Freigeld
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( German for "free economy") is an economic theory and proposal founded by the German-Argentine economist Silvio Gesell in his 1916 book, '' The Natural Economic Order'' (). Some of the basic economic ideas of Freiwirtschaft were also independently published in 1890 by the Hungarian-Austrian economist Theodor Hertzka in his novel ''Freiland - ein soziales Zukunftsbild'' (''Freeland - A Social Anticipation'').


Structure

Freiwirtschaft consists of three central aspects, usually summed up as the Three Fs: * ' ('free money') ** All money is issued for a ''limited'' period by ''constant'' value (neither
inflation In economics, inflation is an increase in the average price of goods and services in terms of money. This increase is measured using a price index, typically a consumer price index (CPI). When the general price level rises, each unit of curre ...
, nor
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% and becomes negative. While inflation reduces the value of currency over time, deflation increases i ...
). ** Long-term saving requires investment in bonds or
stock Stocks (also capital stock, or sometimes interchangeably, shares) consist of all the Share (finance), shares by which ownership of a corporation or company is divided. A single share of the stock means fractional ownership of the corporatio ...
s. ** Freigeld is 'free' because it's free (libre) from
hoarding Hoarding is the act of engaging in excessive acquisition of items that are not needed or for which no space is available. Civil unrest or the threat of natural disasters may lead people to hoard foodstuffs, water, gasoline, and other essentials ...
and
interest In finance and economics, interest is payment from a debtor or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum (that is, the amount borrowed), at a particular rate. It is distinct f ...
. * ' ('free land') ** All
land Land, also known as dry land, ground, or earth, is the solid terrestrial surface of Earth not submerged by the ocean or another body of water. It makes up 29.2% of Earth's surface and includes all continents and islands. Earth's land sur ...
is commonly owned or else the property of public institutions and can only be rented from the community or from government, respectively, not purchased (''see also
Georgism Georgism, in modern times also called Geoism, and known historically as the single tax movement, is an economic ideology holding that people should own the value that they produce themselves, while the economic rent derived from land—includ ...
''). * ' ('free trade') **Unrestrained
free trade Free trade is a trade policy that does not restrict imports or exports. In government, free trade is predominantly advocated by political parties that hold Economic liberalism, economically liberal positions, while economic nationalist politica ...
supported by an international currency union as paper standard to maintain stable exchange rates and abolition of the
gold standard A gold standard is a backed currency, monetary system in which the standard economics, economic unit of account is based on a fixed quantity of gold. The gold standard was the basis for the international monetary system from the 1870s to the ...
in foreign trade.


Freigeld

Freigeld is particularly unique to Silvio Gesell's economic proposals. 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 average price of goods and services in terms of money. This increase is measured using a price index, typically a consumer price index (CPI). When the general price level rises, each unit of curre ...
or
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% and becomes negative. While inflation reduces the value of currency over time, deflation increases i ...
) by means of printing more money or withdrawing money from circulation. * It is ''
cash flow Cash flow, in general, refers to payments made into or out of a business, project, or financial product. It can also refer more specifically to a real or virtual movement of money. *Cash flow, in its narrow sense, is a payment (in a currency), es ...
safe'' (a scheme is put in place to ensure that the money is returned into the cash flow – for example, by stamp scrip – requiring stamps to be purchased and periodically attached to the money to keep it valid). * It is convertible into other
currencies A currency is a standardization of money in any form, in use or currency in circulation, circulation as a medium of exchange, for example banknotes and coins. A more general definition is that a currency is a ''system of money'' in common use wi ...
. * It is localized to a certain
area Area is the measure of a region's size on a 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 open surface or the boundary of a three-di ...
(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 ...
). In theory, since Freigeld would automatically lose its value after some time, there would be no incentive to store or hoard it. As a result, Freigeld would encourage bankers to lend money without charging
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, ...
s, thus leading to an interest-free economy.


Monetary 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 and philosopher whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments. Originall ...
renamed the concept of ''basic interest'' articulated in Gesell's book '' The Natural Economic Order'' with the more familiar term liquidity preference. Being "liquid" – having money – is a great advantage to anybody, much more so than having comparable amounts (past
utility In economics, utility is a measure of a certain person's satisfaction from a certain state of the world. Over time, the term has been used with at least two meanings. * In a normative context, utility refers to a goal or objective that we wish ...
) 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. Freiwirtschaft claims that current monetary systems are flawed. In mainstream economics, prices convey information. For example, dropping prices on a product mean that there is less demand or more supply of that product. This leads to a buyer's buying more, or a seller's/producer's starting to sell/produce something else, thereby reducing the supply of that product. As a reaction, assuming constant desirability, the price of the product rises again. So, the price, together with the market participants, builds up a
feedback Feedback occurs when outputs of a system are routed back as inputs as part of a chain of cause and effect that forms a circuit or loop. The system can then be said to ''feed back'' into itself. The notion of cause-and-effect has to be handle ...
loop around a stable, "ideal" price. At this stable price, the market is ideal, no one pays too much or earns too little, and there are no tendencies from either party to change that price. The "wobbling" around that ideal price is called ''self-stabilizing''. The key error of the current system, according to Gesell, is the ill-transported information in the price. Money is nothing but a claim for goods and services, usable in the economies that accept money in exchange for the former. In a weak economy, money is worth less in goods. But instead of an
inflation In economics, inflation is an increase in the average price of goods and services in terms of money. This increase is measured using a price index, typically a consumer price index (CPI). When the general price level rises, each unit of curre ...
, the result is a
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% and becomes negative. While inflation reduces the value of currency over time, deflation increases i ...
as described above, and less money can now buy the same goods. This feedback loop is ''self-destabilizing'', according to the Freiwirtschaft theory.Norbert Rost
Eine experimentelle Überprüfung der Aussagen der Freiwirtschaftslehre
(An experimental check of the statements of the Freiwirtschaft) (diploma thesis, Dresden, 2003), p. 25ff.


References


Sources

* Helmut Creutz, ''The Money Syndrome – Towards a Market Economy Free from Crises'', Upfront Publishing 2010. * Günter Bartsch, ''Die NWO-Bewegung Silvio Gesells – Geschichtlicher Grundriß 1891-1992/93''. Gauke, Lütjenburg 1994. * Knulp Goeke, ''Die verteilungspolitische Problematik der Freiwirtschaftslehre''. Cologne 1961. * Johannes Heinrichs, ''Sprung aus dem Teufelskreis. Sozialethische Wirtschaftstheorie'' Vol. I, Munich 2005. * * Hans-Joachim Werner, ''Geschichte der Freiwirtschaftsbewegung. 100 Jahre Kampf für eine Marktwirtschaft ohne Kapitalismus''. Waxmann, Münster 1990.


External links

*
Materialien zur Geld-, Zins- und Schuldenproblematik (in German, partly English)

Fairconomy (in German, partly English)
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