As part of the theory of

Freiwirtschaft (German language, German for "free economy") is an economic idea founded by Silvio Gesell in 1916. He called it ' (natural economic order). In 1932, a group of Swiss businessmen used his ideas to found the WIR Bank (WIR). Structure Freiwirtschaft ...

, Freigeld ('free money', ) is a

monetary Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money are ...

(or exchange) unit proposed by

Silvio Gesell Johann Silvio Gesell (; 17 March 1862 – 11 March 1930) was a German-Argentine economist, merchant, and the founder of Freiwirtschaft, an economic model for market socialism. In 1900 he founded the magazine ''Geld-und Bodenreform'' (''Monetary ...

Properties

Freigeld has several special properties: * It is maintained by a monetary authority to be ''spending-power stable'' (no

inflation In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduct ...

deflation In economics, deflation is a decrease in the general price level of goods and services. Deflation occurs when the inflation rate falls below 0% (a negative inflation rate). Inflation reduces the value of currency over time, but sudden deflatio ...

) by means of printing more money or withdrawing money from circulation. * It is ''

cash flow A cash flow is a real or virtual movement of money: *a cash flow in its narrow sense is a payment (in a currency), especially from one central bank account to another; the term 'cash flow' is mostly used to describe payments that are expected ...

safe'' (a scheme is put in place to ensure that the money is returned into the cash flow – for example, by demurrage – requiring stamps to be purchased and periodically attached to the money to keep it valid). * It is convertible into other

currencies A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" is a standardization of money in any form, in use or circulation as a medium of exchange, for example banknotes and coins. A more general def ...

. * It is localized to a certain

area Area is the quantity that expresses the extent of a region on the plane or on a curved surface. The area of a plane region or ''plane area'' refers to the area of a shape or planar lamina, while '' surface area'' refers to the area of an op ...

(it is a

local currency In economics, a local currency is a currency that can be spent in a particular geographical locality at participating organisations. A regional currency is a form of local currency encompassing a larger geographical area, while a community curren ...

). The name results from the idea that there is no incentive to store or hoard Freigeld as it will automatically lose its value after some time. It is claimed that as a result,

interest rate An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, t ...

s could decrease to zero.

Theory

According to Gesell, all human-produced goods are subject to expensive storage, whereas money is not: grain loses its weight, metal products rust, housing deteriorates. Therefore, money has a supreme advantage over all other goods.

John Maynard Keynes John Maynard Keynes, 1st Baron Keynes, ( ; 5 June 1883 – 21 April 1946), was an English economist whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments. Originally trained in ...

renamed the concept of ''basic interest'' articulated in Gesell's book '' The Natural Economic Order'' with the more familiar term

liquidity preference __NOTOC__ In macroeconomic theory, liquidity preference is the demand for money, considered as liquidity. The concept was first developed by John Maynard Keynes in his book '' The General Theory of Employment, Interest and Money'' (1936) to e ...

. Being "liquid" – having money – is a great advantage to anybody, much more so than having comparable amounts (past

utility As a topic of economics, utility is used to model worth or value. Its usage has evolved significantly over time. The term was introduced initially as a measure of pleasure or happiness as part of the theory of utilitarianism by moral philosophe ...

) of any product. The result is that people will not even provide zero-risk, inflation-corrected credits unless a certain interest rate is offered. ''Freigeld'' simply reduces this "primordial" interest rate, which is estimated to be somewhere around 3% to 5%, by an absolute, in order to lower the average interest rate to a value around 0.

Current examples

E-gold is an example of a modern

private currency A private currency is a currency issued by a private entity, be it an individual, a commercial business, a nonprofit or decentralized common enterprise. It is often contrasted with fiat currency issued by governments or central banks. In many coun ...

in which demurrage is applied. In this case there is a gold storage charge of 1% per annum. The demurrage associated with e-gold is arguably expended by the currency operator to help cover real storage costs.

Bernard Lietaer Bernard Lietaer (7 February 1942 – 4 February 2019) was a Belgian civil engineer, economist, author, and educator. He studied monetary systems and promoted the idea that communities can benefit from creating their own local or complementary cu ...

terra Terra may often refer to: * Terra (mythology), primeval Roman goddess * An alternate name for planet Earth, as well as the Latin name for the planet Terra may also refer to: Geography Astronomy * Terra (satellite), a multi-national NASA scienti ...

is a commodity basket currency proposal similar to Keynes's bancor or L'Europa and bearing a demurrage charge. The chiemgauer is a regional

community currency A community is a social unit (a group of living things) with commonality such as place, norms, religion, values, customs, or identity. Communities may share a sense of place situated in a given geographical area (e.g. a country, village, tow ...

in a part of Bavaria, using a demurrage system.

In fiction

Michael Ende has stated to have had the concept of aging money in mind when writing his children's novel '' Momo''.Michael Ende's last words to the Japanese
.

References

Margrit Kennedy Margrit Kennedy (November 21, 1939, Chemnitz – December 28, 2013, Steyerberg) was a German architect, professor, environmentalist, author and advocate of complementary currencies and an interest- and inflation-free economy. In 2011, she initia ...

. ''Interest and Inflation Free Money''. 1995. {{refend Local currencies Monetary reform Freiwirtschaft

Properties

Theory

Current examples

In fiction

See also

References