- The Natural Economic Order
"The Natural Economic Order" is the most famous book of
PUBLISHED REFERENCES TO GESELL'S THEORY
John Maynard Keynes: General Theory of Employment, Interest and Money (1936):
"Gesell's main book is written in cool, scientific language; though it is suffused throughout by a more passionate, a more emotional devotion to social justice than some think decent in a scientist. The purpose of the book may be described as the establishment of an anti-Marxian socialism, a reaction against laissez-faire built on theoretical foundations totally unlike those of Marx in being based on an unfettering of competition instead of its abolition . . . I believe that the future will learn more from the spirit of Gesell than from that of Marx. The preface to The Natural Economic Order will indicate to the reader the moral quality of Gesell. The answer to Marxism is, I think, to be found along the lines of this preface." (p. 355).
"The idea behind Gesell's stamped money is sound." (p.357).
Gustav Landauer, revolutionary socialist: Aufruf zum Sozialismus (Berlin, 1919):
"Of great value is Silvio Gesell's proposal to introduce a medium of exchange that does not, as at present, gain in value from year to year, but, on the contrary, loses value progressively, so that anyone who has obtained possession of the medium of exchange has no other interest than to exchange it again as soon as possible for the produce of others. Gesell is one of the very few who have recognised Proudhon's greatness, and while learning from him, have succeeded in developing his theories along independent lines."
Quotes from The Natural Economic Order to stimulate interest
Part 4: Free-Money or Money as it Should Be
"The criterion of good money, of an efficient instrument of exchange, is:
1. That it shall secure the exchange of goods - which we shall judge by the absence of trade depressions, crises and unemployment.2. That it shall accelerate exchange - which we shall judge by the lessening stocks of wares, the decreasing number of merchants and shops, and the correspondingly fuller storerooms of the consumers.3. That it shall cheapen exchange - which we shall judge by the small difference between the price obtained by the producer and the price paid by the consumer. (Among producers we here include all those engaged in the transport of goods).
How inefficiently the traditional form of money functions as an instrument of exchange has been demonstrated in the previous part of this book. A form of money that necessarily withdraws when there is lack of it, and floods the market when it is already in excess, can only be an instrument of fraud and usury, and must be considered unserviceable, no matter how many agreeable physical qualities it may possess.
"Only money that goes out of date like a newspaper, rots like potatoes, rusts like iron, evaporates like ether, is capable of standing the test as an instrument for the exchange of potatoes, newspapers, iron and ether. For such money is not preferred to goods either by the purchaser or the seller. We then part with our goods for money only because we need the money as a means of exchange, not because we expect an advantage from possession of the money.
So we must make money worse as a commodity if we wish to make it better as a medium of exchange."
"Free-Money loses one-thousandth of its face value weekly, or about 5% annually, at the expense of the holder. The holder must keep the notes at their face value by attaching to them the currency stamps mentioned above. A ten-cent stamp, for example, must be attached every Wednesday to the $100 note.
In the course of the year 52 ten-cent stamps must be attached to the $100 note, or, in other words, it depreciates 5.2% annually at the expense of its holders
Everyone of course tries to avoid the expense of stamping the notes by passing them on - by purchasing something, by paying debts, by engaging labour, or by depositing the notes in the bank, which must at once find borrowers for the money, if necessary by reducing the rate of interest on its loans. In this way the circulation of money is subjected to pressure.
The purpose of Free-Money is to break the unfair privilege enjoyed by money. This unfair privilege is solely because the traditional form of money has one immense advantage over all other goods, namely that it is indestructible. The products of our labour cause considerable expense for storage and caretaking, and even this expense can only retard, but cannot prevent their gradual decay. The possessor of money, by the very nature of the money-material (precious metal or paper) is exempt from such loss. in commerce, therefore, the capitalist (possessor of money) can always afford to wait, whereas the possessors of merchandise are always hurried. So if the negotiations about the price break down, the resulting loss invariably falls on the possessor of goods, that is, ultimately, on the worker (in the widest sense). This circumstance is made use of by the capitalist to exert pressure on the possessor of goods (worker), and to force him to sell his product below the true price."
"Let us now consider Free-Money more closely. What can its possessor or holder do with it ? On
January 1its value in the markets, shops, pay-offices, public treasuries and courts of justice is $100 and on December her 31st it is only $95. That is to say, if the holder of the note intends to employ it at the end of the year to pay $100, on a bill of exchange, invoice or demand note, he has to add $5 to the note.
What has occurred? Nothing but what occurs with every other commodity. Just as [eggs rot] , similarly the individual dollar note [is subjected] ...to the law of birth and decay.
The holder of this perishable money will beware of keeping the money, just as the egg-dealer will beware of keeping the egg any longer than he must. The holder of the new money will invariably endeavour to pass on the money, and the loss involved by its possession, to others.
But how can he do so? By selling his products he has come into possession of this money. He was forced to accept it, though well aware of the loss its possession would cause him. His products were from the first intended for the market; he was forced to exchange them, and exchange, under the given conditions, could be effected only through the medium of money; and this is the only money now produced by the State. Hence he was compelled to accept this ... Free-Money in exchange for his products if he was to dispose of them at all and so attain the object of his labour. Perhaps he might have deferred the sale, say until he was in immediate need of other goods, but meanwhile his own products would have deteriorated and become cheaper; he would have incurred a loss, perhaps greater than that involved in the possession of the money, through the diminution in quantity and the deterioration in quality of his products, and through the cost of storage and care-taking. He was under constraint when he accepted the new money, and this constraint was caused by the nature of his own products. He is now in possession of the money which steadily depreciates. Will he, in his turn, find a purchaser, will he find anybody willing to let the loss arising out of the possession of such money be passed on to him ? The only person who will accept this "bad" new money from him, is someone like himself under constraint, someone who has produced commodities and is now anxious to dispose of them in order to avoid the loss incident to their possession.
We thus at the very outset, note a remarkable fact, namely that the buyer has a personal desire, arising immediately out of the possession of his money, to pass it on to the possessor of commodities, and that this desire equals in strength the seller's eagerness to pass on his commodities to the buyer. The gain from the immediate completion of the bargain is the same for both parties, and the effect, of course, is that during the negotiations about price the buyer can no longer refer to his invulnerability (gold [does not rot] ), and threaten to withdraw should the seller not submit to his terms. Buyer and seller are both [equally] poorly armed; each has the same urgent desire to strike the bargain. Under such conditions, obviously, the terms of the bargain will be fair and the transaction will be accelerated.
It follows that demand no longer depends on the whim of the possessors of money; that price-formation through demand and supply is no longer affected by the desire to realise a profit; that demand is now independent of business prospects and expectations of a rise or fall of prices; independent too, of political events, of harvest estimates; of the ability of rulers or the fear of economic disturbance.
The supply of money, just like the supply of potatoes, hay, lime, coal and so forth, will be weighable, measurable, and without life and volition. Money, by an inherent natural force, will steadily tend towards the limit of the velocity of circulation possible for the time being, or rather it will in all conceivable circumstances tend to overleap this limit. Just as the moon, calm and unaffected by what may be going on here below, moves in its orbit, so Free-Money, detached from the wishes of its holders, will move through the market.
In all conceivable circumstances, in fair weather and in foul, demand will then exactly equal:
1. The quantity of money circulated and controlled by the State. Multiplied by:
2. The maximum velocity of circulation possible with the existing commercial organisation.
What is the effect upon economic life ? The effect is that we now dominate the fluctuations of the market; that the Currency Office, by issuing and withdrawing money, is able to tune demand to the needs of the market; that demand is no longer controlled by the holders of money, by the fears of the middle classes, the gambling of speculators or the tone of the Stock Exchange, but that its amount is determined absolutely by the Currency Office. The Currency Office now creates demand, just as the State manufactures postage stamps, or as the workers create supply.
When prices fall, the Currency Office creates money and puts it in circulation. And this money is demand, materialised demand. When prices rise the Currency Office destroys money, and what it destroys is demand.
Thus the Currency Office controls the tone of the market, and this means that we have at last overcome economic crises and unemployment. Without our consent the price-level can neither rise or fall. Every movement up or down is a manifestation of the will of the Currency Office, for which it can be made responsible.
Demand as an arbitrary act of the holders of money was bound to cause fluctuations of prices, periodic stagnation, unemployment, fraud. Free-Money makes the price-level dependent on the will of the Currency Office which uses its power, in accordance with the purpose of money, to prevent fluctuations.
Confronted with the new money everyone will be forced to conclude that the traditional custom of storing up reserves of money must be abandoned, since reserve money steadily depreciates. The new money, therefore, automatically dissolves all money hoards, those of the careful householder, of the merchant and of the usurer in ambush for his prey.
And what does this change further signify for economic life ? It signifies that henceforward the population will never be in possession of more than the exact amount of the medium of exchange necessary for the immediate requirements of the market -an amount regulated so as to eliminate fluctuations of prices caused by too much or too little money. It signifies that henceforward no one can frustrate the policy of the Currency Office by flooding the market with money drawn from private reserves at a time when the Currency Office considers a drainage of the market opportune, or by draining off money into private reserves when the Currency Office wishes to replenish the stock of money. It signifies consequently that, to enforce its policy, the Currency Office need issue or withdraw only insignificant quantities of money.
But with the new form of money no one needs to provide for a money reserve, since the regularity of the circulation makes reserves superfluous. The reserves were a cistern, that is, merely a receptacle, whereas the regularity of circulation of the new money will make it a perennially-welling spring.
With Free-Money demand is inseparable from money, it is no longer a manifestation of the will of the possessors of money. Free-Money is not the instrument of demand, but demand itself, demand materialised and meeting, on an equal footing, supply, which always was, and remains, something material. The tone of the Stock-Exchange, speculation, panic and collapse cease from now on to influence demand. The quantity of money issued, multiplied by the maximum velocity of circulation possible with the existing commercial organisation, is in all conceivable circumstances the limit, the maximum and also the minimum, of demand.
Money, anathema throughout the ages, will not be abolished by Free-Money, but it will be brought into harmony with the real needs of economic life. Free-Money leaves untouched the fundamental economic law which we showed to be usury, but it will cause usury to act like the force that seeks evil but achieves good. By eliminating interest Free-Money will clear away the present ignoble motley of princes, rentiers and proletarians, leaving space for the growth of a proud, free, self-reliant race of men."
5. HOW FREE-MONEY WILL BE JUDGED
A. The Shopkeeper =
The coming of Free-Money has made notable changes in my business. In the first place my customers have taken to paying cash, because it is to their immediate advantage to pay promptly, and because they are paid cash themselves. In the second place the sale of goods in small quantities has ceased, I no longer sell goods by pennyworths. Customers were formerly loath to part with their money, because the money did not compel them to pass it on; because they received interest; because they had money in the savings bank; because it was more convenient to have money in the house than goods; and finally because nobody was ever sure when he would receive the money owing to him. The circulation of money was irregular and payments were so uncertain that everyone except those in receipt of a fixed income was forced to keep some money in reserve. And this reserve was formed by purchasing whenever possible on credit and by purchasing only necessities for immediate consumption. Instead of a pound customers bought an ounce, instead of a sack, a pound. It never occurred to anyone to lay in provisions or to provide a store-room when planning a new house. The only possible kind of store was a store of money. A modern house had many rooms for special purposes such as a darkroom, a carpet-room, a box-room, etc., but never a room for provisions.
All this has now changed. The new money constantly reminds men of their duties as debtors, and they are eager to pay, as they are paid, promptly. Money is now compelled to circulate, so its circulation is steady and uninterrupted. It can no longer be arrested by rumours. Regular circulation produces a regular turnover of goods, and as everyone, to avoid loss, is anxious to pay at once for what he has bought, the influx of money into my till has also become regular. We shopkeepers are able to rely on this regular influx of money and are therefore no longer forced to keep a reserve of money; quite apart from the fact that reserves of money are now impossible, since they depreciate. Instead of hoarding money, people now lay in stores; they prefer possession of goods to possession of cash, just as, for the same reason, they prefer paying cash to buying on credit. Instead of minute quantities, the public now buys large amounts of goods in their original packing; instead of a gallon, a barrel; instead of a yard, a roll; instead of a pound, a sack.
From this it might be imagined that we retailers are revelling in the new situation but that, unfortunately, is not so. Luckily for myself I watched developments closely and was able to adapt my business to the changed conditions. For my former retail prices I have substituted wholesale prices, and have in this way managed not only to retain, but greatly to increase the number of my customers. But other shopkeepers who had not the same foresight have been forced to close their shops. Where there were ten shops formerly there is now only one which, in spite of its tenfold increase of turnover, requires less labour to run. The rent of my shop has already been reduced by 90%, because so many shops have been vacated and are being converted into flats. But in spite of a minimum rent and a tenfold increase of turnover my profits are far from having increased proportionately, since other shopkeepers, owing to the general simplification of commerce, have also been forced to reduce their profits. Thus instead of an average profit of 25% I now charge about 1% commission. As I deliver orders in the original packages and am paid cash, a small margin of profit gin suffices. No book-keeping, no bills, no losses! And in spite of the tenfold increase of turnover, my warehouse has not been enlarged. My customers have agreed to take regular supplies which are delivered direct from the railway station. Shopkeeping has developed into a mere consignment business.
My fellow retailers who have been forced to close their shops are, I admit, to be pitied, especially the older ones who are past learning another trade. As their impoverishment has been caused by the introduction of Free-Money, that is, by State-interference, they ought in justice to be compensated by a State pension. And the State is well able to pay this compensation since the disappearance of these middlemen and the consequent cheapening of all commodities has greatly increased the tax-paying capacity of the population. On a former occasion the State felt itself bound to protect landlords against a fall of rent by introducing a duty on wheat, so compensation would seem fully justified in the present case.
I must admit that shopkeeping is enormously simplified by Free-Money. Something of the kind was bound to happen. Neither small retail selling, with the tremendous cost it involved, nor the misuse of credit sales could have continued indefinitely. It was an intolerable abuse that the retail sale of daily necessities should add 25% to their price at a time when labour was forced to struggle hard for a 5 % increase of wages.
Switzerland, with 3,000,000 inhabitants, in 1900 employed 26,837 commercial travellers who paid an aggregate of 320,000 francs for licences. Even if we put their daily expenses at only 5 francs per head, commercial travellers cost Switzerland 48,977,525 francs annually.
In Germany there are 45,000 commercial travellers permanently on the road. (In Switzerland this business is largely carried on as a subsidiary occupation; hence the comparatively large number of travellers and my low estimate of 5 francs a day for expenses). It has been calculated that each of these 45,000 commercial travellers costs 14 marks a day (salary, travelling expenses, hotel bills) and this is certainly not an over-estimate. That amounts to 600,000 marks a day or 218 million marks a year. To this other travelling expenses must be added. We can say that two-thirds of all travelling is travelling on business, and that two-thirds of the hotels in existence exist solely for the service of business travellers.
It was predicted that the introduction of Free-Money would render buyers more amenable, and I observe that their behaviour has already been sensibly modified. Last Saturday a customer who wanted a sewing-machine kept me talking for an hour, but the man seemed unable to make up his mind and kept discovering imaginary defects in my good machine - until I reminded him of the imminent close of the week and the necessity of stamping his currency notes. That worked like a charm, the fortress of his indecision came tumbling down. He looked at his watch, counted his money and calculated that if he delayed any longer he would lose a penny. Forthwith his doubts were resolved, he paid and went off happy. I lost the penny, but the time gained was worth a thousand times as much.
Next a wealthy customer bought some goods but said he had forgotten his purse and asked me to charge the amount to his account. Upon my remarking that as it was Saturday it would pay him to fetch the money and thus avoid the depreciation, he thanked me for my attention, went home, and within a few minutes I had received the money. This enabled me to pay a craftsman who happened to deliver some goods at the same time. Omission to pay ready money would in this case have been simply a piece of indolence on the part of my customer, and this indolence would have prevented me from paying the craftsman. How much labour, risk and worry are saved by Free-Money ! I now employ only one book-keeper instead of ten. It is remarkable that the great problem of cash payment has been solved, as it were accidentally, by the money reform. It was not poverty that kept buyers from paying cash, but self-interest, and immediately any advantage was to be gained by paying cash, cash payment became general. It is well known that under the old system the merchant was not paid more promptly by the rich than by the poor, the reason for the delay being that during the term of respite the debtor was the recipient of interest.
About the depreciation itself I have no reason to complain. Personally, as a merchant, I should welcome an increase of the rate of depreciation from 5% to 10% a year, for that would make buyers still more amenable and book entries would cease entirely, so I could dismiss my last book-keeper. I now see that the more despised money is, the more highly esteemed are goods and their makers, and the simpler is commerce. Workers can be respected only in a country where money is not superior to them and their products. This desirable result, though not quite attained by the present rate would certainly be realised by a rate of depreciation of 10%, so possibly the rate may be raised in favour of the workers.
And what is even 10% on my average cash balance of $1000 ? A hundred dollars a year! A mere trifle, compared to my other expenses. I can moreover contrive to reduce this amount considerably by getting rid of my money still more speedily, that is, by paying not only cash but in advance.
To pay in advance may seem at first sight a ridiculous proposal, but it is really only an inversion of the former custom, when tie goods had to make advances, money following. Money now makes the advances and the goods follow. Pre-payment binds the debtor to supply goods and work, things at his immediate disposal; post-payment obliged him to supply money, a thing he can only obtain indirectly. It is therefore more advantageous and safer for both parties when the money precedes and the goods follow, than vice versa, as formerly.
Payment in advance is all that is needed to satisfy craftsmen and to provide them with the money necessary for carrying on their business. If craftsmen were not forced to deliver their product on credit, they could successfully compete with the trusts."
* [http://www.appropriate-economics.org/ebooks/neo/neo.htm Complete English translation]
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