Silvio Gesell

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= Argentinian advocate of Monetary Reform


Silvio Gesell (17.3.1862 - 11.3.1930)

His main work on economic matters is entitled ‘Die Natürliche Wirtschaftsordnung’ [1] (Rudolf Zitzmann Verlag, ISBN 3-87937-090-7) available for DM 29,-- from "Der Dritte Weg", Feldstrasse 46, D-20357 Hamburg. This work - The Natural Economic Order - is also available in English translations on the web [2]. The book is also available in Spanish language [3].

John Maynard Keynes adopted some of the ideas of Gesell, saying at one point: "I believe that the future will learn more from the spirit of Gesell than it will learn from that of Marx".

And here a very apt quote from Harper’s Magazine: (which I found in German and re-translated into English)

"If Karl Marx can be called the prophet of socialism, Silvio Gesell can be seen as the prophet of a free private economy. But oddly enough, few businessmen have ever heard of Gesell; he has been consistently neglected by orthodox economic theorists and not one nation has put his teachings into practice. Of course there are reasons for this; but nevertheless the day may come when we realise this to have been one of the greatest ironies of world history.

Most people believe in freedom in theory and many have given their lives for it. But in practice, most people seem to seek freedom only for themselves, for their group or class, but still desiring power and control over others, even to the extent of accepting the danger of social unrest, revolution or war. Silvio Gesell wanted freedom for all and like others in the past whose call was directed to mankind as a whole, he found devoted followers in all countries, but no party that fought for his ideas. It is time such a party was founded."


Remarks by Keynes

From the General Theory, ch. 23,

"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. In the post-war years his devotees bombarded me with copies of his works; yet, owing to certain palpable defects in the argument, I entirely failed to discover their merit. As is often the case with imperfectly analysed intuitions, their significance only became apparent after I had reached my own conclusions in my own way. Meanwhile, like other academic economists, I treated his profoundly original strivings as being no better than those of a crank. Since few of the readers of this book are likely to be well acquainted with the significance of Gesell, I will give to him what would be otherwise a disproportionate space....

In spite of the prophetic trappings with which his devotees have decorated him, Gesell's main book is written in cool, scientific language; though it is suffused throughout by a more passionate, a more emotional devotion to social justice than some think decent in a scientist. The part which derives from Henry George,[27] though doubtless an important source of the movement's strength, is of altogether secondary interest. The purpose of the book as a whole may be described as the establishment of an anti-Marxian socialism, a reaction against laissez-faire built on theoretical foundations totally unlike those of Marx in being based on a repudiation instead of on an acceptance of the classical hypotheses, and on an unfettering of competition instead of its abolition. I believe that the future will learn more from the spirit of Gesell than from that of Marx. The preface to The Natural Economic Order will indicate to the reader, if he will refer to it, the moral quality of Gesell. The answer to Marxism is, I think, to be found along the lines of this preface."


Introduction by Werner Onken

Werner Onken:

"In 1891 Silvio Gesell (1862–1930) a German-born entrepreneur living in Buenos Aires published a short booklet entitled Die Reformation im Münzwesen als Brücke zum sozialen Staat (Currency Reform as a Bridge to the Social State), the first of a series of pamphlets presenting a critical examination of the monetary system. It laid the foundation for an extensive body of writing inquiring into the causes of social problems and suggesting practical reform measures. His experiences during an economic crisis at that time in Argentina led Gesell to a viewpoint substantially at odds with the Marxist analysis of the social question: the exploitation of human labour does not have its origins in the private ownership of the means of production, but rather occurs primarily in the sphere of distribution due to structural defects in the monetary system. Like the ancient Greek philosopher Aristoteles, Gesell recognised money’s contradictory dual role as a medium of exchange for facilitating economic activity on the one hand and as an instrument of power capable of dominating the market on the other hand. The starting point for Gesell’s investigations was the following question: How could money’s characteristics as a usurious instrument of power be overcome, without eliminating its positive qualities as a neutral medium of exchange ?

He attributed this market-dominating power to two fundamental characteristics of conventional money:

  • Firstly, money as a medium of demand is capable of being hoarded in contrast to human labor or goods and services on the supply side of the economic equation. It can be temporarily withheld from the market for speculative purposes without its holder being exposed to significant losses.
  • Secondly, money enjoys the advantage of superior liquidity to goods and services. In other words, it can be put into use at almost any time or place and so enjoys a flexibility of deployment similar to that of a joker in a card game.

These two characteristics of money give its holders a privileged position over the suppliers of goods and services. This is especially true for those who hold or control large amounts of money.

They can disrupt the dynamic flow of economic activity, of purchases and sales, savings and investment. This power enables the holders of money to demand the payment of interest as a reward for agreeing to refrain from speculative hoarding thereby allowing money to circulate in the economy.

This intrinsic power of money is not dependent on its actual hoarding, but rather on its potential to disrupt economic activity which enables it to extract a tribute in the form of interest in return for allowing the “metabolic exchange” of goods and services in the “social organism”. The “return on capital” is accorded priority over broader economic considerations and production becomes attuned more to the monetary interest rate than to the real needs of human beings. Long-term positive interest rates of interest disturb the balance of profit and loss necessary for the decentralized self-regulation of markets. Gesell was of the opinion that this led to a dysfunction of the social system exhibiting very complex symptoms: the non-neutrality of interest-bearing money results in an inequitable distribution of income which no longer reflects actual differences in productivity. This in turn leads to a concentration of monetary as well as of non-monetary capital and therefore to the predominance of monopolistic structures in the economy.

Since it is the holders of money who ultimately decide whether it circulates or stands still, money can’t flow “automatically” like blood in the human body. The circulation and the correct dosage of the monetary supply can’t be brought under effective public control; deflationary and inflationary fluctuations of the general price level are inevitable. In the course of the business cycle when declining interest rates cause large amounts of money to be withheld from the market until the outlook for profitable investments improves, the result is economic stagnation and unemployment.

... to a Neutral Servant of Economic Activity

In order to deprive money of its power, Gesell did not advocate recourse to measures aimed at outlawing the taking of interest such as the canonical prohibition of medieval. On the contrary, he envisaged structural changes in the monetary system involving the imposition of carrying costs on the medium of exchange, thereby counteracting the tendency to hoard and neutralising the liquidity advantage of conventional money. The imposition of such carrying costs on liquid monetary assets — comparable to a demurrage fee for freight containers in the field of transport economics — would deprive money of its power to dominate the market while allowing it to fulfil its designated function as a medium of exchange facilitating economic activity. Counteracting disruptions in the circulation of the medium of exchange due to speculative hoarding would allow the quantity and velocity of the monetary supply to be periodically adjusted to match the volume of production and the overall level of economic activity in such a way that the purchasing power of the monetary unit could be made to possess the same long-term stability as other weights and measures.

In his earliest works Gesell referred in particular to “rusting bank notes” as a method for implementing an “organic reform” of the monetary system. Money which had hitherto been “dead foreign matter” with respect to both the social system and the natural world, would thus be integrated into the eternal cycle of life and death, becoming transitory and losing its characteristic of limitless self-multiplication by means of simple and compound interest. Such a reform of the monetary system would constitute a regulative holistic therapy; by removing the cause of disruptions in monetary circulation Gesell envisaged that the self-healing powers of the dysfunctional social “organism” would gradually increase allowing it to recover from the diverse economic and structural symptoms of crisis, ultimately reaching a state of equilibrium, in harmony with the rest of the natural order. In his main work, Die Natürliche Wirtschaftsordnung durch Freiland und Freigeld (The Natural Economic Order through Free and and Free Money), published in Berlin and Bern in 1916, Gesell explained in detail how the supply and demand of capital would be balanced in the case of uninterrupted currency circulation so that a reduction of the real rate of interest below the presently existing barrier of around 3–4% would become possible. Gesell used the term “basic interest” (Urzins) to denote this pure monetary interest rate of around 3–4% which is found to vary little historically. It represents the tribute of the working people to the power of money and gives rise to levels of unearned income far in excess of that suggested by its magnitude. Gesell predicted that his proposed currency reform would gradually cause the “basic interest” component to disappear from the monetary loan rate leaving only a risk premium and an administrative charge to allow lending institutions to cover their costs. Fluctuations of the market rate of interest around a new equilibrium point close to zero would allow a more effectively decentralised channeling of savings into appropriate investments. Free Money (Freigeld), a medium of exchange liberated from the historical tribute of “basic interest”, would be neutral in its impact on distribution and could no longer influence the nature and extent of production to the disadvantage of producers and consumers. Gesell envisaged that access to the complete proceeds of labour brought about by the elimination of “basic interest” would enable large sections of the population to give up wage- and salary-oriented employment and to work in a more autonomous manner in private and cooperative business organisations.

Land: A vital natural resource to be held in trust rather than as a tradeable commodity and object of speculation.

Towards the end of the last century Gesell extended his vision of socio-economic reform to include reform of the system of land tenure. He derived inspiration in this respect from the work of the North-American land reformer Henry George (1839–1897), author of Progress and Poverty, whose ideas about a Single Tax on the rental value of land became known in Germany through the activity of land reformers like Michael Flurscheim (1844–1912) and Adolf Damaschke (1865–1935). In contrast to Damaschke, who only advocated taxing the increase in values for the benefit of the community while retaining the principle of private ownership of land, Gesell’s reform proposals followed those of Flurscheim who called for the transfer of land into public ownership, compensating the former owners and thereafter leasing the land for private use to the highest bidder. Gesell argued that as long as land remains a tradeable commodity and an object of speculative profit, the organic connection of human beings with the earth is disturbed. In contrast to the proponents of nationalist or racially-oriented Blut und Boden ideologies, Gesell rejected the association of “blood” with “land”. As a widely travelled citizen of the world he viewed the whole earth as an integral organ of every individual. All people should be free to travel over the surface of the earth without hinderance and settle anywhere regardless of their place of birth, color or religion.

Economic Equality of Women and Men

Like the Single-Tax reformers of the Henry George school, Gesell was of the opinion that the rental revenue from the land would enable the state to finance itself without the necessity to impose further taxes. In attempting to trace the rightful owners of these rental revenues in accordance with the principle of causality, he was led to the consideration that the amount of rental revenue depends on the population density and therefore ultimately on the willingness of women to bear and raise children. For this reason Gesell proposed to distribute the revenues from land rent in the form of monthly payments to compensate mothers for the work of rearing children in proportion to the number of their childen under the age of majority. He advocated the extension of the scheme to include mothers of children born out of wedlock and foreign mothers living in Germany because his intention was that all mothers should be released from economic dependence upon working fathers and that the relationship between the sexes ought to be based on a love freed from considerations of power and economic dependancy. In an essay entitled Der Aufstieg des Abendlandes (The Ascent of the West), written to challenge the cultural pessimism of Oswald Spengler’s Der Untergang des Abendlandes (The Decline of the West),Gesell expressed the hope that the human race which had been physically, mentally and spiritually degraded under capitalism would gradually be able to regenerate itself under a reformed economic order and experience a new cultural renaissance."


More Information

  1. Profile of Monetary Reformer Silvio Gesell
  2. Introduction to Silvio Gesell
  3. His book: The Natural Economic Order

Important concepts:

  1. Demurrage (i.e. a Circulation Charge againstMonetary Scarcity
  2. Free Money or Booster Currency: see for examples: 1) Economic Circle Cooperative - Switzerland ; Worgl Shillings
  3. Non-capitalist Markets ; Markets without Capitalism

See also:

  1. Georgism
  2. Freicoin A digital demurrage currency based on Bitcoin and inspired by the work of Silvio Gesell.