The Story of Robinson Crusoe and guest:
"If there were a monetary system on this island and I, as a shipwrecked traveller needed a loan, I should have to apply to a money-lender for money to buy the things which you have just lent me without interest. But a money-lender has not to worry about rats moths, rust and roof-repairing, so I could not have taken up the position towards him that I have taken up towards you. The loss inseparable from the ownership of goods is born, not by money lenders, but by those who have to store the goods. The money-lender is free from such cares and is unmoved by the ingenious arguments that found the joints in your armour. You did not nail up your chest of buckskins when I refused to pay interest; the nature of your capital made you willing to continue the negotiations. Not so the money-capitalist; he would bang the door of his strong room before my face if I announced that I would pay no interest. Yet I do not need the money itself, I need it only to buy buckskins."
In his classic economic treatise "The Natural Economic Order", written in 1929, Silvio Gesell attempted to explain to his audience that many of the economic ills that were befalling the world at the time were not due to problems with demand and supply, as such, but with an erroneous understanding of money. He used the simple Robinson Crusoe anecdote above to show that a society which insists on "interest money" to "allow" exchange" was operating on an erroneous paradigm.
In his view society had allowed banking dynasties to obtain control of not only the money supply but also the mental understanding of what money actually was. He, like the American economist E. C. Riegel, believed money was perhaps the greatest social invention of all time. However, misunderstanding had allowed an elite take over this invention for their selfish gain. Thus Gesell observed that in the midst of plenty society was starving. (We must remember that the book was written during the "great depression").
Gesell tried to educate his peers into the inner workings of money. He spent his life explaining that money was in essence an agreement of mutual reciprocity. He understood that the only entities who could naturally issue money were those that gave value in exchange. Thus governments could never issue money; they could only exploit its natural bounty. To him money was goods and goods exchanged was money. He believed that the best money reflected the true nature of goods. He was therefore against "interest money". He explained that if the money used by a society was "better" than the goods exchanged in that society the holders of money would be in a stronger position than those who worked and slaved to create the goods and services that gave money value. Thus he saw through to the essential failure within general financial comprehension in vogue at that time. Unfortunately this misunderstanding continues in contemporary society and is at the heart of the current financial crisis that is bringing the European Union to its knees.
Natural Free Money:
To explain his ideas on natural money Gesell promoted the idea for the issuance of "free money" by governments. By "free" he meant that the money was owned by the people and not banking elites. An example of this money is set out above and can be referenced from the link below.
To him efficient money was all about active circulation. To motivate circulation, and prevent hoarding, Gesell propounded that for money to be valid it should require attachment of a stamp, payable by the holder (be it the citizen or a banking institution), each week, at the rate of 5% per annum. This system meant that money "depreciated" by one twentieth each year. This "negative cost" thus ensured that the holders of money were not is a more powerful position than that of the holders of goods. Thus he explained that; "as the grain merchant suffered time loss due to wastage, so too should the holder of money suffer loss through natural depreciation".
We all know that money, in addition to being a medium of exchange, should also be a store of value. Gesell pointed out that at any point the holder of the free money could opt to buy gold or silver. However, this commodity holder he argued, would soon find out this "store" of wealth is not really a store at all. The owner would have to pay to insure and guard his gold and silver. Thus he brilliantly argued that even the classical "store of wealth" concept of money had a time wastage cost element. In one fell swoop Gesell had cut through the "store of value" fallacy of money. Namely he outlined that the only true store of value in money was "potential reciprocity of exchange" and this reciprocity was contingent on an efficiently functioning market system within a stable society. The "system" was not the money; the system was the functioning exchange. This was the truth then. This is the truth now. However, this truth regarding money has been blinded from the general public. The money power has conditioned the academic fraternity into accepting an "interest" paradigm of money which places the holders and owners of money at a distinct advantage over those who work to provide true value. Thus capital (the earning of interest) has supplanted labour in modern exchange relationships.
Gesell powerfully articulated all through his life that once this "essence of money value", i.e. reciprocity of value in exchange was compromised society, which was built on such exchange, would begin to fail. This failure he believed was at the core of the financial crisis of 1929. It is my contention that it is also central to the economic collapse that we are experiencing in 2012.
Only when the lessons and insights of economic pioneers like Silvio Gesell, E. C. Riegel and Clifford Douglas are fully comprehended and acted upon will our current money crisis be well and truly solved. Until then the true cause of our problem will never be successfully comprehended. Without such comprehension all solutions will only be temporary, ill conceived and doomed to failure.
Money is to society as a ticket is to a rail network. The issue is not to own all the tickets and live on the speculation of their value but to have a fully operating rail system available for the use of society, be it citizens or businesses therein. It was Gesell's view that if banking corporations and institutions were corrupting money, to the detriment of the greater society, then it was the moral duty of good government to legally and administratively modify the operation of money to so prevent this state of affairs continuing in perpetuity. He believed that if such action was not taken society itself would continue to fail.
Today we are at this juncture. Our options are simple. Do we rectify money or wreck society. It is time to make money natural again.
- The Natural Economic Order by Silvio Gesell, 1929. http://wikilivres.info/wiki/The_Natural_Economic_Order
- E.C. Riegel" Flight From Inflation" http://content.yudu.com/Library/A1vohf/FlightFromInflation/resources/index.htm?referrerUrl=http%3A%2F%2Ffree.yudu.com%2Fitem%2Fdetails%2F477634%2FFlight-From-Inflation
- Christopher M. Quigley "The Monetary Theory of E. C. Riegel" http://content.yudu.com/Library/A1vjy4/TheMonetaryTheoryofE/resources/index.htm?referrerUrl=http%3A%2F%2Ffree.yudu.com%2Fitem%2Fdetails%2F472782%2FThe-Monetary-Theory-of-E.-C.-Riegel
About Christopher Quigley
Christopher Quigley Archive
|07/01/2014||The Stock Market Is Overvalued, Caution Is Warranted||story|
|06/05/2014||Is Now the Time to go to Cash?||story|
|05/05/2014||Choppy Earnings Season But Bull Remains Intact||story|
|04/01/2014||Technical Bullish Breakout Signals||story|
|03/06/2014||The Stock Market’s New Normal: A Wall of Worry||story|
|02/03/2014||Dow Divergence Continues: Market Risk Is Rising||story|
|01/13/2014||Dow Theory Divergence in Place – Which Way Will It Break?||story|
|12/06/2013||Short Term Stock Market Pull-Back Developing||story|
|11/15/2013||The Investment Rule of “72”||story|
|10/08/2013||Stealth Bail-ins and a Weak Market Confirmed by Dow Theory||story|