Johann Gesell and His Theory of Money

Today, the German economist Silvio Gesell is not very well-known in wide circles, though meanwhile, Gesell is not just a theorist, the author of the original reform of the financial system; his idea of free money, repeatedly and successfully tested in practice, provides totally real opportunity to change this world for the better.

All attempts to implement the theory of free money in practice in the 1930’s had a common fate: in the shortest time (a maximum of one year, and usually in two to three months), they showed phenomenal results in overcoming the most gloomy manifestations of economic depression: they eliminated unemployment, radically increased collection of taxes, revived municipal activity, caused the flowering of local trade and, the most importantly, liquidated the deficit of live money, driven by deflation into the safe-deposit boxes.

In the mid-1930’s, Freigeld was successfully introduced in Austria, Switzerland, Germany and, almost across all the United States of America. It seemed that the Silvio Gesell’s work had brilliant future, but very quickly both his name and his theory were completely erased from the public consciousness. Why?

The real reason lies in Keynes’s prophecy, which given in the epigraph: the idea of Freigeld by Gesell not only undermines the very foundations of the world financial system, but is also the most effective of the existing methods and, moreover, it is repeatedly and successfully tested in practice way aimed at the eliminating of the dictate of credit money. In such a context, the danger to the status quo of the world financial elite, concealed in the concept of Freigeld, is incomparably higher than from all the variations on the theme of Marx’s Capital.

The theory of Freigeld is based on the notion that good money should be an ‘instrument of exchange and nothing more’. According to Gesell, traditional forms of money are extremely inefficient, because ‘they disappear from the turnover whenever there is an increased need for them, and flood the market at times when their number is already excessive’. Such forms of money ‘can only serve as a tool for fraud and usury and should not be considered usable, no matter how attractive their physical qualities might seem’.

Silvio Gesell put forward a revolutionary idea for the new time: it is not enough to deprive money of the ability to make the profit at the expense of interest; they must be paid with interest! In other words, a fee should be charged for the use of money, ‘Only money that is obsolete like newspapers, rot like potatoes, rust like iron, and evaporate like ether, can become a worthy tool for exchanging potatoes, newspapers, iron, and ether.

Since only such money buyers and sellers will not choose instead of the product itself. And then we will part with the goods for the sake of money only because we need money as a means of exchange and not because we expect the advantages from owning the money’.

According to Irving Fisher’s calculations, the turnover of free money in hundreds of American cities during the Great Depression was at least 12 times higher than the turnover of ordinary dollars! It is this property of free money that allows us to talk about their unique effectiveness, which, as we know, is determined by the formula: ‘volume multiplied by the speed of turnover’.

The experiment in the city of Worgel may serve as the example. After the introduction of free money created as Freigeld type, the city, whose debt for taxes for five years increased from 21 thousand shillings to 118 thousand, began to pay off already in the first month (4,542 shillings). In the next six months, the issue of “free shillings”, equivalent to 32,000 ordinary shillings, provided public works in the amount of 100 thousand shillings. 7 streets were asphalted, 12 roads were improved, the sewerage was extended to two new quarters, a new park was created, a bridge was built, and new jobs for 50 unemployed were provided.

On January 1, 1933, in Worgel, the construction of a new ski resort and reservoir for the fire service were started. The neighboring city with a population of 20 thousand people rushed to proceed of the issue of their own free money. When 300 communities of the country became interested in the Worgel experience, the National Bank of Austria, having felt the threat of its monopoly, forbade the printing of free local money. This happened every time someone tried to enter free money.