Is it possible for a world to exist without interest on loans and credit money?
Is there an alternative to the economy based on the principles of usury. We can say with complete confidence that there is an alternative. It is free money used only as a tool of exchange.
WHAT IS FREE MONEY?
Free money (German Freigeld) is a concept introduced by the German economist Silvio Gesell to denote money used only as an instrument of exchange (a measure of value and a medium of exchange), but free of interest.
EXPERIMENT WITH A FREE CURRENCY IN WÖRGL
The first practical application of Gesell's views was an experiment in 1932 in the Austrian town of Wörgl with a population of 3,000. As a result of the experiment, a bridge was built in the city, the condition of roads was improved, and investments in public services increased. It was at this time, when many European countries were forced to struggle with rising unemployment, that the unemployment rate in Wörgl fell by 25% over the year. When more than 300 communities in Austria became interested in this model, the Austrian National Bank saw this as a threat to its monopoly and banned the printing of free local money. Despite the fact that the dispute lasted a very long time and was considered even in the highest courts of Austria, neither Wörgl nor other European communities managed to repeat this experiment.
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ECONOMIC MIRACLE OF WÖRGL
“Once upon a time there was…”, this is how many fairy tales begin and this story really sounds like a fairy tale: there was a railway worker in the small Austrian town of Wörgl, more precisely, a steam locomotive driver, who in 1931 was elected the mayor, the Burgo-Mister. His name was Michel Unterguggenberger and he was born into the family of a land-poor peasant in Tyrol. At the age of 12, he was forced to leave school and go to work as an assistant at a sawmill to help the family. But he did not want to stay as assistants for a long time, and at the age of 15 he became an apprentice to a mechanic in the city of Imst. At that time, the apprentice paid the master for training and Michel had to save penny for penny, he paid part of the amount later, being already an apprentice. After working as an apprentice for several years, he set off on a journey to expand his knowledge and see new countries. His path lay across Lake Constance to Vienna and further to Romania and Germany. So, on his travels, the artisan Mikhel, who was interested in everything, got acquainted with the first forms of the working community: the trade union and the consumer association.
At the age of 21, Michel Unterguggenberger joins the railroad and is sent to the Wörgl junction. Despite a good job and a desire to do what was entrusted as best as possible, he does not advance in the service, since
he is a Social Democrat and a trade unionist. In 1912, the union sent him as a representative to the personnel committee of the Austrian State Railways, to the group "Locomotive brigades of the Innsbruck section". At the end of the First World War, he was elected regional leader, then deputy mayor, and in 1931 he became burgomaster of the city of Wörgl with all its 4216 inhabitants.
Dozens of books and hundreds of studies have been written about the global economic crisis of the 1920s and 1930s. This was a time of dire need for the unemployed, which largely helped Hitler to come to power in Germany.
In 1930, 310 railway workers worked at the Wörgl junction station, in 1933 there were only 190 of them! The unemployed peppered their former colleague, whom they had chosen as burgomaster, with requests for help. But what could he do? Unemployment was rising not only among railroad workers. There were no large factories in the city, and small firms in the city and its districts were falling apart before our eyes; the number of unemployment benefit recipients increased. In addition, the number of people cared for by the kitchen for the underprivileged increased; in 1932 there were 200 of those “excluded from the tax roll”. Michel Unterguggenberger, although he did not have a ready-made idea, did not sit idly by. He thought: "Educated people who have written many books on economics, they already know what to advise!" While reading the works of Karl Marx, he came across the name of Joseph Proudhon,who wrote The System of Economic Contradictions and read this book in one gulp. But it’s not that! It was only after reading the work of Silvio Gesell, The Natural Conduct of Economics, that a saving idea came to his mind. He reread the selected pages over and over again until he was convinced that he had found the answer to his questions. And since Unterguggenberger had the idea to help those in need, he developed a help program. First, he met separately with each member of both the city government and the charity committee and talked with them until he was convinced of their support for his idea. Then he called a meeting to which he said:until I was convinced that I had found the answer to my questions. And since Unterguggenberger had the idea to help those in need, he developed a help program. First of all, he met separately with each member of both the city government and the commission for charity and talked with them until he was convinced of their support for his idea. Then he called a meeting to which he said:until I was convinced that I had found the answer to my questions. And since Unterguggenberger had the idea to help those in need, he developed a help program. First of all, he met separately with each member of both the city government and the commission for charity and talked with them until he was convinced of their support for his idea. Then he called a meeting to which he said:
- In our small town, there are 400 unemployed, of which 200 are struck out of poverty from the tax roll. In the region, the number of unemployed reaches 1500. Our city fund is empty. Our only source of income is tax debts of 118,000 shillings, but we cannot get a penny on them; people just don't have money. We owe 1,300,000 schillings to the City Savings Bank of Innsbruck and we are not in a position to pay interest on this debt. In addition, we owe the State and Federal governments, and since we do not pay them, we cannot expect them to pay our share of the budget. Our local taxes brought us only 3,000 shillings in the first half of the year. The financial situation in our region is getting worse and worse as no one is able to pay taxes. The only number that keeps growing and growingthis is the number of unemployed.
AND HERE THE BURGOMISTER HAS STATED OUT HIS PLAN OF "DISAPPEARING MONEY"
The National Bank issues money into circulation, but this circulation is very slow, it must be accelerated. The sums of money must quickly change their owners, that is, money must once again become a medium of exchange. Of course, we ourselves cannot call our medium of exchange "money" since it is prohibited. But we will call it “Proof of Completion”. We will issue such "Confirmations" in the amount of 1, 5 and 10 shillings (from these figures one can imagine the size of the salaries of that time). The most important question: will merchants accept these "Confirmations" for payment? This is where an important chapter of our tale begins: Confirmations were accepted as a means of payment. The tenant received the rent due with them, the seller in the store counted them as payment and accompanied the buyer with the words: "Thank you, come again!"
First of all, the most necessary work began in the city. As the first landscaping work, on July 11, 1932, a sewage system was started in one of the districts, long overdue road works and asphalting of the main streets. The volume of work was 43,386 shillings, of which only a part was paid as salary. It took 500 shifts to build the ski jump, a help kitchen for 4,000 shillings, and so on. A quarter of all registered unemployed were able to receive bread again and the situation in the families of the unemployed improved. The payment of salaries was carried out to everyone, without exception, only by “Confirmations”. From the city administration they were sent to the foreman, he distributed them among his builders, and they paid with them to the baker, butcher, hairdresser, etc. The Confirmations were issued by the city government, but they could be bought at the Wörgl Credit and Loan Society and sold there for real money.
Why, however, was this plan called "Vanishing Money"? It provided for a monthly depreciation of "Confirmations" by 1%; a year came out 12%. For this percentage, the owner of "Confirmation" had to buy a stamp of 1, 5 or 10 grosz, which at the end of the month was pasted on the "Confirmation". If there was no stamp on the Confirmation, it was depreciated by the specified 1%.
Proof of work for 10 shillings
The next chapter of our tale: the bank did not charge any fees for managing the "Confirmations" turnover, all profits were sent to the city cashier. The Credit and Loan Company issued loans from its income to persons whose creditworthiness was not in doubt, at (fabulous) 6%. Payments at this interest were also transferred to the city treasury.
The news of the improvement in the situation in the city of Wörgl and the surrounding area went around the world. Wörgl has become something of a pilgrimage site for economists. They all spoke very well about the benefits of “Disappearing Money”, because it was pointless to store them in the house, their owners put them in a savings bank. And since these means of payment were circulating only in Wörgl, large purchases were made with them and no one had to go shopping in Innsbruck.
The Swiss journalist Burde wrote: “I visited Wörgl in August 1933, exactly one year after the experiment began. Despite everything, it must be admitted that his success borders on a miracle. The streets, which were previously in a terrible state, can now be compared only with the autobahns. The building of the City Council has been thoroughly renovated and is a beautiful mansion with blooming geraniums. On the new concrete bridge there is a commemorative plaque with a proud text: “Built with free money in 1933”. All working residents are staunch supporters of free money. Free money is accepted in all stores on a par with real money."
Residents of Kitzbühel, neighboring Wörgl, initially laughed at the experiment, but soon decided to try it out at home. They issued 3,000 shillings of vanishing money; 1 shilling per inhabitant. Means of payment issued in both cities were accepted for payment both in one and in another city without restrictions. Numerous regions wanted to follow Wörgl's example, but preferred to wait anyway, than the actions taken by the government would end.
Dollfuss' fascist government sued. Wow! A simple worker who went to school only until he was 12 years old, did not study either national or international economics, does not have a single academic title, a railway worker and a social democrat dares to correct the Austrian monetary system! Only the National Bank is allowed to issue money of any kind. “Disappearing money” was banned. Burgomaster Unterguggenberger did not accept the ban and filed a pro-test in court. The proceedings went through all three possible instances, but to no avail. On November 18, 1933, his protest was finally dismissed. But since filing a protest with the court could not postpone the execution of previously adopted court decisions, “Vanishing Money” was withdrawn from circulation on September 15th.
WIRTSCHAFTSRING-GENOSSENSCHAFT
Now the most powerful system of free money is the Swiss WIR (German: Wirtschaftsring-Genossenschaft, Economic Circle Cooperative), which has 62 thousand members and provides an annual turnover of 1 billion 650 million Swiss francs. This system was founded in 1934 as a mechanism for overcoming the payments crisis that developed under the influence of the Great Depression. However, already in 1952 they were forced to abandon Gesell's theory of "free money" and now use loan interest.
A logical continuation of Gesell's ideas are the various variants of the "local exchange trading systems" (LETS) that exist today both in the United States and in Europe.
Since there are many alternative systems to unsecured and credit money, which means, in theory, there is a reason to avoid a catastrophe, everyone is wondering how this catastrophe can be prevented - peacefully or violently. Ecological romantics like Margrit Kennedy, whose book Money Without Interest and Inflation became the bible of Silvio Gesell's free money theorists in Russia, advocate a peaceful transition and patiently persuade the financial elite to voluntarily abandon the main feeder - credit money. It is difficult not only to agree, but even to imagine the measure of botanical idealism required to instill in oneself a belief in the very possibility of such a development of events.
Equally unrealistic is the violent resolution of the situation, because the suppression apparatus equipped with modern technologies and in the service of "old money" so much exceeds the chances of any opposition that it excludes even a hint of meaningful armed confrontation. Not to mention the fact that an effective system of total brainwashing through the media will never allow the generation of "wrong thoughts" in the amount sufficient for a mass confrontation.
So, like it or not, the most likely course of events is in the form of a roasted rooster pecking - the very financial disaster that seems to be inevitable. In such circumstances, it is tempting to assume that the story of alternative monetary systems is nothing more than idle knowledge, devoid of practical background.
The peculiarity of the topic, however, lies in the fact that all models of free money were originally created not as an alternative to the global financial system, but as a local initiative that could make life easier for a small community, a village, a city, at most a region or a county. There is even a synonym for the Freigeld varieties of Silvio Gesell - community currencies, local currencies. The idea of completely replacing national currencies with free money arose much later - during the period of the final departure of the money fantasy from the reality of goods and services (in the early 80s of the last century).
It is in the local aspect of free money, the possibility of their application in the most limited area of the market space, that we see the practical interest of the topic for the readers of the Business Journal. At least - for the most inquisitive part of them. After all, Freigeld's implementation schemes are so elementary, and the effectiveness of their application is so obvious that it would be a sin to resist and not try!
THE ROOT OF EVIL
Let's not torment the reader and move on to the presentation of Silvio Gesell's concept. Freigeld's theory is based on the idea that good money should be "an instrument of exchange and nothing else." According to Gesell, traditional forms of money are extremely ineffective, since “they disappear from circulation whenever there is an increased need for them, and flood the market at moments when their quantity is already excessive”. Such forms of money "can only serve as a tool for fraud and usury and should not be considered usable, no matter how attractive their physical qualities may seem." Silvio Gesell wrote these words in an era when the gold standard was still the generally accepted condition for issuing paper money. The subsequent refusal of any security deprived money and their last - physical - attractiveness.
If Gesell had stopped at criticizing the imperfection of monetary systems, his name would have long since disappeared into the sand of history. Moreover, Gesell's critical analysis does not come close to the monumental vivisection performed by Karl Marx over capitalism. Gesell's genius lies elsewhere: in the conclusions and - the main thing! - practical recommendations.
For Marx, “evil” is in surplus value, and the restoration of justice presupposes the withdrawal of this value from one class in favor of another. For Gesell, "evil" is in the credit nature of money, and the restoration of justice presupposes the elimination of this credit nature. Just think about the difference: instead of violence against people - violence against abstraction!
Modern money, designed by definition to facilitate the exchange of ordinary goods, has, in contrast to these very goods, a unique ability: they know how to multiply itself without effort on the part of their owner. The farmer who brought fruit to the market is vulnerable to the time factor: if the goods are not sold quickly, they will either fall in price or deteriorate. The money in the pocket of the buyer is free from such disadvantages. In addition, money can be stored not in your pocket, but in a bank, where it will grow. Apples, tomatoes, personal computers, and cars all rot, sour, depreciate and depreciate over time, while money retains the advantages of a non-perishable commodity5.
Money in their modern form has become an ideal commodity, which explains their disinterest in serving the market of traditional goods and services, from where they are withdrawn for self-satisfaction - whether in the form of time deposits, securities, bonds, options, futures, warrants, swaps and the host derivatives.
It can be assumed that the difference between free money and traditional money is that it does not charge interest. Where there! Silvio Gesell put forward a revolutionary idea for the new era: it is not enough to deprive money of the ability to generate profit at the expense of interest, it must be charged with interest! In other words, a fee should be charged for the use of money: “Only money, which becomes outdated like newspapers, rotates like potatoes, rusts like iron, and evaporates like ether, can become a worthy instrument for exchanging potatoes, newspapers, iron and ether. Because buyers and sellers will not prefer that kind of money to the product itself. And then we will begin to part with goods for the sake of money only because we need money as a medium of exchange, and not because we expect advantages from the possession of money itself”6.
It was not by chance that I made a reservation that the Freigeld concept is revolutionary for the new era. The biggest revelation of Silvio Gesell's free money lies in the fact that not only the idea itself, but also the experience of its application in practice has a thousand-year history! I suppose the reader will be interested to know that free money was used for a long time in … Ancient Egypt! “Units of money with demurrage / One of the modern synonyms for Freigeld (along with“neutral”,“negative”,“free”money):“You can compare money with a railway carriage, which, like money, facilitates the exchange of goods. It goes without saying that the railway company does not pay a premium (interest) to the user of the wagon for unloading it to ensure its further use; but the user pays a small “demurrage” fee,if not ensured unloading of wagons. This is basically all we should do with money to eliminate the negative impact of interest. Each user deducts a small “parking fee” if they delay money longer than necessary for exchange purposes.”(Margrit Kennedy,“Money Without Interest and Inflation”). (ostraka). In fact, these shards were receipts for deposits made by farmers in local warehouses: the farmer handed in grain and received "ostrac"."Money without interest and inflation")./ in Egypt, there were rough fragments of pottery, called "ostraka" (ostraka). In fact, these shards were receipts for deposits made by farmers in local warehouses: the farmer handed in grain and received "ostrac"."Money without interest and inflation")./ in Egypt, there were rough fragments of pottery, called "ostraka" (ostraka). In fact, these shards were receipts for deposits made by farmers in local warehouses: the farmer handed in grain and received "ostrac".
And the information that various variations on the Freigeld theme served as the main form of money in Medieval Europe from X to XIII centuries is quite sensational!
"In Germanic lands, these were 'bracteaten', thin silver plates that were removed from circulation and replaced with new ones every year." And also: “In 930 AD. e. King thelstan of England decreed that every small town should have its own mint! In the context of this tradition of local lords, a growing income thanks to the "Renovatio Monetae" (literally "Resumption of coinage") was established everywhere. For example, in 973 Edgar completely changed the coinage of the English penny. Almost six years later, the young king Ethelred II began minting a new coin. He has repeated this since then at approximately equal intervals. The main motivation was that the royal treasurers only gave three new coins for four old ones, which was equivalent to a tax of 25% every six years on any capital contained in the coins, or roughly 0.35% per month. Thus, new coinage was a rough form of storage fees."
The priority of free money over credit, observed at the origins of European civilization, serves as additional proof (in addition to the traditional Christian ban on usury) of our obsession: banking capitalism, which dominates the modern economy, is by no means an organic development of social relations, but only fixes a common defeat Traditions inflicted on her by an alien moral and ethical system.
A BUSINESS OF TECHNOLOGY
If the United States is hit by the Great Depression again, the consequences will be felt by the whole world. This is why economists are looking closely at Freigeld, an alternative to regular money. As we explained, the fundamental difference between free money and conventional credit money is that free money not only does not earn interest, but rather is taxed on storage. Initially, Silvio Gesell proposed four forms of implementing the Freigeld principle (tabular free money, branded, serial and additional), but later settled on the branded form, which was implemented in practice in Austria, Switzerland, Germany and America.
It was the Freigeld brand form called “brand certificates” that Irving Fisher described in his book. The main characteristics of free money: like ordinary money, it can be deposited, invested or spent, but it cannot be multiplied. This is achieved in the following way. Suppose10 that the city government makes a decision to issue free money, whose value equivalent is set by agreement at the level of one thousand dollars. The purpose of the issue is to subsidize municipal construction for one year. Success requires the goodwill of at least two parties: the workers involved in construction and the merchants from whom these workers buy goods. The former must agree to accept free money as payment for labor, the latter as payment for goods. Fischer rightly points out that there is no need to conclude an agreement with all trade organizations: a few are enough for the rest to voluntarily catch up due to competition. Free money is issued for a period of one year, after which it can be exchanged for regular dollars. To ensure the exchange, the municipal authorities at the time of expiration will need a thousand living dollars, which, in addition to the traditional bank loan, can be obtained from the issue itself, since the branded model of free money allows the project to be self-sustaining. To ensure the exchange, the municipal authorities at the time of expiration will need a thousand living dollars, which, in addition to the traditional bank loan, can be obtained from the issue itself, since the branded model of free money allows the project to be self-sustaining. To ensure the exchange, the municipal authorities at the time of expiration will need a thousand living dollars, which, in addition to the traditional bank loan, can be obtained from the issue itself, since the branded model of free money allows the project to be self-sustaining.
This is what it looks like. The front side of brand certificates is usually similar to regular money. It indicates the value equivalent (for example, one dollar), the name of the issuer, conditions and terms of exchange for ordinary money. On the back there are 52 cells, which need to be stamps on weekly. Suppose, by agreement, Wednesday is considered the key day of the week. This means that the brand certificate can be in circulation with the old stamp on Thursday, Friday, Saturday, Sunday, Monday and Tuesday, and the next Wednesday the last holder of the certificate is obliged to stick the new stamp. The two-cent stamp is being sold by the municipal government implementing the free money project.
Now it is clear where the money comes from to exchange free money for ordinary money at the time of expiration: at the end of the year, each stamp certificate will have 52 stamps pasted on, which the municipality sold for $ 1 4 cents. The $ 1,000 emission thus brings in $ 1,040 in real money. 1,000 will go to cover the exchange and 40 to cover project administration costs.
However, the self-sufficiency of brand certificates is the tenth thing. Most importantly, the weekly expiration of free money leads to an unheard-of turnover! Judge for yourself: every brand certificate holder strives to get rid of it as soon as possible in order not to pay tax in the form of a two-cent stamp next Wednesday. Ultimately, all free certificates on Tuesday nights are piled up by retailers, wholesalers, or manufacturers who stick to stamps - a form of tax - with great pleasure: it is this energetic money that provides them with an unprecedented trade turnover. According to Irving Fisher's calculations, the turnover of free money in hundreds of American cities during the Great Depression was at least 12 times (!) Higher than the turnover of ordinary dollars!It is this property of free money that allows us to speak about their unique efficiency, which, as you know, is determined by the formula: “volume multiplied by the velocity of circulation”.
TRIUMPH
The danger to the status quo of the world financial elite, lurking in the Freigeld concept, is incomparably higher than from all possible variations on the theme of "Capital" by Karl Marx. The model of the functioning of free money, described by Irving Fischer, was literally realized literally in the very first experiments of the application of Gesell's concept on practice. First, in Germany, the owner of a coal mine, Max Hebeker, revived from the ashes the Bavarian village of Schwanenkirchen, whose population (500 people) had been starving for the last two years on state unemployment benefits: “Just a few months after the resumption of the operation of the Schwanenkirchen mine, it was unrecognizable - workers and owners the shops completely paid off all their debts, and a new spirit of freedom and life literally hovered over the city. The news about the prosperity of the village in the midst of the economic depression,that hit Germany, instantly spread throughout the area. Reporters from all over the country wrote about the "Schwanenkirchen miracle," and even in the United States one could read about the experiment in the financial sections of all major newspapers."
A year later, the German experience was triumphantly repeated by the mayor of the Austrian city of Wörgel, Mikael Unterguggenberger. After the introduction of free money, created according to the type of brand certificates / Stamps for Wörgel's free money were pasted once a month, and not weekly /, the city, whose tax arrears in five years increased from 21 thousand shillings to 118 thousand, has already begun to pay off in the first month (4,542 shillings). Over the next six months, the emission of "free shillings", equivalent to 32 thousand ordinary shillings, provided public works worth 100 thousand new jobs 50 unemployed.
On January 1, 1933, the construction of a new ski resort and a reservoir for the fire service began in Wörgel. The neighboring city with a population of 20 thousand residents hastily began to prepare the issue of its own free money. When 300 communities of the country became interested in Wörgel's experience, the National Bank of Austria, feeling the threat of its monopoly, banned the printing of free local money.
After the Second World War, the development of the concept of free money went in two directions: local systems of mutual lending (the so-called LETS - Local Exchange Trading Systems), using instead of physical certificates either checks or electronic forms of netting, and time banking systems that allow project participants to exchange their work for the so-called. "Time dollars". The latter model is especially simple to implement: you spend your free time doing some work for other project participants: walking dogs, sitting with someone else's child, cutting hair in a hairdresser, providing dental services, baking bread, mowing lawns. For every hour you work, you get paid local money at an agreed rate, for example, 10 "time dollars". Then, with the money received, you can purchase either other services registered in the so-called."Time-bank", or goods in stores participating in the project.
The first "time dollars" were introduced in 1986 and gained immense popularity mainly in the United States and Japan. The most successful examples of this scheme: Ithaca Hours (Ithaca, NY: more than 500 local businesses participated in the project - from medical centers, restaurants and cinemas to farmers and real estate agencies), the Japanese "health currency", ROCs (Robust Currency System). The latter system (ROCs) not only combines time banking and mutual lending, but also consistently implements the classic function of Gesell's free money - demurrage.
The most powerful system of free money is the Swiss WIR (Wirtschaftsring-Genossenschaft, Cooperative of the Economic Circle), which has 62 thousand members and provides an annual turnover of 1 billion 650 million Swiss francs (!). Despite the fact that WIR is not a full-fledged system of free money, since it lacks demurrage12, it is in fundamental opposition to credit money, since it is completely interest-free. The credits provided by the WIR bank to the system participants are also free of interest.
As a curtain, it is necessary to dispel the misunderstanding that certainly arises when getting acquainted with the theory of Gesell. The demurrage function does not allow using free money for accumulation. But if money cannot be deposited into an account and interest paid on it, how can members of society who are deprived of the opportunity to engage in productive work (for example, the elderly) improve their material condition? Does the new theory deny investment in principle? This question, however, is nothing more than the inertia of thinking: Silvio Gesell recommended investing not in the means of exchange of goods and services (money), but in instruments specially created for investments - company securities and debt obligations (bonds)!