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The Natural Economic Order
A new edition of the classical radical free-market text. Available for the first time in years. Find out how to run an economy where money is quite literally "free" and economics are "unshackled".
- GenresEconomicsNonfiction
Paperback
First published March 1, 1916
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Displaying 1 - 5 of 5 reviews
November 18, 2020
I wanted my second book review on this website to be a review of this book, which book is at least as consequential / impactful as the book I reviewed first, Poverty and Progress, if not as beautifully written.
In reviewing Progress and Poverty, I briefly outlined my odyssey in trying to get to the bottom of which economic policies could actually lift humanity out of the mass poverty that currently characterizes its existence. Recently, I went to see my high school ethics teacher, Mr Silvano Borruso (twenty-four years after sitting in his class) to thank him for putting me on the track of Henry George. He asked me to read Silvio Gesell before coming to see him again. (Teaching habits, it seems, die hard.)
The Natural Economic Order is actually a more complete book than Progress and Poverty, for while Henry George identified only the privatization of land rent as a problem, outlining an elegantly simple solution for it, Gesell’s book tracks down the twin ills of both privately commandeered land rent as well as interest. His book proposes solutions for both. Having dealt with land rent in that previous review, and given that the matter was so completely and so poetically dealt with by Henry George, I hope to now explain my understanding of what Gesell’s views on that second form of unearned income, interest, were.
The central premise of Gesell’s book, as I understand it, is that money as we know it suffers from having two contradictory properties within it: (1) that it is a medium of exchange, and (2) that it is at the same time a store of value. These properties fight against each other. Now, exchange drives the economy; exchange is the economy. However, the fact that money is deemed a store of value fatally impairs its ability to act effectively as a medium of exchange. This imputed characteristic of money – that it is a store of value – prevents the quantum of demand from equating with the quantum of money in the economy. Savings – that proportion of money not involved in exchange because money retains its value when not immediately utilized – constitute the difference between the total quantum of money in the economy and the amount of money made available for the purchase of goods and services, i.e. for exchange.
This in itself would be harmless, except that money, in order to be enticed out of the pocket of the saver / the capitalist, exacts a toll. Money will not go to work unless this toll is paid, and it will refuse to do any work, however useful, that is unable to pay this toll. (In Proudhon’s words, money is the bolt that bars the market’s gates.) There are two harmful side effects of this. The first is that this toll is a form of unearned income, and any unearned income is a bane to economic justice and social equity. The second is that the failure of an economic / monetary system to freely provide the conditions necessary for work (i.e. its ability to create the conditions for unemployment) can arise simply from the fact that the needed work cannot return enough to pay this toll. We know this toll by its more common name: interest.
Gesell therefore traces the birthplace of what he calls basic interest to the circumstance that money can be hoarded and still retain its value, in contrast to the material goods / services whose exchange it is meant to facilitate. For while the potato farmer must sell his produce or lose it to the rot, and while the employee must offer his services to an employer or starve, the possessor of money can retain his money at no loss to himself. The possessor of money thus wields an enormous advantage over the offeror of wares or work, and monetizes this advantage, Gesell says, by charging interest in order to facilitate exchange.
Gesell’s solution to this problem, simply, is to make money as perishable as the potato.
Where money is as perishable as the goods whose exchange it is meant to facilitate, then buyer and seller meet in the market on equal ground. The buyer is as anxious not to return home with his money as the seller is not to return home with his produce. It can be seen from this that the solution, which Gesell proposes, is to circulate a form of money that loses value when it is retained.
His method (now outdated due to advances in technology, but useful for illustrative purposes), involved circulating a form of money that would automatically lose value at a steady rate, say each week in the year. This type of money would become invalid weekly (for example), but its ability to circulate could be reinstated by buying and affixing to it stamps of a value equivalent to the loss of value the money incurs in a week. So that, for example, a 100-shilling note could come with 52 empty slots for stamps. At the end of each week in the year, by affixing to it a 10-cent stamp, the bill could be re-enabled to circulate. The unfortunate who held the money at the end of any given week would be forced to pay 10 cents to be enabled to use the note the following week. At the end of the year, 5.2 shillings in stamps would have been paid to keep the note circulating, amounting to a depreciation rate of 5.2 shillings per annum, or 5.2%.
In this way:
a) Nobody would have an incentive to hold on to money;
b) Exchange, which drives the economy, could not be slowed by the hoarding of money, or (as in times of depression) stopped altogether;
c) Demand would immediately be equated to the quantum of money in the economy (this is important in determining and therefore maintaining price levels – the general price level could easily be controlled by increasing or reducing the quantum of money in the economy.);
d) The earnings on saved income would constitute – not the receipt of more money than one saved, but an undiminished amount from what one saved. One could only expect to get from the bank what one put in. People would still deposit their savings in the bank because to save money at home would eventually render it useless (Could this retention of value, in an environment where everything else loses value, also be an unearned income of sorts?);
e) The banks holding such savings as mentioned in (d) above would be greatly incentivized to lend to individuals or to business. Failure to do so would make them the purchasers-in-chief of the stamps that re-enable currency to circulate, at great cost to themselves;
f) The government would earn an income from the sale of stamps – a form of the socialization of an economic rent similar to Henry George’s land tax;
g) Interest rates would eventually, though not immediately, fall to zero.
In that last outcome, reader, the opening of the gates to economic paradise. The dethroning of interest – and not by means of law or regulation, which have often failed, but rather as economic reality – is genius. This is the power in Mr Gesell’s idea. Indeed, Keynes called Gesell "a strange, unduly neglected prophet."
The writing and language of the Natural Economic Order is inferior to that in Progress and Poverty, but this is not an accusation that can be levelled at Gesell himself since the book has been translated from Gesell’s native German. The import of the book, however, is practically without peer in secular economic literature.
(The Isha Books version, sad to say, has spelling errors. I suppose this is because the book has been out of print so long. pdf versions of the book online have the same errors. It would be helpful if Isha proofread their published version.)
In reviewing Progress and Poverty, I briefly outlined my odyssey in trying to get to the bottom of which economic policies could actually lift humanity out of the mass poverty that currently characterizes its existence. Recently, I went to see my high school ethics teacher, Mr Silvano Borruso (twenty-four years after sitting in his class) to thank him for putting me on the track of Henry George. He asked me to read Silvio Gesell before coming to see him again. (Teaching habits, it seems, die hard.)
The Natural Economic Order is actually a more complete book than Progress and Poverty, for while Henry George identified only the privatization of land rent as a problem, outlining an elegantly simple solution for it, Gesell’s book tracks down the twin ills of both privately commandeered land rent as well as interest. His book proposes solutions for both. Having dealt with land rent in that previous review, and given that the matter was so completely and so poetically dealt with by Henry George, I hope to now explain my understanding of what Gesell’s views on that second form of unearned income, interest, were.
The central premise of Gesell’s book, as I understand it, is that money as we know it suffers from having two contradictory properties within it: (1) that it is a medium of exchange, and (2) that it is at the same time a store of value. These properties fight against each other. Now, exchange drives the economy; exchange is the economy. However, the fact that money is deemed a store of value fatally impairs its ability to act effectively as a medium of exchange. This imputed characteristic of money – that it is a store of value – prevents the quantum of demand from equating with the quantum of money in the economy. Savings – that proportion of money not involved in exchange because money retains its value when not immediately utilized – constitute the difference between the total quantum of money in the economy and the amount of money made available for the purchase of goods and services, i.e. for exchange.
This in itself would be harmless, except that money, in order to be enticed out of the pocket of the saver / the capitalist, exacts a toll. Money will not go to work unless this toll is paid, and it will refuse to do any work, however useful, that is unable to pay this toll. (In Proudhon’s words, money is the bolt that bars the market’s gates.) There are two harmful side effects of this. The first is that this toll is a form of unearned income, and any unearned income is a bane to economic justice and social equity. The second is that the failure of an economic / monetary system to freely provide the conditions necessary for work (i.e. its ability to create the conditions for unemployment) can arise simply from the fact that the needed work cannot return enough to pay this toll. We know this toll by its more common name: interest.
Gesell therefore traces the birthplace of what he calls basic interest to the circumstance that money can be hoarded and still retain its value, in contrast to the material goods / services whose exchange it is meant to facilitate. For while the potato farmer must sell his produce or lose it to the rot, and while the employee must offer his services to an employer or starve, the possessor of money can retain his money at no loss to himself. The possessor of money thus wields an enormous advantage over the offeror of wares or work, and monetizes this advantage, Gesell says, by charging interest in order to facilitate exchange.
Gesell’s solution to this problem, simply, is to make money as perishable as the potato.
Where money is as perishable as the goods whose exchange it is meant to facilitate, then buyer and seller meet in the market on equal ground. The buyer is as anxious not to return home with his money as the seller is not to return home with his produce. It can be seen from this that the solution, which Gesell proposes, is to circulate a form of money that loses value when it is retained.
His method (now outdated due to advances in technology, but useful for illustrative purposes), involved circulating a form of money that would automatically lose value at a steady rate, say each week in the year. This type of money would become invalid weekly (for example), but its ability to circulate could be reinstated by buying and affixing to it stamps of a value equivalent to the loss of value the money incurs in a week. So that, for example, a 100-shilling note could come with 52 empty slots for stamps. At the end of each week in the year, by affixing to it a 10-cent stamp, the bill could be re-enabled to circulate. The unfortunate who held the money at the end of any given week would be forced to pay 10 cents to be enabled to use the note the following week. At the end of the year, 5.2 shillings in stamps would have been paid to keep the note circulating, amounting to a depreciation rate of 5.2 shillings per annum, or 5.2%.
In this way:
a) Nobody would have an incentive to hold on to money;
b) Exchange, which drives the economy, could not be slowed by the hoarding of money, or (as in times of depression) stopped altogether;
c) Demand would immediately be equated to the quantum of money in the economy (this is important in determining and therefore maintaining price levels – the general price level could easily be controlled by increasing or reducing the quantum of money in the economy.);
d) The earnings on saved income would constitute – not the receipt of more money than one saved, but an undiminished amount from what one saved. One could only expect to get from the bank what one put in. People would still deposit their savings in the bank because to save money at home would eventually render it useless (Could this retention of value, in an environment where everything else loses value, also be an unearned income of sorts?);
e) The banks holding such savings as mentioned in (d) above would be greatly incentivized to lend to individuals or to business. Failure to do so would make them the purchasers-in-chief of the stamps that re-enable currency to circulate, at great cost to themselves;
f) The government would earn an income from the sale of stamps – a form of the socialization of an economic rent similar to Henry George’s land tax;
g) Interest rates would eventually, though not immediately, fall to zero.
In that last outcome, reader, the opening of the gates to economic paradise. The dethroning of interest – and not by means of law or regulation, which have often failed, but rather as economic reality – is genius. This is the power in Mr Gesell’s idea. Indeed, Keynes called Gesell "a strange, unduly neglected prophet."
The writing and language of the Natural Economic Order is inferior to that in Progress and Poverty, but this is not an accusation that can be levelled at Gesell himself since the book has been translated from Gesell’s native German. The import of the book, however, is practically without peer in secular economic literature.
(The Isha Books version, sad to say, has spelling errors. I suppose this is because the book has been out of print so long. pdf versions of the book online have the same errors. It would be helpful if Isha proofread their published version.)
November 5, 2015
A must read for absolutely everyone -crucial to understand how money and the finance system works within the economic system and how the Stamp Scrip of the 1930s and the Red Treuque in 2001 Argentina are models for today's complementary and shared governance aka Democratic and Transparent currencies.
ShiraDest
5.11.12015 HE
(the Holocene Calendar)
ShiraDest
5.11.12015 HE
(the Holocene Calendar)
May 15, 2022
Must read
Interesting economic theory about reaching a fair economy. Gesell was praised by many economists including Keynes, however he's not very famous. Btw, his view on stamping money has some parallels with Islamic zakat.
Interesting economic theory about reaching a fair economy. Gesell was praised by many economists including Keynes, however he's not very famous. Btw, his view on stamping money has some parallels with Islamic zakat.
March 17, 2016
Немного разочаровала книга, ожидал слишком многого от нее. Написана скучновато без исторического экскурса. Вообще она, грубо говоря, разбита на две темы: частная собственность на землю, рента и теория, суть денег. Конечно более интересно читать про деньги и идею автора о "свободных деньгах". В принципе многое написанное в книге уже не актуально, основная критика направленна на золотой стандарт. Гезель описывает бумажный стандарт, даже единую межгосударственную валюту, механизм введения и функционирования его свободных денег. И вроде бы уже все это есть, но без маленьких нюансов, которые и не позволяют деньгам выполнять свою основную функцию.
Вывод: Полезная, хотя и не очень интересно написанная(переведенная) книга. С одной стороны неактуальная, но и прорывная, так как в наше время в основном про деньги можно услышать, что-то типа: "Сейчас это же только бумажки, а раньше валюта была подкреплена золотом." Если вы думаете также, то лучше ознакомится с этим чтивом, все таки не так много есть мнений на счет денег в наше время.
Еще интересно, что книга совсем не на слуху, ее не обсуждают, не критикуют, не вспоминают о таком Гезеле, ее как бы не существует. Для быстрого и более простого ознакомления можно прочитать "Деньги без процентов и инфляции" Маргрит Кеннеди.
Вывод: Полезная, хотя и не очень интересно написанная(переведенная) книга. С одной стороны неактуальная, но и прорывная, так как в наше время в основном про деньги можно услышать, что-то типа: "Сейчас это же только бумажки, а раньше валюта была подкреплена золотом." Если вы думаете также, то лучше ознакомится с этим чтивом, все таки не так много есть мнений на счет денег в наше время.
Еще интересно, что книга совсем не на слуху, ее не обсуждают, не критикуют, не вспоминают о таком Гезеле, ее как бы не существует. Для быстрого и более простого ознакомления можно прочитать "Деньги без процентов и инфляции" Маргрит Кеннеди.
August 29, 2020
An interesting idea, but very long winded.
Dry, but not nearly as bad as Marx, with a little light hearted humour thrown in.
Dry, but not nearly as bad as Marx, with a little light hearted humour thrown in.
Displaying 1 - 5 of 5 reviews