Silvio Gesell (1862-1930)

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

This was sent to me by Cui Ziyuan, a political scientist at MIT.


At July 1999 found at: http://www.inwo.de/archiv.htm

Werner Onken
A Market Economy without Capitalism

An overview of the basic concept, its historical origins and present state
of development; Information about organisations promoting "Free Economy"
and suggestions for further reading on the topic.

Money: From the Ruler of Markets ...
In 1891 Silvio Gesell (1862-1930) a German-born entrepreneur living in
Buenos Aires published a short booklet entitled Die Reformation im
Münzwesen als Brücke zum sozialen Staat (Currency Reform as a Bridge to
the Social State), the first of a series of pamphlets presenting a
critical examination of the monetary system. It laid the foundation for an
extensive body of writing inquiring into the causes of social problems and
suggesting practical reform measures. His experiences during an economic
crisis at that time in Argentina led Gesell to a viewpoint substantially
at odds with the Marxist analysis of the social question: the exploitation
of human labour does not have its origins in the private ownership of the
means of production, but rather occurs primarily in the sphere of
distribution due to structural defects in the monetary system.

Like the ancient Greek philosopher Aristoteles, Gesell recognised money's
contradictory dual role as a medium of exchange for facilitating economic
activity on the one hand and as an instrument of power capable of
dominating the market on the other hand. The starting point for Gesell's
investigations was the following question: How could money's
characteristics as a usurious instrument of power be overcome, without
eliminating its positive qualities as a neutral medium of exchange ?
He attributed this market-dominating power to two fundamental
characteristics of conventional money:
Firstly, money as a medium of demand is capable of being hoarded in
contrast to human labor or goods and services on the supply side of the
economic equation. It can be temporarily withheld from the market for
speculative purposes without its holder being exposed to significant
losses.
Secondly, money enjoys the advantage of superior liquidity to goods and
services. In other words, it can be put into use at almost any time or
place and so enjoys a flexibility of deployment similar to that of a joker
in a card game.
These two characteristics of money give its holders a privileged position
over the suppliers of goods and services. This is especially true for
those who hold or control large amounts of money.
They can disrupt the dynamic flow of economic activity, of purchases and
sales, savings and investment. This power enables the holders of money to
demand the payment of interest as a reward for agreeing to refrain from
speculative hoarding thereby allowing money to circulate in the economy.
This intrinsic power of money is not dependent on its actual hoarding, but
rather on its potential to disrupt economic activity which enables it to
extract a tribute in the form of interest in return for allowing the
"metabolic exchange" of goods and services in the "social organism". The
"return on capital" is accorded priority over broader economic
considerations and production becomes attuned more to the monetary
interest rate than to the real needs of human beings. Long-term positive
interest rates of interest disturb
the balance of profit and loss necessary for the decentralized
self-regulation of markets. Gesell was of the opinion that this led to a
dysfunction of the social system exhibiting very complex symptoms: the
non-neutrality of interest-bearing money results in an inequitable
distribution of income which no longer reflects actual differences in
productivity. This in turn leads to a concentration of monetary as well as
of non-monetary capital and therefore to the predominance of monopolistic
structures in the economy.
Since it is the holders of money who ultimately decide whether it
circulates or stands still, money can't flow "automatically" like blood in
the human body.
The circulation and the correct dosage of the monetary supply can't be
brought under effective public control; deflationary and inflationary
fluctuations of the general price level are inevitable. In the course of
the business cycle when declining interest rates cause large amounts of
money to be withheld from
the market until the outlook for profitable investments improves, the
result is economic stagnation and unemployment.

... to a Neutral Servant of Economic Activity
In order to deprive money of its power, Gesell did not advocate recourse
to measures aimed at outlawing the taking of interest such as the
canonical prohibition of medieval. On the contrary, he envisaged
structural changes in the monetary system involving the imposition of
carrying costs on the medium of exchange, thereby counteracting the
tendency to hoard and neutralising the liquidity advantage of conventional
money. The imposition of such carrying costs on liquid monetary assets -
comparable to a demurrage fee for freight containers in the field of
transport economics - would deprive money of its
power to dominate the market while allowing it to fulfil its designated
function as a medium of exchange facilitating economic activity.
Counteracting disruptions in the circulation of the medium of exchange due
to speculative hoarding would allow the quantity and velocity of the
monetary supply to be periodically adjusted to match the volume of
production and the overall level of economic activity in such a way that
the purchasing power of the monetary unit could be made to possess the
same long-term stability as other weights and measures.
In his earliest works Gesell referred in particular to "rusting bank
notes" as a method for implementing an "organic reform" of the monetary
system. Money which had hitherto been "dead foreign matter" with respect
to both the social system and the natural world, would thus be integrated
into the eternal cycle
of life and death, becoming transitory and losing its characteristic of
limitless self-multiplication by means of simple and compound interest.
Such a reform of the monetary system would constitute a regulative
holistic therapy; by removing the cause of disruptions in monetary
circulation Gesell envisaged that the self-healing powers of the
dysfunctional social "organism" would gradually increase allowing it to
recover from the diverse economic and structural symptoms of crisis,
ultimately reaching a state of equilibrium, in
harmony with the rest of the natural order.
In his main work, Die Natürliche Wirtschaftsordnung durch Freiland und
Freigeld(The Natural Economic Order through Free and and Free Money),
published in Berlin and Bern in 1916, Gesell explained in detail how the
supply and demand of capital would be balanced in the case of
uninterrupted currency circulation so that a reduction of the real rate of
interest below the presently existing barrier of around 3-4% would become
possible. Gesell used the term "basic interest" (Urzins) to denote this
pure monetary interest
rate of around 3-4% which is found to vary little historically. It
represents the tribute of the working people to the power of money and
gives rise to levels of unearned income far in excess of that suggested by
its magnitude. Gesell predicted that his proposed currency reform would
gradually cause the "basic
interest" component to disappear from the monetary loan rate leaving only
a risk premium and an administrative charge to allow lending institutions
to cover their costs. Fluctuations of the market rate of interest around a
new equilibrium point close to zero would allow a more effectively
decentralised
channeling of savings into appropriate investments. Free Money (Freigeld),
a medium of exchange liberated from the historical tribute of "basic
interest", would be neutral in its impact on distribution and could no
longer influence the nature and extent of production to the disadvantage
of producers and
consumers. Gesell envisaged that access to the complete proceeds of labour
brought about by the elimination of "basic interest" would enable large
sections of the population to give up wage- and salary-oriented employment
and to work in a more autonomous manner in private and cooperative
business organisations.

Land: A vital natural resource to be held in trust rather than as a
tradeable commodity and object of speculation
Towards the end of the last century Gesell extended his vision of
socio-economic reform to include reform of the system of land tenure. He
derived inspiration in this respect from the work of the North-American
land reformer Henry George (1839-1897), author of Progress and Poverty,
whose ideas
about a Single Tax on the rental value of land became known in Germany
through the activity of land reformers like Michael Flurscheim (1844-1912)
and Adolf Damaschke (1865-1935). In contrast to Damaschke, who only
advocated taxing the increase in values for the benefit of the community
while retaining the principle of private ownership of land, Gesell's
reform proposals followed those of Flurscheim who called for the transfer
of land into public ownership, compensating the former owners and
thereafter leasing the land for private use to the highest bidder. Gesell
argued that as long as land remains a tradeable commodity and an object of
speculative profit, the organic connection of human
beings with the earth is disturbed. In contrast to the proponents of
nationalist or racially-oriented Blut und Boden ideologies, Gesell
rejected the association of "blood" with "land". As a widely travelled
citizen of the world he viewed the whole earth as an integral organ of
every individual. All people should be free to travel over the surface of
the earth without hinderance and settle anywhere regardless of their place
of birth, color or religion.

Economic Equality of Women and Men
Like the Single-Tax reformers of the Henry George school, Gesell was of
the opinion that the rental revenue from the land would enable the state
to finance itself without the necessity to impose further taxes. In
attempting to trace the rightful owners of these rental revenues in
accordance with the principle
of causality, he was led to the consideration that the amount of rental
revenue depends on the population density and therefore ultimately on the
willingness of women to bear and raise children. For this reason Gesell
proposed to distribute the revenues from land rent in the form of monthly
payments to compensate mothers for the work of rearing children in
proportion to the number of their childen under the age of majority. He
advocated the extension of the scheme to include mothers of children born
out of wedlock and foreign mothers living in Germany because his intention
was that all mothers should be released
from economic dependence upon working fathers and that the relationship
between the sexes ought to be based on a love freed from considerations of
power and economic dependancy. In an essay entitled Der Aufstieg des
Abendlandes (The Ascent of the West), written to challenge the cultural
pessimism of Oswald Spengler's Der Untergang desAbendlandes (The Decline
of the West), Gesell expressed the hope that the human race which had been
physically, mentally and spiritually degraded under capitalism would
gradually be able to regenerate itself under a reformed economic order and
experience a new cultural
renaissance.

Other Pioneers of a Market Economy without Capitalism
Gesell's theory of a Free Economy based on land and monetary reform may be
understood a reaction both to the laissez-faire principle of classical
liberalism as well as to Marxist visions of a centrally planned economy.
It should not be thought of as a third way between capitalism or communism
in the sense of subsequent "convergence theories" or so-called "mixed
economy" models, i.e. capitalist market economies with global state
supervision, but rather as an alternative beyond hitherto realized
economic systems. In political terms it may be characterised as "a market
economy without capitalism". In this sense as he later came to realise and
acknowledge, Gesell had independently developed and extended the critique
of capitalism formulated by Pierre Joseph Proudhon (1809- 1865), the
French social reformer and contemporary of Marx who in the mid-19th
century had cited the private appropriation of land and the power of
interest-bearing money as being primarily responsible for the fact that a
more egalitarian society had failed to evolve following the demise of
feudal absolutism. Proudhon condemned privately appropriated ground-rent
as robbery and denounced interest on money as cancerous usury. These forms
of unearned income based on exploitation led to the emergence of the haute
bourgeoisie as a new ruling class, which moulded the state and church into
instruments of domination over the petit bourgeoisie and the
working-class. Gesell's alternative economic model is related to the
liberal socialism of the cultural
philosopher Gustav Landauer (1870-1919) who was also influenced by
Proudhon and who for his part strongly influenced Martin Buber
(1878-1965). There are intellectual parallels to the liberal socialism of
the physician and sociologist Franz Oppenheimer (1861-1943) and to the
social philosophy of Rudolf Steiner (1861-1925), the founder of the
anthroposophic movement.  Free Economy Organisations in Germany and in
Switzerland during the First World War  Gesell's first co-worker, Georg
Blumenthal (1879-1929), combined proposals for land and monetary reform
with the concept of a droit naturel or natural social order, with which
Francois Quesnay (1694-1774) and his fellow-Physiocrats had opposed feudal
absolutism at the time of the French Enlightenment. In 1909 he founded the
Physiokratische Vereinigung (Physiocratic Association) the first formal
organisation of supporters of Gesell's Free Economy theory which drew its
members from the ranks of land reformers, individual-anarchists and
syndicalists in Berlin and Hamburg. As soon as the association's journal,
Der Physiokrat (The Physiocrat), fell victim to censorship during the
First World War, Gesell moved to Switzerland, where he found supporters
among the local land reformers, educational reformers and other
progressive circles. They organised themselves into the Schweizer
Freiland-Freigeld-Bund (Swiss Free Land - Free Money - Federation). In two
lectures entitled Gold oder Frieden? (Gold or Peace?) and Freiland die
eherne Forderung des Friedens (Free Land - the Essential Condition of
Peace), Gesell expounded in detail on the
significance of his reform proposals as a way to social justice and peace
among the nations.

Between the two World Wars
After the end of the First World War and the subsequent November
Revolution in Germany, Gesell's connections with Gustav Landauer led to
his short-lived appointment as People's Commissioner for Finance in the
first Bavarian Räterepublik. Following the overthrow of the Räterepublik
he was indicted for high treason but was acquitted of all charges.
Afterwards Gesell took up residence near Berlin from where he observed and
commented on the development of the Weimar Republic in numerous tracts and
pamphlets, He suggested that by means of a graduated wealth tax of up to
75% an appropriate contribution to the economic consequences of the war
should be extracted from the large landed estates and big business
interests. At the same time he proposed to initiate the domestic
accumulation of capital by means of his land and monetary reform program
in order to enable Germany to fulfill the reparation demands of the
victorious Allied powers. He criticised what he perceived to be the
disasterous errors in the economic policies of the rapid succession of
unstable governments. These errors included the effective expropriation of
large sections of the lower and middle classes by massive inflation
instead of introducing effective currency reform, protraction of
reparation payments, making Germany dependent upon an influx of foreign

capital and abandoning the stable Rentenmark in favour of the crisis-prone
gold standard.  From his earliest writings onwards Gesell distanced
himself from racist ideologies, aiming to develop an objective critique of
structural defects in the economic order free from the subjective racial
prejudice of anti-Semitic demagogues whose diatribes against so-called
"Jewish" usurers he criticised as a "colossal injustice". Like many of his
contemporaries he was greatly influenced by Darwin's Theory of Evolution
and viewed his program of reform as a means for encouraging a more healthy
evolution of human society. However, Gesell should not be classified as a
"Social Darwinist" because he believed that extremes of wealth and poverty
reflect structural defects in the economic order rather than real
differences in aptitude and productivity. Opposed to ultra-nationalist
triumphalism he advocated the promotion of mutual
understanding between Germany and its eastern and western neighbours. He
called for the abandonment of expansionist politics and the formation of a
voluntary confederation of European states to promote international
cooperation. Gesell also drew up proposals for an international
post-capitalist monetary order, advocating an open world market without
capitalist monopolies, customs frontiers, trade protectionism and colonial
conquest. In contrast to subsequently established institutions such as the
International Monetary Fund and World Bank, which act on behalf of the
powerful within the existing
framework of unjust structures, or the present preparations for European
Monetary Union, Gesell called for the establishment of an International
Valuta Association, which would issue and manage a neutral international
monetary unit freely convertible into the national currency units of the
member states,
operating in such a way that equitable international economic relations
could be established on the basis of global free trade.  Although the
precise degree of influence cannot be established reliably, it is
interesting to note that echoes of Gesell's ideas concerning the
International Valuta Association can be found in J.M. Keynes' original
Proposals for an International Clearing Union submitted on behalf of the
British delegation but rejected by their American counterparts at the
Bretton Woods conference.
The massive inflation of the early post-war years led to a rapid growth of
interest in and support for Gesell's reform proposals, with the membership
of Free Economy organisations reaching an estimated 15 000 persons. In
1924 a split occurred among Gesell's followers leading to the formation of
the moderate liberal(Free Economy Federation) and the more radical
individualist-anarchistic and militant-sounding Fysiokratische Kampfbund
(Physiocratic Task Force). The split was caused in part by a heated
controversy which had been sparked off by Gesell's treatise Der Abgebaute
Staat, a wide-ranging polemic in favour of the "dismantled state".
Internal power struggles weakened the Free Economy movement which failed
to transform itself into a mass movement, but made continuous efforts to
canvass support among the Social Democratic Party and the Trade Union
movement as well as among the various peace, youth and female emancipation
movements which flourished in the Weimar Republic. During the Great
Depression the Freiwirtschaftsbund addressed memoranda to all parties
represented in the parliament, warning of the terrible consequences of the
deflationary policy being adopted that time, and submitting
proposals for overcoming the crisis. These memoranda generated little or
no response. As soon as the success of practical experiments with Free
Money organised by the Fysiokratische Kampfbund, such as the reopening of
a disused mine at Schwanenkirchen, began to attract public attention they
were outlawed
by the German Finance Ministry under the terms of the Emergency Decrees of
the Brüning government in 1931.  A Free Economy party contested the 1932
Reichstag elections without success. After the Nazi Party's seizure of
power by the in 1933 many Free Economy supporters suppressed their
misgivings about the true character of the Nazi ideology and succumbed to
the illusory hope, that Hitler might in fact act on the earlier rhetoric
of Gottfried Feder concerning "the smashing of interest-slavery". They
tried to exert influence on leading functionaries of the Nazi Party
hierarchy in the hope of bringing about a change of course on economic
matters. Despite rather dubious tactical efforts to conform to the
requirements of the new order, in the spring of 1934 the various Free
Economy organisations and publications which had not already voluntarily
disbanded were finally outlawed.
Initial misjudgements concerning the totalitarian regime had been
encouraged not only by the painful memories of rejection by the political
parties of the Weimar era, but also by uncertainty about the most
appropriate way to realize land and monetary reform. Free Economy
associations in Austria (until 1938)
and Switzerland continued their work. English, French and Spanish
translations of Gesell's main work were published. Introductory brochures
were produced in a wide range of languages including Dutch, Portuguese,
Czech, Romanian and Serbo-Croat as well as Esperanto, reflecting the work
of smaller groups in England, France, the Netherlands, Belgium,
Czechoslovakia, Romania and Yugoslavia. In North and South America,
Australia and New Zealand, Free Economy associations were established by
German emigrants.

After 1945: New Beginning, Neglect and Renewal of Interest
Towards the End of the 1970s Free Economy organisations were reestablished
throughout post-war Germany. In the Soviet occupation zone they were
outlawed in 1948; the Soviet authorities regarded Gesell either as "an
apologist of the monopoly bourgeoisie" or, in the same way that Marx had
dismissed Proudhon, as "a socialist of the petit bourgeoisie" whose aims
were incompatible with "scientific socialism". In Western Germany the
majority of the surviving followers of Gesell voted to form their own
political party to contest elections because of their negative experiences
with the established political parties of the Weimar era. They founded the
Radikalsoziale Freiheitspartei (Radical Social Liberal Party),
which received just under 1 % of the votes at the first election to the
Lower House of the German Parliament in 1949. The party's name was later
changed to the Freisoziale Union (Free Social Union) but its support
remained at a negligible level in subsequent elections. A
Silvio-Gesell-Haus was established as a meeting center between Wuppertal
and Neviges, where seminars and conferences on Free Economy and related
topics are still held on a regular basis.
In spite of the fact that prominent economists like Irving Fisher and John
Maynard Keynes had recognized the significance of Gesell's work in the
inter-war period, the West German economic miracle of the 1950's and 60's
largely extinguished public interest in discussion of alternative economic
models. It was only towards the end of the 1970's that mass unemployment,
environmental destruction and the growing international debt crisis led to
a gradual revival interest in Gesell's ideas which had suffered almost
complete oblivion. In this way it became possible to pass the insights of
the Free Economy school onto a new generation.  In Switzerland, a
significant collection of Free Economy literature is to be found in the
Free Economy Library of the National Economic Archive in Basel. In Germany
the Stiftung für Reform der Geld- und Bodenordnung, a foundation promoting
the reform of the monetary and land order began to establish a German Free
Economy Library in 1983. To provide a basis for academic research into
Gesell's life and work it also commissioned an 18-volume edition of his
collected works in 1988. In addition to this, a series of secondary
literature entitled Studien zur natürlichen Wirtschaftsordnung (Studies on
a Natural Economic Order) is under development; the first two volumes
published were a
centenary review of the history of the Free Economy movement and an
edition of selected writings by Karl Walker, Gesell's most important
student. The foundation also promotes other publications relating to land
and monetary reform and in collaboration with the Sozialwissenschaftliche
Gesellschaft (Social Sciences Society) publishes a quarterly periodical,
Zeitschrift für Sozialökonomie, commenting on social and economic issues.
It has awarded a Karl Walker Prize for academic papers dealing with the
problems arising from the increased decoupling of financial markets from
the real economy (1988) and with proposals for overcoming unemployment
(1995). The Seminar für freiheitliche Ordnung (Seminar for a Liberal
Order) is responsible for the issue of a series of publications entitled
Fragen der Freiheit (Questions of Liberty). The Initiative für eine
Natürliche Wirtschaftsordnung (Initiative for a Natural Economic Order)
endeavours to promote popular awareness of Gesell's ideas in cooperation
with associated organisations in Switzerland and Austria. An association
called Christen für gerechte  irtschaftsordnung (Christians for a Just
Economic Order) promotes the study of land and monetary reform
theories in the light of Jewish, Christian and Islamic religious doctrines
critical of land speculation and the taking of interest. Margrit Kennedy,
Helmut Creutz and other authors have examined the contemporary relevance
of Gesell's economic model and tried to bring his ideas up to date. Of
particular importance in
this respect have been he various efforts to examine the correlation
between the exponential growth of financial assets and debts and the
environmentally-destructive "growth imperative" driving the real economy
along with suggestions for overcoming the growth imperative and efforts to
combine land and monetary reform ideas with proposals for an
ecologically-based tax system. The book entitled Gerechtes Geld - Gerechte
Welt (Just Money - Just World) offers a survey of the present state of
theoretical developments. It is a compilation of essays and discussion
papers examining the  ocio-economic implications of the monetary order
presented at a congress commemorating the centenary of Gesell's first
monetary reform publications held in 1991 in Konstanz under the title: 100
Jahre Gedanken zu einer natürlichen Wirtschaftsordnung - Auswege aus
Wachstumszwang und Schuldenkatastrophe (100 Years of Thought related to a
Natural Economic Order - Solutions to the Growth Imperative and Debt
Crisis).
The collapse of state socialism in Central and Eastern Europe has led to
the temporary triumph of Western capitalism in the ideological struggle
between competing economic models. However, as long as the disparity
between rich and poor continues to increase, as long as exponential
economic growth
continues to cause accelerating environmental destruction and as long as
the "developed" nations of the Northern hemisphere continue to ruthlessly
exploit their "undeveloped" Southern neighbours, it remains necessary to
search for alternatives to the prevailing economic order. Under these
circumstances
Silvio Gesell's Free Economy model retains its relevance and may yet begin
to receive the wider recognition which it deserves.

Suggestions for further reading
Silvio Gesell, The Natural Economic Order (translation by Philip Pye).
London: Peter Owen Ltd., 1958.
Irving Fisher, Stamp Scrip, New York: Adelphi Company, 1933.
John Maynard Keynes, The General Theory of Employment, Interest and Money.

London: Macmillan & Co. Ltd., 1935, Chap. 16, 23 and 24.
Dudley Dillard, Proudhon, Gesell and Keynes - An Investigation of some
?Anti-Marxian-Socialist? Antecedents of Keynes? General Theory, University
of California: Dr.-Thesis, 1949. Hackbarth Verlag St.Georgen/Germany 1997.
ISBN 3-929741-14-8.
Dudley Dillard, Gesells Monetary Theory of Social Reform, in: American
Economic Review (AER) Vol. 32 (1942), Nr. 2, p. 348 - 352.
Roy Harrod, Towards a Dynamic Economics - Some Recent Developments of
Economic Theory and their Application to Policy. London: Macmillan & Co.,
1948, Chap. ?Is Interest out of Date??
Leonard Wise, Great Money Reformers - Silvio Gesell, Arthur Kitson,
Frederic Soddy. London: Holborn Publishing, 1949.
Lawrence Klein, The Keynesian Revolution. London: Macmillan Press Ltd.,
1966 and 1980, Chap. 5, p. 124 - 152.
International Association for a Natural Economic Order, The Future of
Economy - A Memoir for Economists. Lütjenburg: Fachverlag für
Sozialökonomie, 1984/1989. (P.O. Box 1320, D-24319 Lütjenburg)
Dieter Suhr, The Capitalistic Cost-Benefit Structure of Money, New York
and Berlin: Springer Verlag, 1989.
Margrit Kennedy, Interest and Inflation Free Money - Creating an Exchange
Medium That Works for Everybody and Protects the Earth. Okemos/Michigan,
1995.
William Darity jr., Keynes? Political Philosophy: The Gesell Connection,
in: Eastern Economic Journal Vol. 21, No. 1, Winter 1995, p. 27 - 41.
Mario Seccareccia, Early Twentieth-Century Heterodox Monetary Thought and
the Law of Entropy, in: A. Cohen, H. Hagemann and J. Smithin, Money,
Financial Institutions and Macroeconomics. Boston: Kluwer Academic
Publishers, 1997.