Free Money and the Freiwirtschaft

[Acrylicist]

(from The 100% unofficial blog of the Russian President
http://thepresidentofrussia.blogspot.com/ )

Admittedly, many of the current economic woes can be traced to ...
money, or rather how money is perceived, introduced and employed in
everyday life. We live in the world in which money represents debt,
and the resources we have are distributed according to a rather unfair
scheme, namely money goes to the banks, and debt - to the masses. It
does not have to be like that.

Silvio Gesell (1862-1930), "a German merchant, theoretical economist,
social activist, anarchist and founder of Freiwirtschaft (Free
economy)" had a different idea concerning money. First of all, money,
as a "product" is very different from other products, for in theory it
can be held indefinitely without any use. Moreover, again in theory,
it doesn't loose its value against inflation because of interest
(remember our money is essentially debt). On the other hand, the
holder of any other product does not enjoy this luxury, for example if
you have a basket of apples, you cannot keep the apples indefinitely,
for they'd start to rot, - you wish to either consume or sell them.
You cannot wait with your apples hoping they can be sold at a higher
price later. The same about, say, cars, if you sell cars, you want to
sell them as soon as possible, or they will loose their value when
next year new models will be introduced to the market. However, the
holder of money can wait till money can be "sold" at a higher price.

In 1916 Silvio Gesel introduced the libertarian economic idea of
Freiwirtschaft (German for free economy) according to which money is
treated as some sort of a "common good". It can be used by everyone
but the users pay rent for using money. Sounds strange, - why is the
money that doesn't yield any interest and has to be "rented" better
than the conventional money? Simple, says Gesell, - such an
arrangement would allow increase the money supply, at the same time
forcing money to really "work", that is go immediately into the real
economy of production and service. As a "bonus" the financial service
would be reduced to next to nothing, which would also be an asset.

Utopia? Maybe, but in 1932-33 (during the Great Depression) the mayor
of the Austrian town of Wörgl manged to convince the businesspeople,
civil servants and ordinary people to take part in the experiment with
the "Free money" or the Wörgler Arbeitswertscheine (Labor
certificates), as they became known. I imagine how hard he worked -
the total population of Wörgl at that time was about 3 thousand
people. The town issued 5000 of "free shillings" guaranteed by the
same amount of the "regular" money at a local bank, and they were
immediately introduced into the local economy. The "free shillings"
were used along with the "regular shillings" to pay salaries, rent,
taxes, and buy goods. The former money differed from the latter in
that to use them the people of Wörgl had to pay 12% of their nominal
value per year in rent, which was done by attaching each month a
special stamp (valued at 1% of the nominal value) to the back of a
"free shillings" bank note. The last person who held the note by the
end of the month was responsible for attaching the stamp, without
which the note was invalid next month. As a result of this arrangement
everyone who received such a bank note wished to get rid of it as soon
as possible ... As unbelievable as it sounds, - even the TAXES were
being paid in advance! Moreover, during that year the 5000 of "free
shillings" were turned around 463 times, that is the economy produced
goods and services in the amount of more than 2,300,000 shillings
(5000x463). At the same time a "regular shilling" was normally turned
around at that time only 213 times. The unemployment in Wörgl fell 25%
in just one year, while at the same time in the rest of Europe it was
growing. In the midst of the Great Depression the town had its
infrastructure improved (e.g., new roads, and even a bridge were
built). Please note that the "free shillings" were affected by neither
inflation, nor deflation due to their sheer rate of turnaround.
Naturally, 300 of other communities in Austria became interested in
this experiment, but the Central Bank of Austria immediately
interfered and forbid to "print any money beyond its control." The
town of Wörgl sued but to no avail.

Of course, to replicate such an experiment these days would be
extremely difficult, for the big banks, that are the real power
holders in our societies, would never ever allow such a freedom with
money ever again. Pity.

http://thepresidentofrussia.blogspot.com/2009/05/free-money-freigeld.html