Understanding Freigeld and Its Impact

Freigeld is a type of local currency that's designed to be used within a specific geographic area. It's meant to be a complementary currency to traditional money, not a replacement for it.

The concept of Freigeld was first introduced by Silvio Gesell in 1906, who argued that it could help stimulate local economies and reduce poverty. Gesell's idea was to create a currency that would encourage people to spend their money locally, rather than hoarding it.

Freigeld is typically created and managed by a local community, which can include businesses, organizations, and individuals. One of the key features of Freigeld is that it has a low or no interest rate, which helps to prevent money from being hoarded and encourages people to use it.

Freigeld is a unique currency with several special properties. It's maintained by a monetary authority to ensure spending-power stability, preventing inflation or deflation by printing or withdrawing money as needed.

Freigeld is designed to be cash flow safe, requiring a scheme to ensure money is returned into circulation. This is achieved through demurrage, which requires stamps to be purchased and periodically attached to the money to keep it valid.

It's also convertible into other currencies, making it a practical choice for international transactions. Freigeld is localized to a certain area, making it a local currency that serves a specific community.

Here are the key properties of Freigeld:

Freigeld has some unique properties that set it apart from other currencies. It's maintained by a monetary authority to keep it spending-power stable, which means there's no inflation or deflation.

This stability is achieved through the monetary authority's ability to print more money or withdraw it from circulation as needed. This ensures that the value of Freigeld remains consistent.

Freigeld is also designed to be cash flow safe, which means that the money is returned into the cash flow. This is achieved through a scheme that requires stamps to be purchased and periodically attached to the money to keep it valid.

Here are some key properties of Freigeld:

As a result of these properties, there's no incentive to store or hoard Freigeld, as it will automatically lose its value after some time. This is claimed to decrease interest rates to zero.

According to Gesell, all human-produced goods are subject to expensive storage, whereas money is not.

Grain loses its weight, metal products rust, and housing deteriorates, making money a much more desirable asset.

John Maynard Keynes renamed the concept of basic interest articulated in Gesell's book with the more familiar term liquidity preference.

Liquidity preference is the idea that having money is a great advantage to anybody, much more so than having comparable amounts 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 amount.

E-gold was an example of a modern private currency that applied demurrage, charging a 1% gold storage fee per annum. This fee was likely used by the currency operator to cover real storage costs.

The terra, proposed by Bernard Lietaer, is a commodity basket currency that also includes a demurrage charge.

The chiemgauer is a regional community currency in Bavaria that uses a demurrage system.

Gesell's approach to Freigeld was met with skepticism and even outright hostility from some quarters. The Reichsbank's president personally warned him "I warn you against experiments!" in response to his plan to create a new currency.

Gesell's actions were seen as radical and even reckless, as he issued 15 decrees and calls to action in his first week in office, including one titled "Gegen die Papiergeldflut" (Against the Paper Money Flood). His program aimed to fundamentally transform the economy, but it was short-lived.

The first Räterepublik, which Gesell helped establish, was overthrown after just seven days, and he was no longer involved in the second Räterepublik that was formed in its place. The second Räterepublik also failed, and Gesell's vision for a new economic system was not realized.

The sociologist Georg Simmel already criticized the concept of money in his book "Philosophy of Money" at the turn of the century. He argued that money, originally a substitute for bartering and a measure of value, had become a material good itself.

Silvio Gesell, an advocate of free money, took a similar approach, but made it a central point of his ideas. He believed that money, as a medium of exchange, unit of account, and store of value, was practically indispensable.

Gesell proposed to subject money to a depreciation process, similar to the natural decay of physical goods. This would make it less attractive to hold onto, and people would be more likely to invest it.

Gesell's idea of "Freigeld" involved charging fees on the possession of money, to encourage its circulation. The 10 pfennig fee per week on a 100-mark note, proposed by the Revolution Minister, would have been a de facto tax, generating additional revenue for social projects.

Gesell wanted to let idle money "rot, mold, and decay" like perishable goods. This would provide an incentive to invest it, rather than letting it sit idle.

The more freely money circulates, the more vibrant the trade, and the stronger the economy, Gesell believed.

Gesell's actions in Bavaria were met with skepticism by the Reichsbank in Berlin, who warned him against experimenting with the economy.

The Reichsbank's president personally responded with a blunt message: "I warn you against experiments!"

Gesell continued on his path, issuing 15 decrees and calls to action in his first week as Minister.

Silvio Gesell was not an antisemite, despite being accused of being so. He was a strong advocate for equality and opposed any form of discrimination.

Gesell's views on economics and politics were misunderstood by some, who claimed he was influenced by the Nazi party. However, this is not true.

The fact that some Nazi ideologues adopted certain aspects of Gesell's ideas was used to discredit him. But this was a misinterpretation of his work.

Gesell himself rejected any association with the Nazi party and its ideology. He believed in the importance of equality and social justice.

In his book, Natürliche Wirtschaftsordnung, Gesell wrote that all people should be treated equally, regardless of their race, religion, education, or physical condition.

Gesell actively spoke out against antisemitism and racism. He even responded to Henry Ford's antisemitic book, Der internationale Jude, with a strong critique.

In his response, Gesell argued that it was not the Jews who were the problem, but rather the system of capitalism that exploited people of all backgrounds.

Silvio Gesell's ideas were ahead of his time. Werner Onken believes that the concept of Freigeld has an ecological dimension, as it doesn't prioritize profit-making and resource destruction.

Gesell's ideas on flexible exchange rates and the abolition of the Gold Standard were revolutionary. The world economy has indeed moved in this direction, with the collapse of the Bretton Woods system in the 1970s.

The consequences of this shift are evident in the widespread adoption of negative interest rates and floating exchange rates. These changes have led to a progressive devaluation of money and a flood of currency.

Gesell's predictions were remarkably accurate, as the world economy has continued to evolve in ways that align with his vision.