Free money for social progress: theory and practice of Gesell's accelerated money - Special Invited Issue: Money, Trust, Speculation and Social Justice - Part 2: Trust and Money - system of stamped money proposed by Silvio Gesell

American Journal of Economics and Sociology, The, Oct, 1998 by Jerome Blanc

I

Introduction

Money is often the central point of theories that are designed to improve social organization. In the 1930s, the Great Depression led to a search for alternative solutions to restart the economy, or at least to slow its decline. Thousands of people proposed plans for just this purpose. Many of these plans were based on a reform of the monetary organization, and most were never actually tried.

This was not the case with a pre-existing theory - Silvio Gesell's theory of free money - on which John Maynard Keynes showered fulsome praise and which Irving Fisher tried to apply in the United States. This theory was tried. Admittedly, there are key differences between Gesell's theory and the several attempts made to employ it. These differences include the fact that none of the attempts occurred at a national or worldwide level, despite the preferences of Gesell and some founders of the experiments. Moreover, the theoretical purpose of free money became simply the acceleration of monetary circulation, that is, accelerated money, thus abandoning the other dimensions of Gesell's socialist theory.

However, both these experiments and their underlying ideas stress the necessity of the quick circulation of income. It is possible to accelerate the flowering of society by encouraging the circulation of currency, that is by setting up a monetary organization that promotes what might be called consumption money. Money is viewed as a necessary medium of exchange, but its organization is transformed in order to suppress the disastrous effects of speculation, hoarding, and usury, which are considered to be the sources of economic crises.

The purpose of this paper is not to reappraise Gesell's theory but rather to compare his theories to some issues raised by the twentieth-century experiments. I shall also examine Gesellian socialism and the theoretical context of Gesell's monetary theory, as well as the debates and social experiments that grew from these ideas mainly in the period between the world wars. Finally, I shall discuss the practical issues that face every attempt to employ accelerated money, especially the central issue of trust, and the importance that monetary organizations remain local and confined to a single small region in order to work.

II

Gesellian Socialism and Money

Silvio Gesell (1862 - 1930), born in Germany, worked as a successful importer in Argentina at the end of the nineteenth century. He began to study economics when a huge monetary crisis occurred in Argentina in the 1880s. In 1891 he published Die Reformation im Munzwesen als Brucke zum socialen Staat.(1) He returned to Europe and started writing The Natural Economic Order, a major work based on his 1891 book. It was published in 1911, reprinted several times, and translated into several languages. English translations were published in 1929 and in 1934, the latter based on the sixth German edition.

In Europe, The Natural Economic Order aroused wide interest during the period between the wars. Gesell acquired many followers . . . and even more detractors. His admirers considered him a "prophet," but among his detractors, orthodox economists in particular, he was dismissed as a "crank."(2)

What provoked such a rejection were both Gesell's nonacademic and deeply heterodox ideas, and his hysterical rhetoric, which was similar to that of many socialist writers. In fact, Gesell considered himself a socialist - not a Marxian, but a Proudhonian one.

Gesell was considered by some economists as a stage in heterodox economics between the monetary theory of Knut Wicksell and that of Keynes.(3) This was in part due to the fact that he analyzed a monetary economy and stated that economic crises have a monetary origin. The crises Gesell were interested in are deflationist ones, like the Argentinean crisis of the 1880s, which gave him the substance of his theory, and the worldwide one of the 1930s (during which Keynes wrote his General Theory).

Gesell's theory was intended to change the economic organization of society and promote progress towards social justice and economic welfare, by way of freeing the economy and thus establishing what he called a natural economic order. This move towards a free economy (Freiwirtschaft) requires the freeing of land from rent and the freeing of money from interest. In an economic organization cleared of the economic privileges of landowners and moneylenders, workers would receive the whole value of their output. Competitors would then have a level playing field, and the economy would subsequently flourish.

Let us now turn to Gesell's monetary proposal of free money. In his theoretical view of the economy, the stockpiling of wealth is identified as the danger to be avoided, because it stops the revenue flow dynamics. Gesell, as Keynes did some years after, denounced the hoarding of money, even as savings deposited in financial institutions, since high interest rates make loans difficult. Two key points appear here: hoarding and the cost of credit. Both blockade a part of the money supply from functioning properly.