The Natural Economic Order of Silvio Gesell
Terry Newland
[A paper delivered at the 1979 Joint Georgist
Conference, San Francisco, California]
A movement, any movement, becomes moribund when it begins to
substitute dogma for well understood doctrine, habitual mental
reactivism for spirited enquiry, and established authority for the
truth. Keeping in mind these apparently universal tendencies, I would
like to put before my audience the barest outline of a philosophy that
to my mind recapitulates, reaffirms, and, in some ways, goes beyond
that far reaching doctrine of hope and brotherly love we call, for
lack of a better term, Georgism.
Silvio Gesell was born in Austria of middle class parents in 1860. He
spent the first 25 years of his life in Europe, studying liberal arts
and languages. After a short and uninspiring spell as a government
civil servant, he went to live in Brazil, where he resided for over 20
years. He made his living as an importer of surgical instruments. He
was a reasonably successful businessman, but, like all his associates,
labored under the great disadvantage - an unsound economy. Inflation,
unemployment, bankruptcies, recessions, and governmental instability
led him to the study of economics. Thus out of self preservation this
transplanted European merchant began the study which was to change his
life.
He came to the conclusion that in order to bring about the kind of
stability, equity, and freedom so necessary to harmonious economic
development, there needed to be a thorough reform of the world's land
tenure system, money arrangements, tax laws, and accountancy
procedures. He, like George whom he admired greatly, recognized the
need to go to the roots of problems, and this radicalism was to be
evident in every aspect of his work and thought. He wrote a small
pamphlet in which he advocated two basic reforms: Free Land and Free
Money. He published the work and sent it to all the political and
economic leaders of South America. The result, to use his words, "were
nil". Finally, he moved back to Europe where he lived as a
subsistance dirt farmer in Switzerland. He devoted himself at this
time to his masterwork: The Natural Economic Order in which he offered
a complete program of economic reform based primarily on the work of
the Manchester School of Economics, Henry George, and Loui Prouhdon,
the great 19th century protagonist of Karl Marx.
The message of NEOcracy grew rapidly, until by the 1930's, there were
hundreds of NEOcratic centers all over the world. Gesell became
popular and much respected in his own native Austria, and when that
country underwent a political turn around at the time of the 1st World
War, Gesell was asked to become finance minister. Ever the practical
idealist, Gesell threw himself into the task of reforming the
country's economic policies. At this point he did something very rare
in statesmanship; he described in detail just what he was doing and
what he was planning to do and had these explanations published in all
the daily papers. Unfortunately, his "socialistic"
government was soon swept out of office and Gesell was thrown into
jail. At his trial he gave what by many accounts was the greatest
speech ever given in one's own defense. Hundreds of leaders from all
over the world came and testified on behalf of Gesell, and finally,
somewhat embarrassed, the court found him not guilty of all charges.
Gesell lived on until the winter of 1929, radiant and in perfect
health until the very end. Like George he was a brilliant comet-like
personality that entered the world scene, absorbed its realities,
strove mightily for a better world, touched off a world-wide movement,
then departed the scene. Like George, again, his thought is almost
lost beneath the onslaught of economic drivel with which we are spoon
fed en masse: he is no longer mentioned in economic courses, his books
are out of print and very hard to come by, his NEOcratic movement is
nowhere to be found. He has been buried, in fact, deeper than Henry
George. Could it be that both men had stumbled upon doctrines which
were supremely offensive to established economic regimes, both of the
right and the left?
Gesell1s most important work was The Natural Economic Order. In it he
takes the position that the most natural economic order is that in
which all thrive. He supports the concept of the self regulating
market and the need to eliminate all special privileges from the
market place, if the free market is to function without the onus of
poverty, inflation, recessions, enforced unemployment, and war. He
advocated two basic reforms, both of which he considered absolutely
necessary to permanent economic recovery.
The first great problem of economics was the resolving of land tenure
arrangements. He found the system of private ownership of land, and
its economic counterpart, private rent reception, repugnant to the
principles of a free economy. He therefore advocated the public
reception of ground rents in their entirety. His means was the public
resumption of landownership through compensation to present owners.
Although a great admirer of Henry George, he differed with him on this
point. While excepting land holdings obviously gained through force
and fraud, he would compensate all present landholders to the full
amount of their holdings. This in turn would be effected by the buying
up of all privately held land with state-issued land value par bonds.
As land prices reflect the capitalized value of a site's yearly rental
value, the price paid in land par bonds would equal the capitalized
rental value of land, and, as long as interest rates remained stable,
the landowners would receive in state paid interest exactly what they
would have received, as landholders, in economic rent. So the
government pays out, in land par bonds, say, $2 trillion to buy the
land-holdings of the country, paying at 57. interest, or $50 billion
per anum in interest to the previous landholders. So at first the
government takes in rent what it pays out in interest upon its land
par bonds. But under Gesell1s system, interest does not remain stable.
To understand this phenomena, we turn to his second great reform, Free
Money.
The Gessellian theory of interest is basically that of Pierre
Proudhan. Gesell saw that George's and other classical economists
views on interest were clouded and based upon wrong premises. He
disposed of the various theories of interest as crude and totally
unscientific. The theory of fructification, of time dispersion, of
future desirability of future goods, of abstinence, of pure ownership
yielding surplus value: all these he condemned as either irrelevent,
sycophantic, or both. He states plainly his view of the nature of
interest: Basic interest is usury, the age old charge for the use of a
lender's money. Monetary interest is, for Gesell, the foundation of
capital interest. But why can money lenders demand a premium for their
commodity, money? This is the most important question in capital
theory for Gesell. He answers that money can exact a tribute called
interest or usury because the holder of money is in a privileged
position within the marketplace. This privilege is effected by having
a hoardable commodity that is at the same time the money medium; this
can be either gold, silver, paper, or other rare, easily storable,
compact imperishable element. Laborers and holders of goods and
services must sell today for labor and its products parish, decay,
rot, get lost, take up space for storage, and invite destruction from
a thousand different causes. But not gold silver, and paper money;
they can be held virtually without cost. It is this privileged
position of the moneyholder over everyone else (except landholders) in
the marketplace that gives rise to interest (monetary).
Next Gesell shows that with an increase in the relative amount of
real capital the interest in this real capital diminishes rather than
increases. Both Proudhon and Gesell wanted to 'flood the market' with
goods, services, and capital until interest on real capital reached
zero. But this point is never reached because if interest on real
capital drops below what could be 'earned' from monetary interest,
money will leave the market and not return as the universal agent of
exchange until a tribute is again forth comings that tribute is
monetary interest. With a scarcity of money, borrowers must pay more
in interest. So, as production begins to flood the market with
capital, real capital interest begins to drop. The only way to keep
capital scarce is to withdraw money from the marketplace, cutting back
production, and thus creating an artificial scarcity of capital. When
interest on real capital raises to the universal level of usury
(around 31/2% to 5 ^), money is once again attracted into the market
to fulfill its function as the means of exchange.
The reason money is so powerful is that without it an economy is
forced to rely upon primitive production (without exchange), bills of
credit, or barter. These are the only protection producers have
against a hoardable means of exchange. Gesell says that money has
always been considered, from the point of view of the holder of money,
not producers. The view must be changed to that of the producer's,
i.e., the proletariat. When the welfare of the proletariat is made the
first priority, money changes in nature. Money should never be both a
means of saving and exchange; it cannot be both accelerator and brake
at the same time. Gesell wants money to be the excelerator of the
economic system. To do this, he simply eliminates the capacity of
money to act as braking mechanism; he subjects money to the same
natural laws of perishability by placing a demmurage upon it. The
money of the realm is to be government fiat paper, backed by nothing,
but eternally redeemable in the marketplace for whatever goods and
services it may be able to command. But the money looses, say 1/10 of
1% in value per week, and in order to remain legal tender, must
exhibit all the appropriate stamps on the backs of the bills. The
entire supply of money (with the exceptions of certain coins and high
denomination bills which would be returned to government incinerators
at longer intervals) is redeemed for goods and services through the
year, with the various bills loosing value at a set rate. This device,
which could perhaps be improved upon with credit cards, etc., forces
the entire stock of money to circulate irrespective of the wishes of
the holders of money; banks and financiers can no longer hoard money
in their vaults waiting for higher interest rates. They must circulate
the money now or loose part of the value of their commodity (money),
just as the holder of goods and services looses every day that he
withdraws his wares or services from the market.
The result of a demmurage currency is to put the entire demand of the
economy, represented by money, into uninterrupted circulation; the
stock of money then equals the supply of money; money is now a medium
of exchange, and nothing more. Those who wish to save can either save
real wealth (which deteriorates daily), and accept the obvious
limitations of wealth saving (loss, storage, rot, fire, etc.), or they
can loan it out to acceptable borrowers at zero interest. As interest
free loans become the order of the day, production will continue on
uninterrupted; soon the supply of real capital begins to reach the
actual demand for capital, and real capital interest (the result of
artificial scarcity of capital) begins also to head toward zero.
Within a half generation, according to Gesell, all monetary and
capital interest will have disappeared entirely.
This elimination of capital interest, a true unearned increment,
paves the way for a truly producer rewarded economy. Income no longer
can come from mere ownership, although the means of production
continue to be privately owned (except land), but solely from human
exertion, in the service of others, or work.
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