imageEconomic recovery.

It is a slow day in the small Minnesota town of Marshall , and streets are deserted. Times are tough, everybody is in debt, and everybody is living on credit.

A rich tourist visiting the area drives through town, stops at the motel, and lays a $100 bill on the desk saying he wants to inspect the rooms upstairs to pick one for the night.

As soon as he walks upstairs, the motel owner grabs the bill and runs next door to pay his debt to the butcher.

The butcher takes the $100 and runs down the street to retire his debt to the pig farmer.

The pig farmer takes the $100 and heads off to pay his bill to his supplier, the Farmer’s Co-op.

The guy at the Farmer’s Co-op takes the $100 and runs to pay his debt to the local prostitute, who has also been facing hard times and has had to offer her ”services” on credit.

The hooker rushes to the hotel and pays off her room bill with the hotel owner.

The hotel proprietor then places the $100 back on the counter so the rich traveler will not suspect anything.

At that moment the traveler comes down the stairs, states that the rooms are not satisfactory, picks up the $100 bill and leaves town.

The whole town is now out of debt and now looks to the future with a lot more optimism.

”In our economic system money has the same function as blood for the body of human beings. In order to fulfil all the different functions of life, circulation of the blood must be ensured without interruption. With money it is the same – it necessarily needs to circulate in order to realize full employment.”

Money keeps circulating in two ways. First, by its original trading function, purchasing goods or services, which is motivated by the necessity of satisfying human needs. Second, money keeps circulating by being borrowed, which is motivated by interest. Interest is a ”price” for using money, and ensures that unspent money is lent to other persons. In this way, money is not prevented from being circulated because people just hoard it.

Money supply – by this I mean the actual amount of money – and interest are therefore the core questions of the money economy. Both can lead to serious problems.

Concerning interest, it has already been said by Aristoteles:

”Money was established for exchange, but interest causes it to be reproduced by itself. Therefore this way of earning money is greatly in conflict with the natural law.”

This effect of interest was already observed in early times as an increase of strained social relations between the poor and the rich, often resulting in serfdom, slavery, revolt or social collapse.

Therefore the great monotheistic religions have continuously tried to solve the problem of interest with interdictions. Pope Alexander III said: ”Every legislation which allows interest is null and void.” Pope Clemens IX. stamped coins saying ”noli thesaurare” on it, which means ”you must not accumulate”. Pope Boniface VIII stated this even more drastically: ”Anyone who keeps money at home without circulating it, will be excommunicated.” In reality it was never possible for this to be carried out, as the consequence would have been a collapse of the money circulation and furthermore of the economy, an even worse situation. The challenge though, is to find a way that ensures money circulation without the use of interest. To show such a way is the major aim of this paper.

Despite several attempts, it was impossible to force money to be circulated by using rules instead of interest. Especially during this century, problems concerning money supply have brought unimaginable harm to millions of people, either due to excess supply (hyper-inflation in 1923) or to lack of supply (deflation and economic depression during the 30ies). The process of learning that the money supply can only be attached to economic output, but not to gold, meant unemployment and poverty for millions of people. As John Maynard Keynes, one of the most important economists of this century, wrote: ”All the terrible events, which hit wealth and fortune so deeply all over the world, occurred due to the mistakes of the heads of the central banks.”

These incidents caused him to write his ”General Theory of Employment, Interest and Money”.

The consequences of the problem of balancing indebtedness and credit have not been realised yet. The reduction of all debts by saving money is not an action which can be undertaken by the debtors alone. It is only possible if the creditors also accept that they have to demand the additional supply of money. But generally this is not the case.

Analysing the basic problems of the money economy it soon became clear that, that our wealth is not based primarily on our diligence and intelligence, but on the functioning of the money economy, being the basis for our labour division economy. My concern is that our current money system will lead to economic and social collapse in the near future as it did already in the 30ies, because of its basically faulty architecture.

As a solution to the problems, a new money system is introduced by Helmut Creutz and other persons, based on the ideas of Silvio Gesell. It is characterised by four points:

– Money supply must be controlled directly by the central bank. This means that it has to be impossible for business banks to create money.
Silvio Gesell (March 17, 1862 – March 11, 1930) was a German merchant, theoretical economist, social activist, anarchist and founder of Freiwirtschaft. He is known for developing the theoretical assumptions that underpin negative-interest, or demurrage, currencies.
In 1890 while in Argentina, he proposed essentially that particular substitute for money, which now bids fair to sweep [the United States], under the name of ‘Stamp Scrip’.
Gesell developed his ideas while living in crisis-struck Buenos Aires as a merchant, struggling to keep up. This caused him to reflect upon the structural problems caused by the monetary system. In 1891, he released his first writing on this topic: Die Reformation des Münzwesens als Brücke zum sozialen Staat(German for: Currency Reform as Bridge to the Social State), which contains most of Gesell’s ideas in outline, including his proposal for money that does not fulfil to store of value function. He then wrote Nervus Rerum and The nationalization of money.

The basic problem of financial assets which increase due to interest
The consequences of saving and therefore increasing financial assets shall be described with a simple example:

Consider an island with 10 inhabitants, each of them offering products and services worth 1,000 Dollars per month and also demanding each month the same amount of products and services. Consider money circulates once a month, then 10,000 Dollars are necessary on the island in order to be able to carry out all the activities. If the 10,000 Dollars are constantly spent, circulation and therefore the economic situation are stable on the island.

What are the consequences, if one inhabitant regularly saves 100 dollars per month, without reducing his financial assets by an increased demand?

The liquidity advantage of money, user fee and ”neutral money”

Let us start with a fairy-tale: a mother had three sons. As one day they wanted to leave home in order to get to know the world, she gave the first one 30 Dollars, the second 300 apples, which she could have sold for 30 Dollars the next day at the market and the third a whetstone with which 30 Dollars could be earned each day. The mother thought that she had treated her sons equally. During the first evening, the three brothers were hungry and wanted to have diner in an inn. One meal cost 10 Dollars. The first one had no problem as he could pay with his money. The second son needed to sell 100 apples or to borrow 10 Dollars from his brother. Additionally there was the danger that a part of the apples could get bad by the next day. The third son needed to find a person who wanted to his knife sharpened. Although the mother thought that she was just, you can see that money has a natural advantage in comparison with goods or labour.

”Neutral money” existed for the first time in the Middle Ages, as the minting of coins had the same function as a user fee. Silvio Gesell was the first person, who described this money system theoretically in 1916. It was introduced in 1933 with a big success in Wörgl, a small city in the west of Austria. Also important economists, such as Irving Fisher 1933 and John Maynard Keynes 1936 (in his ”General Theory of Employment, Interest and Money”) were studying this money system in detail. Keynes talks about ”carrying costs” and writes: ”These reformers (he meant Silvio Gesell and Irving Fisher), who have seen in the establishment of carrying costs of money a solution to the problems, were on the right way. Such a solution could be the periodical obligation to mark legal means of payment for established fees. The practical value of their suggestions needs to be considered … The idea behind marked money is sane.”

”The rise of modern capitalism was much fostered by the church’s withdrawal of the prohibition of interest. Now as the interest economy has brought major conflicts to mankind and the contrast between the poor and the rich has reached a global dimension, a transformation of theologian and economists is indispensable. The tradition of the prohibition of interest has to be brought back to the consciousness of the public in order to establish a counter weight against the financial system and to search for ways and means that lead more efficiently to the task of an interest-free economy than prohibitions that can be ignored. Today it has become clear, that international financial forces – which have mainly developed in Christian surroundings – have established a practice of interest of criminal dimensions… Seen economically, taking interest is the increase of money without being linked to production of goods or services. This process must lead to the collapse of any economy in the long run.

”The rise of modern capitalism was much fostered by the church’s withdrawal of the prohibition of interest. Now as the interest economy has brought major conflicts to mankind and the contrast between the poor and the rich has reached a global dimension, a transformation of theologian and economists is indispensable. The tradition of the prohibition of interest has to be brought back to the consciousness of the public in order to establish a counter weight against the financial system and to search for ways and means that lead more efficiently to the task of an interest-free economy than prohibitions that can be ignored. Today it has become clear, that international financial forces – which have mainly developed in Christian surroundings – have established a practice of interest of criminal dimensions… Seen economically, taking interest is the increase of money without being linked to production of goods or services. This process must lead to the collapse of any economy in the long run.

The widespread social consequences of inflation and the resulting danger for democracy is expressed in the following quotations:

Copernikus:

”Among all evils which can lead to the destruction of states, four can be defined as the most important ones: internal quarrel, a high rate of mortality, infertility of land and the reduction of the value of money. The first three ones are so evident, that nobody will question them. The fourth evil though, which arises from money, only a few recognise, and only those who think more seriously, because whole states are not destroyed in an instant. They decline slowly and in a way which is invisible.”

A study of Harvard University describes these times in the Middle Ages as some of the happiest and most prosperous for humanity. In the Germans peaking world hundreds of cities were founded, the Hanseatic cities flourished and for the first time there was public wealth for a wide number of citizens, which can be seen in a number of preserved cities like Dinkelsbühl, Rothenberg, Lübeck, etc. Never again has there been a comparable number of artists and craftsmen in history. Every joist on every building and every last stone on the top of churches and cathedrals was decorated artistically. Especially cathedrals give evidence for the enormous good fortune of those days. They were not built by forced labour like the pyramids, but by well-paid craftsmen and architects. And this widespread welfare was not the consequence of increasing productivity and economic growth in our known sense but only the result of a long economic period without harmful recessions and a money system which guaranteed circulation without exploitation. Mostly a five-day working week was usual, because the ”blue Monday” was holiday for the guilds.

Just because there were no Banksters with their system buildt on interest during middle age – A study of Harvard University describes these times in the Middle Ages as some of the happiest and most prosperous for humanity. In the Germans peaking world hundreds of cities were founded, the Hanseatic cities flourished and for the first time there was public wealth for a wide number of citizens, which can be seen in a number of preserved cities like Dinkelsbühl, Rothenberg, Lübeck, etc. Never again has there been a comparable number of artists and craftsmen in history. Every joist on every building and every last stone on the top of churches and cathedrals was decorated artistically. Especially cathedrals give evidence for the enormous good fortune of those days. They were not built by forced labour like the pyramids, but by well-paid craftsmen and architects. And this widespread welfare was not the consequence of increasing productivity and economic growth in our known sense but only the result of a long economic period without harmful recessions and a money system which guaranteed circulation without exploitation. Mostly a five-day working week was usual, because the ”blue Monday” was holiday for the guilds.

The Wörgl experiment (Wörgl: small city in Austria, province of Tyrol)

A The Wörgl experiment (Wörgl: small city in Austria, province of Tyrol)famous and well documented historical example is the ”Miracle of Wörgl” during the great depression in the Thirties. Due to the reduction of the money supply and the following deflation, the economy declined everywhere. The then social-democratic mayor of Wörgl, Unterguggenberger, tried to explain the origin of stagnation and unemployment as well as the reason for empty community coffers. He found an explanation by the German-Argentine Silvio Gesell and his theories on social and money reforms. In his main book ”The natural economic order” Unterguggenberger detected the relationship between the circulation of money and the economic crisis.

In contrast to the economic experts, Unterguggenberger understood that one has to make money find its feet to overcome the crisis. He issued ”work certificate bills” (Arbeitsbestätigungsscheine: These bills certified a certain amount of work being done) which were covered by a certain amount of money at the local bank. The bills consisted of a ”circulation engine” which subjected the hoarding of the bills to disadvantages: On the rear of the bill were twelve squares to be stamped every month to secure the nominal value of the bill. To prevent purchasing the stamp worth one per cent of the nominal value, nearly everybody spent the bill at the same time he or she received it. The economy recovered, community taxes were paid and unemployment in Wörgl declined, while everywhere else it increased.

The ”economic miracle of Wörgl” was known internationally. The later French president Daladier visited Wörgl and reported in detail to the French parliament. The famous American money-theorist Irving Fisher sent an assistant to Wörgl. Fisher thought that the model would be able to overcome the US-recession. He classified himself as a ”modest student of Silvio Gesell.” But when hundreds of Austrian majors wanted to copy the Wörgl-model it was forbidden by the Austrian Central Bank. The bank classified the ”work-confirmation bills” as money and felt its autonomy threatened. The actual positive and negative effects of the bills and of their own money were not thought worth reflecting on, neither for the officials of the Central Bank nor for most of the economists. As today, the money order was a taboo in these days.

Annonser