shortest possible time (a year at most, and usually within two or three months) they produced phenomenal results in overcoming the bleakest symptoms of the economic depression-eliminating unemployment, radically raising taxes, reviving municipal activity, burgeoning local commerce, and-most importantly! - eliminated the scarcity of real money driven by deflation into the coffers of bank vaults.
After the triumph, however, there was a hangover: as soon as news of the miracle money spread around, there was a massive desire from neighboring municipalities and communities to join the experiment. Then the national Central Bank intervened and, under one pretext or another (as a rule, it was accused of violating the monopoly on the issue and circulation of money), shut down the project. In particular, a similar scenario was played out in Germany (the w.a.ra experiment in Schwanenkirchen) and Austria (free money in the Alpine town of Wörgl). As for the United States, thousands of experiments to introduce free money from ocean to ocean were safely strangled by the "New Deal" signed unilaterally with the nation by 32nd degree Freemason F. D. Roosevelt.
After World War II, Gesell's name, along with his free money, was shrouded in a mystery comparable only to the Roswell find3. I suppose the conspiracy of silence on the part of academic science had nothing to do with it. The real reason lies in Keynes' prophecy in the epigraph: Geiselle's idea not only undermines the very foundations of the global financial system, but is also the most effective of the actually existing and, moreover, repeatedly and successfully tested in practice way to eliminate the dictates of credit money. In this context, the danger to the status quo of the global financial elite inherent in Freigeld's concept is incomparably greater than from all the variations on Marx's Capital.Radix mali
Let's not bore the reader too long and move on to a presentation of Silvio Gesell's concept. Freigeld's theory is based on the idea that good money should be "an instrument of exchange and nothing else. According to Gesell, traditional forms of money are extremely inefficient because they "disappear from circulation whenever there is an increased need for them, and flood the market at times when they are already abundant." Such forms of money "can only serve as instruments of fraud and usury and must not be considered fit for use, however attractive their physical qualities may seem." Silvio Gesell wrote these words at a time when the gold standard was still an accepted condition for the issue of paper money. The subsequent abandonment of all collateral deprived money of its last - physical - appeal.
If Gesell had stopped at criticizing the imperfection of monetary systems, his name would have long ago dissolved in the sands of history. All the more so because Gesell's critical analysis is nowhere near the monumental vivisection of capitalism by Karl Marx. Gesell's genius lies elsewhere: in his conclusions and, most importantly! - his conclusions and, most importantly, his practical recommendations.
Marx's "evil" is in surplus value, and the restoration of justice implies the removal of this value from one class in favor of another. With Gesell, the "evil" is in the credit nature of money, while the restoration of justice implies the liquidation of this credit nature. Just think of the difference: instead of violence over people, violence over abstraction!
Modern money, designed by definition to facilitate the exchange of commodities, has, unlike these very commodities, a unique capacity: it can multiply itself without any effort on the part of its owner. The farmer who delivers fruit to the market is vulnerable to the time factor: if the goods are not sold quickly, they will either fall in value or go bad. The money in the buyer's pocket has no such disadvantages. In addition, money can be kept not in your pocket, but in a jar, where it will grow. And apples, and tomatoes, and personal computers, and automobiles will rot, sour, depreciate, and depreciate over time, while money retains the advantages of being a non-perishable commodity.5
Money in its modern form has become an ideal commodity, which makes it disinterested in serving the market for traditional goods and services from which it is withdrawn for self-satisfaction - be it in the form of time deposits, securities, bonds, options, futures, warrants, swaps and the host of derivatives.
One might think that what makes free money different from traditional money is that it doesn't earn interest. No way! Silvio Gesell proposed an idea that was revolutionary for modern times: It was not enough to rob money of its ability to earn interest, it had to be taxed with interest! Only money which grows old like newspapers, rots like potatoes, rusts like iron and escapes like ether, can become a worthy instrument for the exchange of potatoes, newspapers, iron and ether. For only such money will not be preferred by buyers and sellers to the commodity itself. And then we will part with goods for money only because we need money as a medium of exchange, not because we expect the benefits of having money itself.
6 It is no accident that I made the reservation that Freigeld's concept is revolutionary for the new age. Sylvio Gesell's greatest revelation of free money is that not only the idea itself, but also the experience of putting it into practice has a thousand years of history! I suppose the reader will be interested to know that free money was used for a long time as far back as... Ancient Egypt! "The units of demurrage money7 in Egypt were rough shards of earthenware called "ostraka" (ostraka). In fact, these shards were receipts for deposits made by farmers in local warehouses: a farmer would deliver grain and receive the ostraka8.
And quite sensational is the information that various variations on the theme of Freigeld served as the main form of money in Medieval Europe from the 10th to the 13th century!
"In Germanic lands these were 'bracteats' (bracteaten), thin silver plates that were withdrawn from circulation and replaced with new ones each year. And also: "In 930 A.D. King Ethelstan of England established that every small town should have its own mint! In the context of this tradition of local lords growing revenue through "Renovatio Monetae" (literally, "Renewal of coinage") was established everywhere. In 973, for example, Edgar completely changed the coinage of the English penny. Barely six years later, the young King Ethelred II began minting a new coinage. He repeated it at roughly equal intervals ever since. The main motivation was that the royal treasurers gave only three new coins for four old ones, which was equivalent to a tax of 25% every six years on any capital contained in the coins, or about 0.35% per month. Thus, the new coinage was a crude form of storage fee. "9
9 The priority of free money over credit money observed at the origins of European civilization serves as further proof (in addition to the traditional Christian prohibition against usury) of our obsession: banking capitalism, dominant in the modern economy, is by no means an organic development of social relations, but only fixes the general defeat of Tradition, inflicted on it by an alien moral and ethical system. A matter of technique.
As we have already explained, the fundamental difference between free money and conventional credit money is that free money not only does not earn interest, but, on the contrary, is taxed for storage. Originally Silvio Gesell proposed four forms of implementation of the Freigeld principle (tabular free money, vintage, serial and supplementary), but later he settled on the vintage form, which was realized in practice in Austria, Switzerland, Germany and America.
It was the vintage form of Freigeld called "vintage certificates" that Irving Fisher described in his book. The main characteristics of free money: just like regular money, it can be deposited, invested or spent, but it cannot be multiplied. This is accomplished in the following way. Suppose a city decides to emit free money, the value of which is fixed by agreement at the level of a thousand dollars. The purpose of the emission is to subsidize municipal construction for one year. Success requires the good will of at least two parties: the workers involved in the construction and the merchants from whom the workers purchase goods. The former must agree to accept free money as payment for labor, the latter as payment for goods. Fisher rightly points out that it is not necessary to enter into a contract with all the merchants: a few are enough for the others to pull up voluntarily because of competition. Free money is issued for a period of one year, after which it can be exchanged for regular dollars. The municipal government would need a thousand living dollars to secure the exchange at the time of expiration, which, in addition to a traditional bank loan, can be obtained from the issuance itself, since the branded model of free money makes the project self-sustaining.
Here's what it looks like. The front side of voucher certificates is usually similar to regular money. It shows the value of the certificate (for example, one dollar), the name of the issuer, and the terms and conditions under which it can be exchanged for regular money. On the reverse side are 52 boxes on which stamps must be affixed each week. Let's assume that by agreement the controlling day of the week is Wednesday. So the stamp certificate can be in circulation with the old stamp on Thursday, Friday, Saturday, Sunday, Monday, and Tuesday, and on the following Wednesday the last holder of the certificate must affix a new stamp. The two-cent stamp is sold by the municipal authorities implementing the free money project.
Now it is clear where the money for exchanging free money for regular money comes from at the time of expiration: at the end of the year, each stamp certificate will have 52 stamps glued on it, which the municipality sold for $1.4 cents. An issue of $1,000 thus brings in $1,040 of live money. The 1,000 will go to cover the exchange, and the 40 will go to cover the cost of administering the project.
However, the self-sufficiency of the vintage certificates is a tenth thing. The main thing is that the weekly expression of free money leads to an unheard of their turnover! Judge for yourself: each owner of a vintage certificate seeks to get rid of it as soon as possible in order not to pay the next Wednesday tax in the form of a two-cent stamp. In the end, all the loose certificates on Tuesday nights are piled up by retailers, wholesalers, or manufacturers, who stick stamps, a kind of tax, with great pleasure: it is this energetic money that provides them with unprecedented trade turnover. According to Irving Fisher's calculations, the turnover rate of free money in hundreds of American cities during the Great Depression was at least 12 times (!) higher than the turnover rate of ordinary dollars! It is this property of free money that allows us to speak of its unique efficiency, which, as we know, is defined by the formula: "volume multiplied by velocity of circulation".Triumph
The free-money model described by Irving Fisher has been put into practice verbatim in the earliest applications of Gesell's concept. First in Germany - the coal mine owner Max Hebecker revived from the ashes the Bavarian town of Schwanenkirchen, whose population (500 people) had been living on state unemployment benefits for the past two years: "Within months of the reopening of the mine Schwanenkirchen was unrecognizable - workers and shopkeepers had paid all their debts, and a new spirit of freedom and life literally hung over the town. The news of the town's prosperity in the midst of the economic depression that afflicted Germany spread quickly through the county. Reporters from all over the country wrote about the "miracle of Schwanenkirchen," and even in the United States one could read about the experiment in the financial sections of every major newspaper.
A year later, the German experience was triumphantly repeated by Michael Unterguggenberger, Mayor of the Austrian city of Wörgel. After the introduction of free money created by the type of vintage certificates11, the city, whose tax debt had risen from 21 thousand shillings to 118 thousand in five years, began to repay already in the first month (4,542 shillings). In the next six months the issue of "free shillings," equivalent to 32 thousand common shillings, provided public works to the amount of 100 thousand shillings: seven streets were paved, 12 roads were improved, the sewer system was extended to two new blocks, a new park was created, a bridge was built, and new jobs were provided for 50 unemployed people.
On January 1, 1933, construction began on a new ski resort and water reservoir for the fire department in Wergel. The neighboring town, with a population of 20,000, hurriedly began preparations for the issuance of its own free money. When 300 communities in the country became interested in Wergel's experience, the National Bank of Austria, feeling its monopoly was threatened, forbade the printing of free local money.
After World War II, the development of the concept of free money went in two directions: LETS (Local Exchange Trading Systems), which instead of physical certificates used checks or electronic forms of netting, and time banking systems, which made it possible for participants to exchange their labor for the so-called "time-dollars". The latter model is particularly easy to implement: you spend your free time doing work for other project participants: walking dogs, babysitting someone else's child, cutting hair in a barbershop, providing dental services, baking bread, mowing lawns. For every hour you work, you get paid local money at an agreed-upon rate, such as 10 "time-dollars. You can then use the money to buy either other services registered in the so-called "time-bank" or goods from participating stores.
The first "time-dollars" were introduced in 1986 and became hugely popular mainly in the US and Japan. The most successful examples of this scheme: Ithaca Hours (Ithaca, New York: more than 500 local businesses participated in the project - from medical centers, restaurants and cinemas to farmers and real estate agencies), the Japanese "health currency", ROCs (Robust Currency System). The latter system (ROCs) not only combines time banking and peer-to-peer lending, but also consistently implements Gesell's classic free-money function, demurrage.
The most powerful system of free money is the Swiss WIR (Wirtschaftsring-Genossenschaft, the Economic Circle Cooperative), with 62,000 members and an annual turnover of the equivalent of 1 billion 650 million Swiss francs (!). Despite the fact that the WIR is not a full-fledged free-money system, since it lacks demurrage,12 it is in fundamental opposition to credit money, since it is entirely interest-free. The loans granted by the WIR bank to the participants of the system are also interest-free.
To conclude, we should dispel the misunderstanding that arises when one becomes acquainted with Gesell's theory. The demurrage function does not allow free money to be used for saving. But if money cannot be deposited in an account and receive interest on it, how can members of society who are deprived of productive labor (for example, the elderly) improve their material condition? Does the new theory deny investment in principle? This question, however, is nothing more than the inertia of thinking: Silvio Gesell recommended investing not in the means of exchange of goods and services (money), but in instruments specifically created for investment - the securities of companies and debentures (bonds)!
1 Free Money (German) (see title)
2 Gesell himself called his money "free" - Freigeld.
3 In July 1947, the wreckage of an unknown aircraft was discovered near Roswell, New Mexico, and immediately classified. According to the official Air Force version, the crash was one of the reconnaissance balloons (Operation Mogul), but the public still believes in the fall of an alien UFO.
4 Root of Evil (Latin).
5 Only in theory, of course, but not in practice. Credit money, originally conceived as a self-valuable commodity with an increasing value, devours itself and becomes worthless because of the excessive emission.
6 Silvio Gesell, The Natural Economic Order, Part 4, Ch. 1 Free Money.
7 One of the modern synonyms for Freigeld (on a par with "neutral," "negative," "free" money): "One might compare money to a railroad car, which, like money, facilitates the exchange of goods. It goes without saying that the railroad company does not pay a premium (interest) to the user of the wagon for unloading it to ensure its continued use; but the user does pay a small 'demurrage fee' (demurrage) if he has failed to unload the wagons. This is basically all we should have done with the money to eliminate the negative impact of interest. Each user contributes a small 'staging fee' if he delays money longer than necessary for exchange purposes" (Marguerite Kennedy. "Money Without Interest and Inflation").
8 Bernard Lietar. "The Soul of Money."
10 The description of the model is borrowed from Irving Fisher's book, "Stamp Certificates."
11 Wergel's free money stamps were stamped once a month, not weekly.
12 The WIR originated in 1934 and originally, as classic free money is supposed to do, involved a demurrage fee, but after World War II the demurrage was abandoned.