Mario, Silvio, and John
It is convenient to mention at this point the strange, unduly neglected prophet Silvio Gesell (1862-1930), whose work contains flashes of deep insight and who only just failed to reach down to the essence of the matter. — John Maynard Keynes
It is beyond strange that as the European Central Bank takes the shocking step of adopting negative interest rates in a desperate bid to boost economic activity in stagnating nations on the Euro, Silvio Gesell — as Keynes himself noted, the father of centrally planned demand stimulation as well as the finance minister of short-lived Bavarian Soviet Republic — has not received his due credit.
Maybe that is because what Gesell had in mind is pretty funky stuff.
Start with one-world government — after all you cannot expect people to hold a currency that you are purposely inflating away the value of everyday if any other currencies exist which are better stores of value. Same thing goes for land, which Gesell dubbed Free-Land. If you could pour your monetary wealth into land before it was inflated away, you would. To wit Gesell’s solution:
Competition among men can be carried on equitably and in accordance with its high purpose only if all special private or public rights over land are abolished.
All men without exception have an equal right to the earth without distinction of race, religion, culture or bodily constitution. So everyone must be allowed to move wherever his heart, his will, his health prompt him to go, and there to enjoy the same right to the land as the natives. No private individual, no State, no society may retain any kind of privileges over the land. For we are all natives of the earth. …
The land is leased to the cultivators by way of public auction in which every inhabitant of the globe, without exception, can compete.
The rent so received goes to the public treasury and is distributed monthly in equal shares to mothers according to the number of their young children. No mother, no matter from where she comes, will be excluded from this distribution.
The parcelling of the land is governed entirely by the needs of the cultivators. That is, small lots for small families, large lots for large families. Also large tracts for communistic, anarchistic, social-democratic colonies, for co-operative societies, or religious communities.
Any nation, State, race, language-community, religious body or economic organisation seeking to restrict Free-Land in any way is to be outlawed.
The present landowners will receive full compensation, in the form of government securities, for the loss of their rents.
This is already sounding like an old Star Trek premise, but there is more funk via Gesell’s notion of Free-Money. To Gesell’s mind — and later Keynes’ as well — mankind’s chief problem is reliable, steady demand for goods and services. Twinned with that is the habit of some members of society to hoard their wealth and not spread it around with fellow citizens, thereby producing inequality in living standards.
The way to fix this Gesell thought was by manipulating the currency — the store of wealth — so that consumption, not savings, was always incentivized. The way he envisioned this is a currency which lost value the longer you held it. Gesell went through several different plans for doing this — including simply decreeing that currency worth 100 units at the start of a year was only worth 95 at the end of the year — but the important thing to keep in mind that so-called mild inflation of 3-5% a year was regarded as a desirable way to keep the velocity of money high in the economy. High velocity just means money changing hands a lot for goods or services. When velocity is “too low” the government can also step in to buy stuff, thereby providing a “stimulus” to the economy. Which is more or less exactly what the Keynesians carping about “austerity” today believe as well.
But whether public or private spending, consumption of something, anything, is the goal. Or as Gesell put it:
Free-Money forces its holder to buy: it constantly reminds him of his duty as a buyer through the losses it causes him if he neglects to buy. Purchase therefore at all times and under all possible circumstances follows on the heels of sale. And when everyone is obliged to buy as much as he has sold, how can sales slacken? Free-Money, then, closes the monetary circuit.
Just as the wares represent supply, so money now represents demand. Demand is no longer a straw to be blown about by any breeze of rumour or politics. Demand no longer depends on the will of buyers, bankers, speculators; for money has now become the very embodiment of demand. The possessors of money are now kept under discipline; money holds the possessor of money like a dog on a lead.
The very nature of the money demands demand. Consumers are disciplined like dogs. Savings, bad; spending, good. Now we are squarely in some sci-fi dystopian landscape. And, amazingly, without any real upset or comment, so is early 21st c. Europe.
Negative interest rates are the Brave New World of central banking. They further blur the line between fiscal and monetary policy, already significantly fuzzed up by the Federal Reserve’s QE policy, which is essentially a fiscal stimulus in a financialized, Treasury-buying form. A negative interest rate is explicitly a tax on savings, but one levied not by an elected government, but by central bankers.
What’s more there is no objective standard as to whether such a policy has “worked” — it is all up to the whim of the central planners. They hold the other end of Gesell’s leash.
I didn’t start this brewery so I could keep growing and move it away from here; that wasn’t the point. It wouldn’t be fun anymore. It wouldn’t have purpose or meaning.