The Political Economy of Silvio Gesell: A Century of Activism

ABSTRACT. Silvio Gesell (1862-1930) pioneered a version of the market economy that was about competitive entrepreneurship but not about capitalism. The financial interests of the hoarders of scarce bank financing and those leveraged with speculative land dealings were to be sacrificed for the greater good of a nation of free and enterprising men and women. Gesell was a radical reformer and quite a famous one, having received more than a respectful mention in John Maynard Keynes' The General Theory of Employment, Interest, and Money. Keynes dubbed Gesell a non-Marxian socialist. Gesell founded the Free Economy school, which is undergoing a renaissance today in Eastern Europe as a possible model for a redesigned transition economy.

IN 1891 SILVIO GESELL (1862-1930), a German-born entrepreneur living in Buenos Aires, published a short booklet entitled, Die Reformation im Munzwesen als Brucke zum sozialen Staat (Currency Reform as a Bridge to the Social State). This was the first of a series of pamphlets presenting a critical examination of the existing 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 labor 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 Aristotle, Gesell recognized money's contradictory dual role as a medium of exchange for facilitating economic activit y 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 can 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. First, 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 exposing its holder to significant losses. Second, 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 "wild card" 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.

The hoarders can disrupt the dynamic flow or money balances of economic activity, of purchases and sales, and of savings and investment. This power to disrupt enables the holders of money to demand the payment of interest as a reward for refraining from speculative hoarding. This in turn allows 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. This enables money 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 humans. Long-term positive interest rates disturb the balance of profit and loss necessary for the decentralized operation of markets. Gesell held 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, no longer reflecting differences in productivity. This in turn leads to a concentration of monetary as well as non-monetary capital, and therefore to the predominance of monopolistic structures in everyday life.

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.

II

Toward a Neutral Servant of Economic Activity

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