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Table of contents for English

1) Talking About Money

2) Lost     and      found.

3) Short introduction!

4) The Law of Supply and Demand

5) Monopoly.

6) Money!

7) Interest.

8) Some thoughts about the monetary history of the great depression!

9) A new kind of stamp scrip

10) Inflation!

11) Money, its worth, its use and its faults.

12) The pathfinders of the economy!

13) A Critic of Irving Fishers Stamp Scrip

14) Gesell and Irving Fisher.

15) Speech

16) Keynes versus Gesell

17) Letters to Milton Friedman

18) Robinson Crusoe

19) Who was Silvio Gesell ?

20) The scale of the quantity theory

21) A hard question

22) The quantity theory of money!

23)What can be learned from the miracle of Woergl - Silvio Gesell's miracle?


Talking about money was put at the start of these English pages because Hans from Canada thinks that it sums up what is tried to do in all of them. Focus on money and its working against the background of the economy, the foundation of human life on this earth.

1) Talking About Money


by Robert Mittelstaedt

One of my associates at my job is constantly talking about money. He's just about buying a new car because his old one is rapidly falling apart. He's running around from one car-seller to the next figuring out what the advantages are of the various brands in relation to the prize. He checks the options the banks offer for taking a loan or whether it would be better to lease a car and so on. Another of my colleagues has accumulated a humble amount of savings and went in shareholding business. He is permanently looking around, considering which stock would be best in order to multiply his money. A third one doesn't want to go through such pains and is dreaming of a big hit in lottery. Every week he ensures to get a new lottery ticket in order not to miss the chance of getting rich with one blow. Most of us normal money users often complain about increasing prizes and rents and about not having enough money, especially towards the end of a month when we desperately wait for our payment of salary.

These are the topics we assume when we "talk about money". But let's have a closer look. Are we really talking about money? Actually we're talking about things we do with money, how to spend it, how to get it or to increase it and so on. As a matter of fact, we never talk about money. It would be just too boring. Talking about money might mean to talk about coins and bills. Everyone knows what a dime, a quarter, a 1-Dollar-bill looks like and talking about these would quickly exhaust our interest. So we resort to topics that we consider more important. Language itself offers an analogous example: we're primarily concerned with the ideas we want to express and usually do not consider the structure, grammar or syntax of our language. Our focus is on content, not on the medium itself. The same applies to money: we focus on content, that is, what we do with money rather than its specific features.

But every medium, through its very construction, gives our perception a certain twist, a tendency. It has a bias which emphasizes the things it is suited for and neglects others. A certain language may be particularly apt for expressing certain ideas and concepts, another language might make it more difficult to communicate the same concepts. Thus language affects our perception, because it emphasizes things that can more easily be put in words. Media shift our attention towards things that they are suited for and lay stress on them. New media therefore, by changing the sense ratio of our perception, are a threat to our conventional way of perceiving and confuse the thinking we are accustomed to. Possible reactions to such threats are as numerous as there are individual human beings.

An analogy as to how we organize our conscious perception might give our eye-sight. The retina in the back of our eye serves as a kind of screen on which the things we see are being projected through the lens in front of our eye. This retina consists of a countless number of nerve cells which are sensitive to light and send their impulses to the brain where all the millions of nervous information data are processed and put together to a picture which we identify as that what we see. In the centre of this retina is a special area which is called the "yellow spot" and this is crammed with more sensitive nerve cells than the rest of the retina. It is the part of our eye which is most sensitive towards visual stimuli. When we concentrate our sight on a particular thing, we automatically turn our eye in such a way, that the thing of our interest will be perceived by this yellow spot. We focus on something while we are only dimly aware of the rest that is being projected on our retina. We may call this our peripheral sight and in terms of our consciousness, these are the contents and impressions that remain on subliminal levels of it. Of course, by turning our eye, anything in our peripheral sight might fall on the yellow spot and thus be focused on. This analogy of our eye-sight gives a rough and partial idea of Wolfgang Köhler's theory of the Gestalt Psychology, the psychology of perception, which was turned to practical use in therapy by Fritz Perls who had his heydays during the seventies at the famous Esalen Institute, California.

A very useful summary of this theory in this context gives Felix Stalder in his article "From Figure / Ground to Actor-Networks: McLuhan and Latour" http://erp.fis.utoronto.ca/~stalder//html/mcluhan_latour.html :

»The figure / ground relationship describes a way in which perception is structured. The figure and the ground together constitute the totality of what is perceivable. However, it is the figure on which perception is focused. The figure is what appears structured, as the foreground and whereas ground appears as unstructured and background. The boundary between the two appears to belong to the figure, that is why the figure has a shape whereas the ground appears to be shapeless. The figure is specific, the ground is generic.

This distinction between that which is perceived and that which is blocked out in order to focus perception is central for McLuhan. A great deal of his work is the result of shifting attention from the area of attention, the figure, to the area of inattention, the ground. McLuhan used different sets of words to describe the figure / ground relationship, for figure he used content, for ground he used environment, or more often, medium. The study of media, then, is the study of ground, the study of the area of inattention. This area of inattention, however, is where the pervasive influence of media unfolds, rather independent in the figures that appear easily visible. His Understanding Media, for example, is by and large the exploration of different grounds as they are structured by media such as Television, radio, print, the car, clothing or money.

The ground, or environment, is not a passive container, but active processes that influence the relationships between all of the elements in it. Shifting attention to the ground, McLuhan found that the ground is not all generic, as it has been thought by the psychologists. The ground is full of differences. Its elements are extremely heterogeneous -- basically everything except what you look at. Most important is that they are related across all categorical distinction. Their relationships ignore preconceived categories that modern science was all about establishing. However, these relationships are not random, but structured by the medium itself. And the restructuring of ground is the most important thing that a new medium does. Hence, the medium itself is the message.«

So, let's aim our yellow spot on money as a medium and its pervasive influence, which has escaped our attention for at least two thousand years, not only that of economists but even of historians as well.

In his chapter on money in UNDERSTANDING MEDIA McLuhan says:

»Money, however, is also a specialist technology like writing; and as writing intensifies the visual aspect of speech and order, and as the clock visually separates time from space, so money separates work from the other social functions. Even today money is a language for translating the work of the farmer into the work of the barber, doctor, engineer, or plumber. As a vast social metaphor, bridge, or translator, money - like writing - speeds up exchange and tightens the bonds of interdependence in any community.«

Viewed in this way, money carries the information of the fruits of the work someone has performed and entitles him now to take the fruits of the work that someone else has done. Money serves as a mediator and if we apply McLuhan's claim that all media are extensions of man, we might say, it extends the human faculty of giving and taking work. Unfortunately this is not the only purpose money can be used for. Money has an invisible advantage over the objects of exchange - it doesn't loose its nominated value. While most goods will rot or rust and gradually loose their value or require special care, i.e. costs, to keep their value like cars or houses which need repair and renovation every now and then, money only requires a safe to put it in - and that's it. In an economy which is based on barter only, a farmer who produces - say - tomatoes and wants apples in exchange, meets the farmer who is willing to give him apples for his tomatoes under the same condition: both want to get rid of their goods before they rot. Under these conditions a fair deal is possible. If money comes in, the whole thing becomes quite different. The owner of money has an advantage over the farmer who produces tomatoes or apples. The farmer has to get rid of his tomatoes before they rot, the owner of money can wait and eventually extort a reduction in prize even below the value of the farmer's work.

This advantage of money over goods, also called 'liquidity', is eventually expressed in the interest rate, which idle money can demand from someone who needs to borrow money. Thus money has two contradictory values: for someone who needs money for his living, it is worth as much as the goods he exchanges for it. For someone, who has got more than he needs, it is worth more, because he can give it as a loan and collect interest. At an interest rate of 3.5% he can double his fortune within 20 years, at an interest rate of 7% within 10 years. This is due to compound interest. Thus, a given fortune grows exponentially.

This schizoid nature of our actual money is responsible for the splitting of society in the wealthy and the poor. The splitting occurs with exponentially growing speed and eventually will collapse. In Germany for instance, private fortune presently amounts over 10 trillion German Marks (i.e. >10'000'000'000'000 DM). Debts also amount almost as high as this (If money would be withdrawn from the market, economy couldn't function, so money has to be pulled back by making debts - which of course cost interest...). The situation is basically the same in all advanced countries. At this point the question arises: who owns all the fortune and who is making the debts to pay interest for?

The answer to this question would be too long with all its differentiations and various aspects, so I just cut it short for now. There is a remedy for our sick money system which has been proposed by a man named Silvio Gesell (a merchant and a disciple of Proudhon) about a hundred years ago. His suggestion was: to put a user fee on idle money that would equal it with the objects of exchange. So, let's really talk about money for a change. On the following pages the reader will find an astonishing multitude of insights on various aspects of Gesell's Free Economy. For the one who understands the social, ecological and cultural implications of this new money order, these insights will inspire a vision of a society that could be free from most of the tribulations from which our world is suffering today.



2) Lost     and      found.


FOUND2.jpg (50331 bytes)




Look at the poor little one!To whom does this planet belong? Can we find its rightful owners?


The answer seems obvious: to all mankind.

But as long as their money allows them to take advantage of somebody elses

achievements, it is also an instrument for appropriation of land, minerals

and other natural resources. The neutralization of their money's superiority

over the objects of exchange would limit it to the value of human labour.

Money should be understood as the extension of the human faculty to give the fruits

of ones labor and to accept the fruits of other peoples labor in turn without somebody using usury to step between a just exchange, thereby accumulating large sums of it and using it to buy the planet, or parts of it.





3) Short introduction!

To understand how stamp scrip ( or free money as Gesell called it) works we have to look a little bit on the workings of the law of supply and demand, the most basic law of economics.

This age old law states quite simply that the price of a good depends on the relation of supply and the demand for it. P = D divided by supply S. The old economists showed it also in form of a scale.

In the case of money, which is in a economy based on it and on a market with wide-spread division of labor the nearly only form of demand, the formula is stated: P = M/G meaning the price changes with the relation between amount of money in circulation to the supply of goods and labor. This was called the quantity theory of money. It also was shown in form of a scale.

When they found out that money is used over and over again they introduced the concept of turnover into the formula and the formula now looked like this: P = M.V/G with V for velocity. Gesell was one of the first to use this formula and called it the refined quantity theory of money. This also can be shown in form of a scale only now you have to extend the arm of the scale with the pan for money and have the pan movable to show the velocity. The farther out the more speed and angular force and the closer to the pivot of the scale the slower the speed. I am very proud of this scale because it is my invention. (It is shown farther down on the next page.)

Irving Fisher used a slightly different formula. MV = PT. If one asks for the price this formula would look like P = MV/T. The only difference between the formulas is that Irving Fisher takes T for transactions as an already done deal while Gesell and others take G (standing for goods and services as a potential deal taking so into consideration also the "leftovers" like unsold goods (surplus) and unsold services (unemployment). Fishers formula has one less unknown factor but shows only what has happened already while the other formula with an additional unknown factor also shows how the economic forces work, but has to be used as a periodical equation taking into consideration the changing prices of goods and services.

Now the workings of stamp scrip (free money) are maybe easiest understood if you take my scale and think that the tax on idle money pushes the speed of turnover so far out on the arm that the speed only comes to an end when there is no more surplus of goods or services there which money can be exchanged into. Isn’t this what we want? No more unemployment and no more unsold goods. Think about it!

Do not think this would mean an empty market. Production was never a problem and the market would continuously be replenished. It was always the under-consumption which caused the problems of the ages. People hungered not because there was not enough food but for lack of the medium of exchange. People were unemployed not because there was no work. They were unemployed because there was no money to pay them with.



4) The Law of Supply and Demand


1. Everybody, who thinks at all about economics takes it for granted and hardly gives it a second thought. Yet hardly anybody understands how deeply it controls all aspects of the base of human survival, our economy.

2. In the following paragraphs we try to shed some light on it.



The most basic law of economics is the law of supply and demand. Very simply it states that the price of some good changes in relation to the supply of it and the demand for it. That is all!

Expressed as a mathematical formula it is stated: Price equals demand divided by supply. The classic economists showed it in form of a scale:


Instead of demand one can use money and then you have the so-called Quantity theory of money.

There is only one thing missing. The old economists did not think that money is not only used once like most goods on the supply side of the scale but over and over again therefore the formula should correctly be: The price equal's money times turnover divided by the supply.

This can also be shown as a scale:

Hans_Waage5.gif (27850 bytes)


The sides are switched over here and the money or demand side of the scale is mounted moveable on one arm of the scale to show the turnover. ( The proportions are not correct. The arm on the money or demand side should be much longer.)

Before we go any further lets first explain this scale in more detail: P is the price and it moves to minus or plus depending on the forces in the two pans of the scales and the position of the money pan on the sliding turnover scale.

Now a few examples: Let's take cherries! A good harvest, which means a big supply will lower the price. Nevertheless, there is now a counter force: with lower prices more people will decide to spend more of their income on cherries - so demand will increase until a new level of price is found. There are also some long range results: If prices are lower than costs cherry trees will get chopped down or on the other hand, if prices allow a good living for the owner of a cherry orchard he will plant more trees, by that increasing the supply.

The price of cherries will stabilize if people decide to spend some more of their income on cherries. It does not matter wether they need or want cherries. Need or wanting cannot be equated with demand. Demand in a modern economy is only demand when it is backed by the willingness to spend money for something or at least the acceptance of the responsibility to pay back the therefore occurred debt.

Now, of course, one can increase the demand for cherries if he can persuade people that cherries are good for their health or that they live longer if they drink lots of cherry brandy and that is the reason for all adverticing: Keep the demand high enough that the pressure of the law of supply and demand cannot push the price of a good below the line where producing it is not profitable anymore.

Still, if you now believe, that cherries are a necessity in your life, you might have to forego other expenses to stay in the frame of your income. If you do it, that puts more pressure on the demand side of the goods you did not buy.

Every economic decision on your part is the cause of some effect in the gigantic interrelation system of economics - and all of it is governed by the law of supply and demand. In other words: All prices are subject to the law of supply and demand, and everything has a price.

The price of labor is usually called wages. The price of borrowing money is called interest and the price of money is what one can buy with it.

Now let's play a little bit with words and definitions: there is a saying that the best things in life are free - for instance air - which means air has no price. Why not? Take our equation and when you ask for the price, for example, of air you will see that the dominator demand is of limited size - you have to take only one breath at a time after all. The numerator on the other hand is for all practical purposes infinite and when you divide one side of an equation by an infinite number you get a big fat zero on the other side.

This, dear reader, is about all the mathematics you will need - usually the scale and common sense will show you what influence on the price certain actions of the players in the economic game will have. There is only one instance when the law of supply and demand gets bent out of shape in the short run and that is in case of a monopoly.



5) Monopoly.



What is a monopoly? The definition in my dictionary reads:" The possession or assumption of anything to the exclusion of others." A true monopoly in true life is a rare bird indeed and we would not have to be concerned about it, but the exclusion of others is another thing. Every exclusion of others puts a kink in the free play of economical forces. In a free market a monopoly would be a very short-lived phenomenon and could not even get started if forces outside of the economy would not lend a helping hand. The competition would tear apart a would-be monopolists dream.

Something else is the uncounted partial monopolies. They also could not survive a free market but are now so entrenched in the tapestry of our society that nobody realizes what bad influence they have. They block the free competition and distort the real price of everything. What could have been easily adjusted by a little productive effort now becomes an eternal bellyache. An example is rent control that prolongs the scarcity of rental space for ever and ever.

Understanding it might be easier if one thinks of a monopoly - partial, like in a trust, or union shop, or guild, or any licenced trade - or absolute, like in Government monopolies not as a thing but as an absence of something - the absence of free competition.

Not every monopoly is a bad thing as such. Nobody would like to live in a completely lawless society and a government has its uses as long as it keeps its sticky fingers out of the economy. Patent rights, which are a monopoly too, make sense for a short period of time. 16 years seems just right. By that time the owner of a patent should have made enough money and should have recouped his startup losses. He would also still be ahead of the competition because of his "hands on " experience. What more can he ask?

Copyright is also a monopoly and the law as it is now may be just right. A man should have the right to his own mind and labor, but only as long as he or his first heirs are alive.

Land ownership also is a monopoly as it excludes others from the use of the land even if it isn't used by the owner. The solution to this problem is simple. Tax the land and not the improvements. Not an outrageous percentage. One per cent should be plenty and one could even let the owner set the price of his land. Only in case of an expropriation this would be the price he would get. That would prevent him from setting to low a price on his land. On the other side, if he puts an unrealistically high price on his land, he would have to pay higher taxes.

The price of land like as other prices of goods and services is governed by the law of supply and demand which means: Land without people is worthless and if more people need and want land and are willing to pay for it, then and only then will the price of land rise. Land as such has no intrinsic value but because it can't be increased it lends itself to blackmail by the owners. They know that other people are dependend on the use of it. Therefore a tax system that would tax away the unearned increase in price would be just.

All other goods can be increased in quantity if the demand warrants it and are actually quite often worthless to the temporary owner. What use are 100 pairs of shoes to a shoemaker for instance? He can only hope that they have a retail value. If they have that, fine, then he can sell them - hopefully with a profit. Nevertheless, he has to sell them, and wether he makes a profit or not. The people, who have temporarily the ownership of money know or feel this and unless they are barefoot in winter they wont let him get away with outrageous profits.

No sane man will produce shoes, of course, if he cannot expect a price on the open market that will pay him back for his outlays and his labor . . . and that takes care of the Marxist theory that the value of a good depends on the average hours of work, that are necessary to produce it. What nonsense! A good is worth, what somebody is willing to pay for it. So even when all the good communists work endless hours to produce - lets say pots and pans and other useful things - if there is no market for them, they are worthless.

So yes, even taking into consideration that only a planed economy consistently produces things that have no market and a producer in a free market economy does so to his own peril and usually not very long it still means it is guesswork. Yes, the shoemaker knows that he can make shoes better and cheaper as the guy who wants to be self-sufficient and makes his own, but there might be a factory in the next town, which will underbid him and all of them can only hope that the law of supply and demand will allow them a price that will cover their costs. Sometimes it does not.

With money - remember that is part of the demand side in our equation - there are also some monopolies involved. First, there is the privilege of printing it. That is a clear monopoly, but there is also a second hidden one. The temporary owner of money can hold it back and can so prevent the exchange of goods until his demands are met. That is the monopoly to strike. The strike of money is a much stronger force as a strike by workers. Money does not have to eat and can wait indefinitely until its demands are met. In former times, when money was equated with gold ( or silver) this had some far-reaching results, like the demise of the Roman empire, the stagnation of the middle ages and probably the fall and rise of untold civilizations.

Now, of course, we just print more money instead of the one that is on strike, but if one looks back in history, the time of gold backed currency is not so long gone. Even now somebody can get a Nobel price in economics, who promotes a gold standard. As short a time ago as 1907 a single banker ( Morgan) could plunge the world into a depression resulting afterwards in world war one.

Of course, the printing of money does not solve the problem either. What happens when the people who held back their money, which was replaced by the newly printed one now decide to go back into the market and ask for goods?

New and old moneys compete for goods with the result that there are not enough goods for the money - one could also say that there is to much money now, which means - inflation.

Now lets apply our knowledge to the stock exchange. Here we have a good example of the psychologic workings of the law of supply and demand. The price of a stock goes up if more people want to buy it and it goes down if there are more sellers than buyers. As simple as that! Wether a stock certificate is worth the paper it is printed on or not does not really matter as long as there are people who believe that a stock is worth their money. When enough people buy a stock and the price of it starts to go up it adds to the psychological pressure to buy before it goes up still higher and the potential sellers are in no rush to get rid of their so nicely rising stocks. It means that there is hardly any supply available, while on the other hand investors scramble to get on the band wagon of a rising stock by that increasing the demand.

Some stocks, of course, pay dividends but the earnings are usually far below the ones one can get in a term deposit and there you do not have to take the chance to lose part or the entire principal. The fact that there is a dividend sometimes enhances the value of a stock but cannot be the reason for investors to buy it. They would be much better off putting their money into a bank account. No, it is a gamble, plain and simple and even if you know how it works, there will always be the inside traders, who will skim off the profits of these countless pyramid schemes.

Now let's try out our new perception on an old story.

Surely you all know the story of Joseph in the Old Testament. Remember that he was sold by his brothers to some traveling traders. What does this presuppose? First that there was a society that used money and had essentially free trade across the boarders. Secondly there must have been some division of labor or the traders would not have goods for which to trade. On the other hand there must have been a recession or the brothers would probably not have sold their brother into slavery. Joseph must also have had some education or he would not have risen in the service of the Pharaoh so fast.

For us the most relevant part of Joseph's story is how he made the Pharaoh so powerful. Remember that the Pharaoh dreamed about the seven fat cows that were later eaten by the seven thin ones. That was thanks to Joseph a self fulfilling prophecy of seven good years followed by seven bad years. How did Joseph do it?

Read it in the bible! First he brought all the money together in the house of Pharaoh. What did this cause? With little money available on the market the farmers could not sell their produce and as they were already in a stage of economic progress where the division of labor made a medium of exchange a necessity they could not go back to bartering either. Sitting on a not saleable harvest they, of course curtailed their production. Most of the previous harvest they had sold to Joseph at rock bottom prices. Remember, most of the money was in the house of Pharaoh, therefore the law of supply and demand forced the prices down. ( Less money = lower prices, more money = higher prices).

The bible never tells exactly when in the proposed 14 years what happened, but is quite clear in a general way what happened next. Next year ( or later ) the farmers had to give all of their livestock in exchange for bread and later they had to give up their land and became serfs to the Pharaoh who afterwards let them have 80% of what they produced. All this times the preachers were exempt as the bible states a few times. They must have made a killing on the backs of the farmers and were so an excellent guard for the Pharaoh.

Joseph's brothers, the Jews, got quite a revenge for selling him. They could now supply most of the workforce to build the pyramids.

Actually the Pharaoh was quite generous. He only took 20 %. A modern government takes much more . . .



6) Money!


So far we have barely touched the role of money in the economy and that without a medium of exchange division of labor is impossible and that without division of labor civilization is impossible and not only that - the very life of 80 % of humankind would be impossible because for self-sufficient hunters and gatherers there is not even room enough. So we better learn how money works better than the hit and miss approach used so far even in the highest economic circles.

Money is on the demand side of our equation. In fact money times turnover IS demand in a market economy. And why is money a necessity to the division of labor? Simply because there is no other possible way to find an honest and for both sides of a deal agreeable price of a good or service. The only way to a fair price is the bidding in a free market and money is our ballot paper with which we vote day for day what and to what price goods will be produced and services will be offered.

The piece of paper or the coin that is the agreed upon medium of exchange makes it possible that someone can improve his skills of production and can even build and invent machines that will enable him to produce ever more. Doing so without a simple means of exchanging his personal overproduction for the work of others would be senseless for him.

Without a generally accepted medium of exchange and a free market nobody would know the real value of a good or service and the only way of production would be forced labor - in other words slavery. Not that there can be any slavery in a society with a more or less functioning money system or is it not that when you let yourself be brainwashed into buying a fancy house on credit and then spend the rest of your life as a slave to your mortgage....

The Marxists thought originally that they could have a functioning economy and even a more humane one without money. From everybody to his ability and to everybody for his need was the slogan. They did not ask who will decide what anybodies needs are and do the able ones have to work themselves to death for the unable or just lazy ones? In short, our Russian friends tried right after the Communists came to power to get rid of the money. How? They simply printed so much that it nearly became worthless but they still expected the farmers to sell their produce for the now worthless money. Yet how could they? They also needed some goods and there were none to be had for this money. So they refused to sell and were - after millions of people died of hunger in a country that once was the bread basket of Europe - forcible expropriated.

Later the state took over everything, decreed prices for all goods, reduced the amount of money he gave the workers in this paradise of the working man and could even with excessive force not prevent a black market.

The existence of a black market, which is actually a free market in spite of a brutally oppressive regime shows that the market forces are nearly irresistible and are better taken into consideration in all economic decisions.

We should know by now that one just cannot print money indiscriminately and still expect that it will keep its worth. What else can we do? Back to Gold or Silver as currency standards? Some economists really propose this but that would open the doors to a depression that would make the great depression of the thirties look like childrens play and would surely destroy our civilization. Would you want to give a to- days Pharaoh the tools in hand to do unto us as the old Pharaoh did to the Egyptians?

Let us find out, who decides today how much money gets printed. Ask the question and you will get a surprising answer. Nobody and everybody! If you or anybody else wants to borrow money and you are an acceptable risk every bank will give it to you. They are in the business of lending money and usually lend as much as the traffic will bear. Now, if they have not enough cash on hand they simply go to the Federal Reserve or whatever the money issuing National bank is called and in turn borrow some money there. If they have not got it either - they print it! . Now you or I might have some reason to borrow money short term and will be very careful about it, because we will think, that we have to pay it back. The government on the other hand has no such scruples and it can borrow money just as well.

Of course, most of the time they try to keep a lid on excessive printing and raise the bank rate to curtail borrowing. ( I use the word printing here instead of " expansion of the money supply," which a real economist would use because I do not want to confuse you by using the word supply on the money side. Remember: money is demand.)

Nevertheless, there are two sides to this. On the one hand makes the higher bank rate borrowing less attractive and on the other hand finds the higher cost of borrowing its way into the economy and forces prices up. This push and pull at the same time account in part for the unholy mess in which the currencies of most countries are.

A high bank rate is often excused by the imagined necessity of keeping the value of a currency against other currencies up. This is nonsense! The exchange rate of one currency with another is also a price, which is governed by the law of supply and demand. Over time the decisive factor is the inner value of a currency, which means what you can buy for it.

Let us play a mind game, which I found useful to clear up misconceptions in my mind. Exaggeration! We assume that goods in one country cost only half what they cost in a neighbor country, jet their currencies exchange one to one. What will happen? At first the citizens of the country with the more expensive goods will flock into the other country and will buy what they can get their hands on by that increasing the demand for the cheaper country's currency. This demand will force the price of the cheaper country's currency up, until it is not profitable anymore to buy in the cheaper country because the exchange rate expresses now the real parity of inner values: about one to two.

Currency speculation is usually allowing for all this and yes... In a circumspect way could an increase in the bank rate bolster the worth of a currency. When speculants think that the higher bank rate will curb inflation by decreasing the amount of money in circulation they will act on that assumption and - presto - for a short time one currency is worth more by a quarter point. Until the cost of high interest rates forces prices up and higher prices means money is worth less and that is - inflation.

You see now that the government or the National bank has no real control over the circulation of money. The control over the speed of turnover is completely left to the public and even the printing of money and the amount in circulation is barely regulated. Horrible as it is - we are sitting in a rudderless boat.

As long as there was a gold standard, gold through its rarity kept a lid on inflation but favored instead the even more destructive deflation and the boom and bust cycles. One could say that gold was the reason for the stagnation of the time between classical Greece and the reformation when a new influx of gold from America brought an upswing to the world economy.

The Gothic time

During all this time there was only a short interlude of relative prosperity. That was the Gothic time when all the gothic domes were built in Europe. Yet so short was the time in which as an aside printing and pocket watches were invented that nearly all of the domes were left unfinished. They were all originally planned with two large steeples on one side and a smaller one on the opposite side. When the moneys run out they had to hurriedly cap the half-finished towers or abandon one or even all of the planned three towers. Go to Europe and look at these witnesses of stone and remember that they were built not by slave labor but by well paid guild members and mostly from their donations.

Remember also that most of these churches were built in towns with less than 10,000 inhabitants. Do not think that those people were over worked. They had a free Monday for bathing. Sunday was a day of rest and attendance in church. There was also an abundance of church holidays, where nobody worked. What had happened? What was the reason for this surprising wealth?

The church then did not allow its members to charge interest for lending money. They called it usury. Therefore, people kept their spare cash hidden. This caused of course, widespread scarcity of circulating money and as we know that means falling prices and economic stagnation. As an aside: Jews were not bound by this rules and as most other professions were forbidden to them were forced to become bankers.

The lack of circulating money did not only hurt farmers and tradesmen but also the rulers. So they started to mint their coins thinner and thinner and started to call them back for re-minting on a fairly regular basis . Whenever they exchanged them for new coin they charged for re-minting as the weight of the coins was later prescribed by law.

What happened now? The money was forced into the market and business started to bloom. Nobody wanted to keep spare cash around - it would be worth less with the next re-minting. Now the priest harassed the steadily wealthier trades people and as they could afford it they started to build the gothic domes.

We will not dwell on the crusades which also happened at the end of that time - with our new insights this is the work of generations of historians, but will continue with the main trend of the history.

As it always happens when government has a good thing going, they soon overdid it with the re-minting and that caused quite an inflation and people clamored for better coins. After a while they got them and, presto, deflation, no more spare cash for churches, the knights became robbers, the farmers became slaves and nobody knew what hit them...

,Most of this you have to read between the lines in the history books and it would be a worthwhile effort for generations of historians with our new insights into the workings of economy to rewrite these books. Then we could learn something from history. So far there was only one historian who made a start at it: Fritz Schwarz, Segen und Fluch des Geldes in der Geschichte der Voelker.

Isn't the world a crazy place? Only because some ruler needed more money ( He was Bishop of Magdeburg ) and found an innovative way to do it within the framework of existing laws were these beautiful churches built. And because lots of other small rulers followed his example were medieval towns and castles built.

People did not realize a good thing when they saw it and the rulers were too greedy and did not know what they were doing in the first place. That is why centuries of misery followed this short spring of the gothic age.

There is one riddle left in the story of the gothic domes. How could so few people without machinery as we have now build this domes and finance them? Remember they had no machines for other things either and had to do everything by hand. They could afford the luxury churches only after they provided for all necessities and a few other luxuries. Remember the free Monday for bathing. Some priests complained about that. They did not like it that both sexes bathed together nude in the bathhouses. Nevertheless, had this sinful people an open hand for their churches. We can assume that the rule about usury of the Roman Catholic Church had something to do with it. People were not allowed to collect interest but they did not have to pay any either. Therefore there was hardly any unearned income and the working man enjoyed a higher percentage of the fruits of his labor. So much more that he was even willing to donate it for a church. His effort went into the building of a church instead of the feeding of parasites. And this leads us to the role of interest in our economy.



7) Interest.



We touched the subject of interest briefly in previous paragraphs but did not get around to a really deep look. What is interest? Interest is the price one pays for borrowing money and what one gets for lending money. Who decides how high the interest should be? We like to believe that the National Bank or in the U.S. the Federal Reserve does this. That is only partly correct. The price of borrowing money like any other price is governed by the law of supply and demand. If many people want or need to borrow money then the interest rate goes up. On the other hand if there is lots of money around looking for borrowers, the interest rate goes down.

It might be quite interesting to find out how interest comes to be paid in the first place and why historically there was always a market situation that allowed the collecting of interest. We won't go into this now because that would fill a book of its own. It is enough to know that the people who built the Gothic domes already showed us how to get rid of the interest and that is enough. We only have to find out if doing something about it is really necessary.

First let us explain on hand of an example that eternal interest is impossible. The example only slightly changed is from the book of an old friend: Otto Valentin " Die Ueberwindung des Totalitarismus," to whom I am also indebted for an in depth explanation of monopolies.

I will not use the different currencies through the ages but simply start with the equivalent of one cubic millimeter of gold. It is invested at the time of the birth of Christ at a rate of 7.2% that is quite conservative at to days rates. I took this rate because it just doubles the principal with compound interest in ten years, give or take a few Cents. This simplifies our calculation. In the year 10 we would also have two cubes.

Now it starts to double every 10 years. One 2,4,8,16,32 and so on. In the year 100 we have already one cubic centimeter, in the year 300 A.D. a cubic meter and than it really starts growing: one cubic kilometer in 600 A.D. and the pile of gold keeps growing until it reaches the mass of our earth in the late twelfth century and somewhere in the 15. centuries the mass of the sun.

Obviously, this is impossible but on the other side is it a fact that interest at a rate that is not much less than the seven percent gets paid since ancient times. Our example only shows that the sums involved are gigantic and it is curious who pays all this interest. Somebody has to pay it because nobody would be so crazy to lend his money free of charge when he can get interest. Nobody would invest his money into something that would not promise even more return. There are after all more risks involved.

Hold it! Does this mean that every good in this world has to be paid interest? The machines, the factories, the merchandise in the stores of the businessmen, everything? It seems so. What does this mean? It means that every good in this world has to be paid within 10 years ( 7 percent interest assumed) to the interest takers all over again. All together quite a tidy sum! No wonder that the beneficiaries of this system fight tooth and nail for their privileges.

Some people could not care less because they think that they get more interest as they pay but they never realize that they pay interest in the price of everything they buy. The businessmen and the producers have to recoup the interest they pay in their prices The Government owes money and it has to recoup the interest it has to pay in your taxes.

Nobody can add all this up correctly because one never gets the real numbers but a good guess would be that 90 % of the average income from labor ( A businessman works too ) goes for interest and taxes. Interest including the interest that the government pays amounts to the Lions share of that.

But even that would still be acceptable if it were not for the fact that the strike of money sets in whenever the interest sinks below a certain mark ( historically around 3 percent) thus preventing general wealth by causing unemployment and business disruption. This is probably not caused by a world wide conspiracy even if it looks like it sometimes, No, it is inherent in the form of our money that has an impossible dual character. On the one side it is a medium of exchange and on the other side a medium to store wealth. Both of this attributes are mutually incompatible. Whenever one uses it to store wealth, he pulls it out of the market where it is supposed to make the exchange of goods possible. That mankind survived this mess for thousands of years is due to the fact that one can be self-sufficient and only barter his surplus. Mankind survived but many civilizations did not.

Our own civilization is now tethering on the brink of destruction and it will collapse if we do not change our money system and make land available to the people who will work it. Doing this will also get rid of most of the government bureaucracy. What else is government doing than trying to keep the workers docile and redistribute some of the unearned wealth of the " capitalists ."

The government does not do a very good job anyway and most of the redistribution ends up in the salaries of our public servants or worse in the pockets of some third country despots. When Labor gets his full price the bureaucrats are superfluous and we can pension them off.

Now let us repeat what we learned so far even for the danger of repeating over and over again things that should be common knowledge. Without money there is no division of labor! Without division of labor there is no civilization! Without civilization about 90% of the worlds population would die because they could not produce and gather enough food to survive. Why was America nearly empty when the white man came? The Indians had no money! That's why!

What happened to the ancient civilizations? In the first place, they had money, usually as gold or silver coins, or there would not have been a civilization. Usually they robbed gold or silver from some other more primitive countries, then minted it and got the economy going in this way. Later with interest dividing their own

population into interest-takers and interest-payers and the following internal fights money, that is gold, disappeared from the economy. A good part of the Roman gold disappeared into India for spices. The ( not so ) wise king Salomon put gold into the temples and even adorned a tree with it. Gold, in this case the coins, which were money, disappeared from the market and you should know by nom, what was the result. More goods chasing the elusive coins means after the law of supply and demand that the prices of goods had to fall thereby making commerce impossible because everybody was waiting for goods still to became cheaper. That was bad luck, of course, and they still did not know, what hit them. But do we?...

Let us go back to the Gothic times once more.

We know that the rulers re-minted the coins quite often and charged a much to high price for this service. The result was a speeding up of the turnover to a point where the fact that the money had to change hands brought the speed to a natural limit. It is beside the point that they overdid it which in the end caused people to balk. In any case, have a look at our scale. With the turnover hitting a natural limit, we have now all known factors in our equation. Imagine the pan with the money at a more or less stable endpoint. As in Gothic times less money now moves more goods if we put a similar tax on idle money.

What would follow? With the turnover a more or less stable number we can control the money side of our equation. The goods and services side is such a slow changing number that we do not have to think about it at all. The amount of money is also an exact number, controlled down to the last Cent. How much there is and what denominations is a matter of record. And the average price? That is easily measured by an index .In Gothic times, of course, they did not have an index and had no easy way to control the money in circulation, but we should have no problems.

The moment, we make the political decision to stabilize our currency we can do it. ( Germany did it after World War one and two without gold).

With a more or less fixed rate of turnover, if we use something like the re-minting of coins as they did in Gothic times we only have to control the amount of money. That is easily done! We could have a stable currency and all we need is a printing press and a furnace.

The moment prices, measured by an index, go down, we would print more money. If prices go up, we would burn some. The charge for re-issuing money would give us enough leeway to do so. And the charge has to be regardless of the cost for new paper. It has to be, to take the power to strike away from money. It has the power to strike now only because opposite goods and services it has an inherent superiority - it does not rust or deteriorate and neither does it go out of fashion and it does not need to eat. When you take away this superiority you start with an honest competition.

How high would this charge have to be? Easily answered! Just as high as the interest is now, that money can blackmail out of the economy! Three to six percent!.

Yes, the interest rate this days might be higher, but this is only because there is an inflation and risk premium on top of the basic rate.

Now we have it! The solution to our economic woes is so simple that it is hard to believe and our economists won't hesitate to tell you that only a simple-minded ignoramus could believe in it. What about the book-money they will cry and the transfer of money on accounts without the use of cash?

First, what is book money? Simple answer. Book-money is credit on a bankbook or account! And transfer from one account to another is movement of credit ultimately dependant on availability of cash. Or in other words - turnover! Just as with cash there is a natural limit to the speed of it. What do you think the banks will do when it costs them money to keep cash on hand? Remember they will also have to pay exchange-charge or idle money tax, whatever you want to call it. They will roll over this charge on the short term accounts, which means they will charge you for the save keeping of you money and by so doing will force this accounts into circulation. What else? More questions? Will the whole world have to a accept this new money at once? It would help but isn't really necessary. All we need is for one country or even one region to adopt the new money. Just as the other rulers in gothic times followed the example of one innovator other countries will follow the example of the country which first introduces it. Success is after all very persuasive.



So, what if.


What would happen if a small country, only just big enough to have a currency of its own would change to our proposed money? At first, it is sure that the other countries would not trust this newfangled money and even the people inside the country would have doubts. For that reason not many people would ask for this money therefore keeping it undervalued. Remember the law of supply and demand! But there is also another law of economics.

It is called Gresham's law and it says that bad money drives the good money out of the market. This is easily understood. People save the money that they conceive to be of higher value and try to get rid of the "bad" money. In this case the "bad" money is the one that gets taxed when it stays idle.

Therefore our new money will drive everything else that might be used as medium of exchange like gold or foreign currencies very fast out of the market place. Only much later, when people will realize that the new money keeps its value, while everything else including gold will steadily be less worth, will they use it as a short time medium for savings.

Gold derives its value mainly because it is used as the basis of currencies and if mankind did something more stupid, than digging out the stuff and fighting endless wars over it, only to dig it in again in Ft,Knox, it is hard to imagine. Mind you, gold has some value, but it is not rarity that gives it value. Rarity as such is never the cause for a high price, it is the usability and the general acceptance, that accounts for the value of a good. If you think that rarity alone gives something value, then try to sell the one of a kind white elephant

Gold has its uses in dentistry and if it would be cheap enough one could probably find some uses for it in electric circuits. Jewelry comes to mind as another use, but here the conceived value is bound up in the age-old mystery of gold as a precious metal. But let us go back to our small country and the new money.

With the undervalued currency the goods of this country would be cheap in terms of other currencies and a holiday in this country would be a bargain for tourists from abroad. The undervalued currency would act like an export-premium but slowly things would even out. Especially when people would notice that their own money would keep its internal value, while the other currencies would still be in the throws of inflation.

Slowly the tide would turn. Now investors from other countries with an unstable currency would bring their money into the country with the stable money and would even take a lower interest rate in exchange for safety from inflation. The surplus capital would lower the interest rate even more. This is again a result of the law of supply and demand. The low interest would make investments profitable, which would have been impossible to finance before. You have no phantasy if you can not imagine what is possible with an interest rate of close to zero. Put the whole of the Rockies under glass to grow food. Computerize all manual work and allow all citizens a life of leisure. You name it and you can have it.

But remember one thing. Interest is the price of borrowing money and like all other prices is subject to the law of supply and demand. You can not just degree: No interest! First there has to be an abundance of capital which means: as long as there is a scarcity of real capital like factories, houses, machines that are still able to command interest above amortization money will look for this investments and won't take much less for the sake of liquidity. As long as land-rent is not taxed away money, of course, could also flee into land-ownership.

Examples for that are Swiss bank accounts that pay no interest and even charge one for safekeeping . Or the interest one could get in a Mexican bank a few years back. 35%! That was at a time when the exchange rate Mexican Peso and American Dollar was for years quite stable and many American snowbirds got caught by this bargain. Who would have thought that the Mexican Peso whose exchange rate was 1 to 15 for years would drop to 1 to 500 in a short time?

There is no free ride unless one counts profiting from a monopoly as such. But even there the free ride is only temporarely free. Sooner or later will the black-mailees revolt and then even such an all including monopoly as a communist state will topple.

Every monopoly has the seed of destruction already in it. Competition by other "would be" suppliers of the same goods and services or the production of "Ersatz" articles or changes in the buying habits would put an end to them. For instance, what value would the tobacco or alcohol monopoly have in a country of non-smokers and non-drinkers?

Only one thing keeps them alive and well. That is the aiding and abetting role of the most basic of monopolies in the economy - the ability to strike inherent in our money.

The sorry result of all the revolutions and wars in the history of the world is that none of them ever touched the real cause of all the misery. None of the religions could end the eternal fight between interest-takers and interest-payers. And after every war or revolution the same old division between rich and poor started anew.

After every destruction of capital goods caused by a war capital was scarce and could demand fairly high interest. There was a lot of work to rebuild the destroyed houses and factories but after awhile as more and more capital goods started to compete with each other and profits started to shrink and soon the money pulled out of these now unprofitable investments. The strike of money set in!

With gold or silver as money - that was it! Depression, sometimes for centuries until some imperialistic war brought new money into the victorious country's economy. They simply robbed it from the losing country. History called the ruler of the victorious country afterwards "the Great". Alexander the Great, Charles the Great and so on.

Now, of course, in the age of paper money, we found another solution. When money starts to strike we just print more - in this way causing inflation which forces the money back into the market. So far so good, but now we have another problem. To begin with, interest adjusts to the new situation and lenders add an inflation premium to the interest charge and they get it too because most borrowers usually have other debts to service and the lack of demand for their goods and the lack of cash flow forces them into more borrowing. One of the worst offenders in this case is usually the government itself where the politicians always promise more than they can provide.

The overly high interest rates make it very difficult for genuine long range investments and the only people besides the government who can afford the high rates are the pyramid-scheme-artists. But pyramid-schemes are bound to collapse. Sooner or later reality catches up to them and they run out of suckers.

But some pyramid-schemes work well for the instigators. How do they work? They always involve unwary investors who still believe in a free ride and as long as new money flows into the scheme some people even make profits, which they usually re-invest because they are on to a "sure" thing. When the inevitable collapse comes will the instigators have long pulled out and usually have disappeared with the loot. This run of the mill kind of pyramid-scheme is quite common and not to hard to spot. But there was a neat one a few years back and laws of libel prevent the naming of names and places. Now to the story. It was a time when money was quite loose and banks lent money left and right to some very shaky customers like unstable third world countries. The developer who introduced the scheme got hold of some run-down city block. He paid a low down payment had it financed by a bank and sold it right away to a company where he was the main stockholder for ten times the amount. One bank gladly financed the deal with 90%. After all, they thought, if somebody is willing to pay so much for this land it is probably worth it. In short after flipping back and forth the same property for ever more inflated prices, having milked his companies for all the profits out of this deals he let the last company declare bankruptcy and one bank ended up with a worthless piece of property and hundred of millions outstanding not collectable debts. And if you think now, good for the developer, think twice, the banks have the power and take their losses out of your hide.... You already paid for their losses to the third world countries.

But back to the original theme. We wanted to know what if. We already introduced the new money, which similar to the gothic bracteata prevents hoarding and have only go down to the nuts and bolts of it. One of the ways is quite simple and was used in modern times in Woergl. Their "money" had fields on the backside, where one had to paste stamps, which one had to buy from the town cashier and which cost every month 1% of the face value of the bill. One percent per month was quite high but nobody complained about it in the 14 months this money was in circulation. The Austrian National bank, of course, did not like the competition and was suing the Mayor and the aldermen who had introduced this "money". But it took them more than a year to kill the idea. More than 200 other villages and town were ready to use this new money also, because of what had happened in Woergl, where it circulated freely and at least ten times as fast as the government money. With the towns money to 100% backed by government money  in one year the town had paved the main roads, built a bridge and a ski-jump and introduced streetlights. In the middle of depression people were working and all with the help of a few hundred Dollars worth of "Ersatz"money.

The economists in the universities did not like the experiment of Woergl at all and one of them wrote a book against it. Quite shamelessly did he equate this money that was circulating 1931/2 in a time of depression with other "Ersatz" monies which were used right after world war one during a time of galloping inflation because the government could not keep up with printing money. That is not the same thing at all....

One could probably find other ways to tax the idle money. One that was proposed was to put money in circulation with four different colors and let lotteries decide

which color will be pulled out of circulation with a cost of 2% instead of the half percent which would be necessary when the whole currency would be exchanged. A neat solution, which should work quite well and would be cheaper and more

elegant than stamp script as proposed by Irving Fisher. But on the other side, the psychological impact of licking some stamps to put on your money might also be worth it.








8) Some thoughts about the monetary history of the great depression!


The chart on page 302 of Milton Friedman’s Monetary History shows that the amount of cash held by the public actually increased during the great depression 1929 to 1933.

Held is the operative word! The currency was not circulating! This shows clearly that the velocity of money plays the pivotal role in the business cycles. The velocity can change much faster than the amount of currency. Therefor the actual amount of money in circulation (I hesitate to use this word) is of secondary importance. Money held in hoards is not in circulation at all and can therefor move no goods. But even a hesitancy to spend money because one expects lower prices during a business slow down reduces the velocity and that forces prices still farther down. A downward spiral begins which is hard to stop.

The same self-feeding process can happen the other way also when to much money is put into circulation. Then the velocity increases and prices go up. Everybody buys before prices go up more and that speeds up the velocity still more and so on. This is the simple explanation of the way business cycles feed on themselves.

The only way to have stable money without inflation or deflation is by getting some control over the velocity of turnover.

During a time of deflation Irving Fisher following the lead of Silvio Gesell and John Maynard Keynes proposed different means to get the stagnant money moving again. Irving Fishers and Silvio Gesells proposals were never put to widespread use but Maynard Keynes’ one was. His proposal was to jump-start the economy by deficit spending and then reduce the deficit during the following good business.

His proposal worked after a fashion and we can thank him for preventing with it a mayor depression for over sixty years. Without it depressions usually follow in time-spans of about 25 to 30 years.

But he put to much trust into the politicians when he expected them to pay back the deficit. They never did. In the opposite, they paid even the interest on the debt only with new debts. Therefor we are now saddled with debts which can never be paid. We are on the end of the road on which Keynes has lead us and we should better have a second look at the solutions which were proposed by Irving Fisher and Silvio Gesell and which were abandoned in favor of Keynes’.

The main difference in their proposal was that they wanted to apply the moving force directly on idle money and not indirectly by inflatory pressure. This was a totally new concept and was besides a few minor experiments more or less accidentally used to a larger extent only for nearly 300 years during the middle ages. The ancient Egypts also used in their greatest time a unhoardable money. Deposit marks for grain made out of clay.

Both wanted to use a tax on idle money in a form of stamp scrip where stamps had to be applied to keep the money legal tender.

The only difference between Irving Fisher and Gesell was the amount of this Tax. Gesell proposed a Tax of 5.2% a year in weekly stamps of 1/1000 of the nominal worth and Keynes thought that even this was to high and left the actual percentage open in his Bancor proposal and disregarded it completely for normal money stock replacing it by slight inflation caused by deficit spending. Gesell himself had later changed his difficult to implement proposal to a more realistic one of 1% every two months.

Irving Fisher asked for an impossible 104% a year in weekly installments of 2%. It had therefor no chance to be used. The small experiments with this money in Germany and Austria which had caught his attention used a tax of 1% a month, 12% for the year (much closer to Gesells original numbers) and were therefor accepted by the public and were working until they were forbidden on the grounds that they infringe on the monopoly of the Central Bank. This way the experiment of Woergl was killed to save the deflatory policy of the Austrian Central Bank.

Now 66 Years after the experiment of Woergl or the miracle of Woergl as it was called we are just as far away as then to test this technique of control of turnover, if not even farther. Then we had at least two well-known economists looking into it. Now there is none.

Since the war there was no pressing need for a way to speed up the circulation of money because inflation took care of that. Only now when the debts caused by this policy become really troublesome and nobody sees a way out and one country after another has a debt crisis are people asking for a way out and if economic science cannot find one, then self help groups will have to do it.

Now we know that the cumbersome stamp scripts are not necessary and a simple replacement of dated bills once a year will do it just as well in a technique which is similar to the technique used during the middle ages with the money they called Bracteats and it only needs a three to five percent cost for the new bills with a new expire date.

Because this money will move on the average faster as the money we use now and which is not only used as medium of exchange but also as a medium for saving the amount of the 5% Tax will be spread over up to 1000 changes of hands in a year. It will practically cost nearly nothing but will still hit with full force the one who keeps money idle for a year.

To avoid any misunderstanding. Money in a bank account is not idle money because other people will borrow it and it is therefor in circulation. The only idle money is money kept in a safe or under the proverbial mattress.



9) A new kind of stamp scrip

1933 Irving Fisher proposed stamp scrip as a cure for the severe depression which had hit the country at that time. There were quite a few towns which had introduced them on their own and Senators Bankhead and Pettengill brought the Bankhead-Pettengill Bill before the Senate, where they proposed the printing of 1,000,000,000.- Dollars worth of stamp scrip.

Nothing came ever out of it because Irving Fishers stamp scrip was seriously flawed. He had taken the idea from the writings of Silvio Gesell but had not understood the significance of Silvio Gesells idea. Silvio Gesell only wanted to take the superiority away from money which it enjoys against Goods and Services by a yearly tax of 5%. Irving Fisher proposed 104% instead which is twenty times as much. This is as if you say one drink is good for me, so twenty must be much better.

So, off course, Irving Fishers stamp scrip didn't work and the experiments of the different towns folded very soon of their own. I do not know, what devil had ridden him to propose this 104%.

The experiments in Germany and Austria in the opposite from the ones which Irving Fisher had started were a success, because they used a tax of only 12% which is much closer to Gesells original proposal of 5%. But what happened then? Powerful money interests got the government to forbid them and instead of prosperity unemployment and misery came back, followed by Hitler and world-war 2.

John Maynard Keynes, who also learned from Gesell made a different mistake. He thought, that a tax on idle money would not be necessary. He figured that a slight inflation caused by deficit spending would also do the trick. He persuaded the whole world to follow this advice. And yes, it worked for some time and only now to we get to the end of the line where gigantic debts on one side and unearned riches on the other side will force a crash. Although, without him the next cash followed by a war, would have happened within the time frame of 20 to 25 years just as it did after the first world war, as predicted 1919 by Silvio Gesell.

But see, he didn't take the power to strike away from money and therefore we are now on the end of the road and it wont take long (I write this August 1998) until the rich countries will follow the third world countries and Asia into a deep depression.

Now, what can we do? What should we do?

The answer is simple. Follow the original idea of Silvio Gesell! You need a tax on idle money in the amount of only 5% every year and one doesn't even need stamps on the "stamp scrip" or free money as Silvio Gesell called it. To put the tax right on the money, where it belongs, you have only to do the following:

Print free money, which has an expire date on it. The first issue should have expire dates, starting with the first month of the following year on a twelfth of every denomination till the last month of the year. After one year every month some bills will expire and will be exchanged for bills with a new exspiry date a year later. This will cost 5% of the worth of the bill. That is all! And this is the tax on idle money.

Everybody who uses the money for what it is intended, buying goods and services, investing it or put it in a bank, where others can borrow it, escapes this tax and it hits only those who hold it back or hoard it.

Off course, somebody might get stuck with the odd bill on the end of the month but this will only happen once every five hundred times in a year.

You see, free money changes hands about five hundred times a year and it is only taxed once. So the random chance to get a bill, which will expire is six in a thousand. This was proven in Woergl, Austria.

And what do you get for this minimal cost?

1) The people who issue Freemoney can guaranty you the same purchasing power year after year because the have control over the speed of turnover. And you better let them give this in writing. It could actually be written right on the face of the bill beside the exspire date.

2) Because money cannot be held back even when less interest is paid for it interest rates will go down and with that the cost of doing business.

3) Because money cannot be held back, there will be no unsold surplus, neither goods nor labor.(unemployment)

4) In a short time interest rates will drop and the money thus saved will go to labor and not to the idle rich. This, off course, is one of the main reasons, why this free money wasn't introduced a long time ago. This and the fact that very few people know about it and will only listen to their destroyers. Remember, Silvio Gesell offered the knowledge already more than 100 years ago!

Now think! Isn't that a terrific bargain? For a price which is near to nothing you get all this. And you get even more. Think about it! What is the cause of war? Why do the rich always get richer and the poor poorer?

But you see, even the rich do not really profit so much from today's system. Inflation eats their money and deflation eats the profits of their capital investments. They are in a rat race from one into the other and if they guess wrong they lose. And sometimes they get killed by the ones whom they suppressed too long.

Did we forget something? What will happen to all the people who are now busy re-distributing from the slightly richer to the poor, making a living out of it and creaming off more than a third of the money on the way? The really rich can help themselves and never pay any taxes anyway. What will happen to the ones who take money from the poorest of the poor by promising the rewards in the thereafter, when there are no more poor?

These are questions, which you have to answer yourself.

Did we forget something else? Oh, yes! Who shall issue this miracle money? Here we have a problem. In the Thirties it was some towns like here in the States and in Woergl, Austria. In Germany it was just a group of private people. Governments never really got involved. Quite the opposite. Most of them were in the hands of money powers and helped them to put this experiments down.

So the best thing would be to persuade a government, even a local one to issue the money. The next best would be in my opinion a church but it could also work with an ethnic group, especially one living in a kind of ghetto like a reserve. In any case, if started with a big enough diversified market the success of the miracle money would make others want to follow the example just as it happened in Woergl, Austria. Woergl was, after all, only a small town with 4,200 inhabitants and there were villages and towns with altogether more than 100,000 people ready to follow the example.

Only be forewarned. The government might even go so far to use force to suppress this money. So far the Enemy only used subterfuge and mirrors to suppress the knowledge. His tame economists ridiculed Silvio Gesell and his followers but most government are in his hands and when the power of money is seriously challenged by Freemoney, who knows to what lengths they will go.

You cannot even fully trust some of your churches. The Roman Catholic Church, who once didn't allow the taking of interest fell into evil ways hundreds of years ago. At that time, it was the time when they built the beautiful Gothic domes in Europe, they even had a money similar to Free money. They only overdid it with the tax and while they didn't charge as much as Mr. Fisher, their 25% were too much. Especially when they started to-do it twice a year.

After they abandoned this money (called brakteats) the Roman Church really fell to evil ways with the inquisition and it is my guess that they burned as witches most of the people, who wanted the brakteats back.

*) This means, off course, that there has to be an exchange rate to the old money, if that changes its worth either through inflation or through deflation. Remember, Free Money keeps its worth, its purchasing power as measured by an index, which means, that while single prices may change, the average price stand is kept stable.



10) Inflation!

Milton Friedman ended his excellent Book, Money Mischief, with five conclusions. Here they are:


Five simple truths embody most of what we know about inflation.

1. Inflation is a monetary phenomenon arising from a more rapid increase in the quantity of money than in output (though, of course, the reasons for the increase of money may be various).

2. In today's world, government determines - or can determine - the quantity of money.

3. There is only one cure for inflation, a slower rate of increase in the quantity of money.

4. It takes time ( measured in years, not months) for inflation to develop; it takes time for inflation to be cured.

5. Unpleasant side-effects of the cure are unavoidable.

Don’t they sound reasonable? On the surface it looks like it and I can find no fault at all with the first three conclusions and we could even let the fourth one stand as it is. There is only a slight misconception in the second part. It would hardly take a long time to cure inflation with the necessary political will. Germany ended inflation from one day to the next twice in this century.

It is only the fifth conclusion at which we will have to take a closer look. Unpleasant side-effects are unavoidable. Yes they are! The question is only, for whom.

Do we want the unpleasant side-effects added to the already unpleasant life of the unemployed? Or do we try to load then unto the people, who get richer by the day with unearned interest income? Are we going to load them on the shoulders of the productive debt-ridden farmers or on the owners of productive enterprises or on the speculators, the banks or the high finance?

To ask this question is to answer it!

Why should always the ones, who provide the unearned income for the owners of money bear the burden? It looks like , that everybody else should bear the unpleasant side effects, while the owners of money only reap the benefits of an inflation free economy.

There has to be an end to that. I’d rather see them lose everything in a hyperinflation, before I submit once more to such a system. I have nothing to lose and they should be satisfied if I let them live out their life on the ill-gotten money they already have. But an additional unearned income is out of the question.

I also do not want my tax money used to bail them out, when they have made unwise investments to despots in foreign lands.



11) Money, its worth, its use and its faults.

Milton Friedman writes in his book "Money Mischief" on page 10/11 the following:

>>>The "legal tender" quality means that the government will accept the pieces of paper in discharge of debts and taxes due to itself and that the courts will regard them as discharging any debts stated in Dollars. Why should they also be accepted by private persons in private transactions in exchange for goods and services?

The short answer - and the right answer - is that private persons accept this pieces of paper because they are confident that others will<<<

With this he implies also that this is all that is needed to give this green papers its worth. It is the usefulness and not some mysterious fluidium or inner value or anything. Its price like all other prices is determined by the law of supply and demand. Much money means cheap money and scarce money means dear money.

A little farther he explains it some more:

>>>our whole monetary system owes its existence to the mutual acceptance of what, from one point of view, is no more than a fiction.

That fiction is no fragile thing. On the contrary, the value of having a common money is so great that people will stick to the fiction even under extreme provocation. But neither is the fiction indestructible: the phrase "NOT worth a Continental" is a reminder of how the fiction was destroyed by the excessive amount of Continental currency the Continental Congress issued to finance the American Revolution.

The numerous inflations throughout history - whether the recent moderate inflations in the United State, Britain, and other advanced countries, or the very large recent inflations in South and Central American countries, or the hyper inflations after World Wars I and II, or the more ancient inflations going back to Roman times - have demonstrated the strength of the fiction and, indirectly, its usefulness. It takes very high rates of inflation - rates well up in double digits that persist for years - before people will stop using the money that is so obviously inflating. And when they lose faith in the fiction, they do not revert to straight barter.<<<

He then goes on to explain how the government is always tempted to over issue money and so causing inflation, but hardly touches the other side of the coin - which is deflation. But throughout his book he makes one thing clear. That over issue of money is the cause for inflation and that all money surrogates depend on the availability of the green pieces of paper. He makes the case against inflation very clear and now I will only have a short look at deflation, who Irving Fisher - whom Milton Friedman calls the greatest economist who ever came from the United States - wanted to overcome with the non hoard-able stamp scrips.

His ideas were basically sound, but just as Friedman is somewhat blind-sided against the evil of hoarding during a deflation, so was he against inflation. His proposed tax of 104% a year was highly inflationary. (Another well known economist of this time thought so too. It was John Maynard Keynes who even thought that the 5% proposed by the originator of this idea, Silvio Gesell, were too high.) He later did use the idea of "negative" interest in his Bancor proposal.

Now, if we combine the knowledge of this two economists and look at both sides of the coin, we can reach some conclusions.

1) Money (legal tender) in the form of green paper will cause inflation when over issued. (Friedman)

2) All credit is ultimately dependent on this legal tender. (Friedman)

3) The main cause of deflation is the hoarding and/or the under issue of this legal tender. (Fisher)

4) The only cure for deflation is the issue of non hoard-able money, which means to put a tax on it.(Fisher).Here we should consider the amount of the tax and listen to Keynes and Gesell.

5) The issue of money should be so controlled that it keeps its value measured by an index, without inflation nor deflation. (Fisher, and Friedman and Gesell)

So now, having them  brought together, how shall we proceed?

Do we need something like Fisher's stamp scrip to stave off deflation?

Do we have to use Fishers index even to know whether we have inflation or deflation?

Are we going to do it on our own like they did it in Wörgl or Schwanenkirchen or in the numerous towns in the States which Irving Fisher mentions?

Or do we try it though the Senate, as Irving Fisher did with the Bankhead- Pettengill bill?

Will that work or will we fail, as he did?

Will Friedman be able to persuade the government to issue indexed bonds to break the inflation bias?

Or do we have to do it ourselves as they did it during the thirties?

Aren't we already at the stage which Friedman describes? Is our money soon worth less than a Continental?

Can we keep the money in circulation without a tax on it, if inflation is not doing it any more?

Should the government issue the money instead of a private bank?

If the government is issuing the money, will we have to protect the leaders from snipers?

I am not giving answers! I am just asking the right questions for you to answer,

means Hans from Canada



12) The pathfinders of the economy!

When I see how the presidents of the National Banks and the president of the FED try to steer the economy between Inflation and Deflation and they are on the verge of losing control because they have no control over the velocity of turnover, I see a picture in front of my eyes.

I see them climbing up a narrow ridge of a mountain out of control because once they have issued money or try to reduce it the money in the economy slips out of their grasp. It is like pushing on a rope.

The ridge gets steeper and steeper and the slope right and left deeper and deeper. To the left there is a hurricane brewing that is self-feeding and tries to pull them of the ledge. It is the wage - price spiral, combined with the debt-spiral. The slightest slip on the control of the amount of money they put into circulation might speed up the spiral to hyperinflation. Yet if they are too cautious there is a vortex waiting on the other slope. Not enough money and falling or even stable prices when no profitable business is in sight sucks the money necessary for trade away into this vortex and deflation is imminent. This is just as self-feeding as the hurricane on the other side and it can get out of control also as it did often in history.

This is the scary vision I have and when I look closer it gets even scarier. They are trying to push the milk-cow of the economy standing on a sled-like vehicle along with them but they do not dare to push to hard. The cow might get skittish and jump of the sled and one never knows which way she would jump.

The sled does not look like a normal sled because it has no runners. That makes it very hard to steer and it needs continuous greasing to move it at all. They have a lot of tiny men helping then to push the sled but there is more and more freeloaders sitting on it.. Their weight makes it ever harder to keep moving. With all this grease the footing is treacherous and the sled and the cow seem to be in constant danger.

I try to shout to them: „ Get some balloon tires and put a motor on the sled and a steering wheel."

Then I realize that they are deaf.

I sometimes see them praying aver some compass like affair they call index which they use to tell them the direction when the fog gets to thick. But without a moving force even knowing the direction does not help much.

And then I really become scared. I take a closer look and see that the pathfinders are - blindfolded.




13) A Critic of Irving Fishers Stamp Scrip



A little while ago a friend sent me a photo copy of Irving Fishers Stamp Scrip and as this book was to my knowledge never translated into German, I wrote a short critique in German, so people could compare stamp scrip to its forerunners in Germany and Austria.

Later I realized that these experiments were known in the English-speaking world mainly though the biased remarks of Irving Fisher and this is the reason for this letter. As a student of Silvio Gesell for more years than I care to remember, I know better as Irving Fisher did which basic considerations let Gesell propose "free money" as he called this forerunner of stamp scrip. As far as I know did Irving Fisher only after the successful Experiment of Woergl learn about it.

Please, bear with me and with the fact that English is only my second language. It might even be an advantage because it forces me to explain simple facts in simple understandable language.

But now to Irving Fishers book.

I will at first list the contents and will then address my remarks to each chapter. I will try to quote the essential passages, but will for the sake of brevity assume, that a serious student will have access to Prof. Fisher's book.

I. Reason for this book.................................1

II. The swap movement in 1933....................3

III. Stamp scrip described..............................8

IV. The first experiments abroad..................17

V. The sudden spread of "Scrip" in the U.S.30

VI. A Stamp Scrip manual for localities 45

VII. To answer your critics........................... 57

VIII. Beyond the City horizon.........................59

IX. Priming the pump.....................................66


I. The Bankhead-Pettengill Bill..................79

II. Stamp Scrip and Barter exchanges..........83

III. Suggested forms......................................86

IV. Reading, Pennsylvania...........................92

V. Congressman Pettengill's Speech...........104

VI. A Bill in the Pennsylvania Legislature...113


To Chapter I.

This is essentially an introduction to Hans R.L. Cohrssen and an explanation of the two kinds of Stamp scrip where he rightly prefers the one which has a set date for the application of the "Stamp."

To Chapter II.

Here he explains the idea of barter which in 1933 had, as he says, more than a Million people depending on for at least part of their lively hood and one can sympathize with him when he says: ..."and since Uncle Sam has developed a seeming incapacity to supply enough of it (money) for even that amount of trade which is indispensable to keep his citizens from foraging like animals (or thieves), invention has reached the very threshold of money" With this invention in money matters he, off course, was talking about stamp scrip. Stamp scrip, which would supersede barter..

To Chapter III.

Here he described stamp scrip. He says:

A The two points about Stamp Scrip are:

First: It is like money, because it can be banked OR invested OR spent.

Second: It is unlike money, because IT CAN NOT BE HOARDED. (Capital letters by him.).

So far so good but then he shows a sample of Stamp scrip with 54 fields on which stamps were to be pasted worth 2% of the face value of the bill every Thursday of every week of the year. The same outrageous 104% a year goes through the rest of the book including the appendix, but I will comment on this later.

To chapter IV.

Here he mentions Silvio Gesell, the inventor of "free money" in a fairly derogatory manner. He says: "Silvio Gesell, who died recently, was a German business man and quasi-economist....In 1890, while in Argentina, he proposed essentially that particular substitute for money which now bids fair to sweep this country, under the name of"Stamp Scrip"." Farther on he says": There is much in Gesell's philosophy to which, as an economist, I cannot subscribe, especially his theory of interest; but Stamp Scrip,.I believe, can, in the present emergency, be made at least as useful an invention as Manuel Garcia's larynoscope.

I say: "Silvio Gesell can easily do without friends like this!" He did not understand money as the quasi-economist Gesell did as his 104% show clearly. The wisdom of this blessed man was as far beyond his comprehension as it is to most of our today economists. This Silvio Gesell must have had a revelation before he was 28 years of age and spent most of the remaining forty years of his life to tell people what he had found. He deserves more than to be ridiculed.

Later in this chapter he describes the Waera experiment honestly and says for instance:: "From all over the country reporters came to see and write about the Miracle of Schwanenkirchen". Even in the United States one read about it in the financial sections of most big papers. But no explanation was given as to the real cause of the miracle- that a non-hoardable money was being tried out and that it was working marvelously.

For that I am tempted to forgive him a lot, but I must wonder that he did not realize that this non-hoardable money worked with 12% and did not need impossible 104%. I do mot know which devil must have ridden him to propose such an outrageous amount.

Then he describes the experiment of Woergl. While he pokes some fun at  mayor Unterguggenberger's long name, he misinterprets the attitude of the Austrian Government as not hostile. After a short while they did forbid the experiment, after all. Here also like with Waera he mentions the success of the experiment (with also only 12% instead of his 104%) but never lets this sway him.

To chapter V.

This is more or less a description of most stamp script issuing towns, but one common thread goes through all of them. 104% or even 108% and sometimes even 2% with every transaction. No wonder they had to fail by themselves and no Government had to step in to forbid them. It was Mr. Irving Fisher himself, who with his high 104% caused the downfall of all this experiments. Some of them were quite small with only 300.-$ worth of scrip issued and I do not know how many of the proposed ones he mentions really got off the planing stage, before they were abandoned because they saw how the others failed.

Still, one wonders, what would have happened if they had followed the correct procedure of Schwanenkirchen or Wörgl. There were already hundreds of Wörgls in the works. Could it be that Irving Fisher was ( perhaps unwittingly) a Trojan horse? Whatever the case might be, he successfully destroyed the Freemoney idea in his time and country.

To chapter VI.

This is as it says a manual and follows quite clearly the lead of mayor Unterguggenberger of Wörgl, the one with the "long name." It still is worth reading by all who would like to start alternative money like stamp scrip today.

To chapter VII.

There is not much to say about this short chapter.

To chapter VIII.

Here Irving Fisher makes a lot of poignant remarks about the national situation then, which was quite bad and where the so-called Hoover plan was not working because all additional Money and credit which were supposed to jumpstart the economy went right away into the hoards again and were again " missing in action" on the market. He sums it up: " This is precisely where Stamp Script comes in - to give buying power to the consumer, and supply the compulsion to use it. It is worth emphasizing that this compulsion will not only discourage the individual from hoarding cash but also discourage the banks from hoarding cash - "to keep liquid" as they prefer to express it."

This he saw much clearer as our book money people see it now.

To chapter IX.

Here Irving Fisher explains how Stamp Scrip will jumpstart the economy and then lets Senator Bankhead, proposer of the Bankhead-Pettengill bill make his case. Bankhead says for instance: " Mr. President, I have heard the statement made frequently that the trouble is not the lack of sufficient circulating currency.... It is said that the trouble is a lack of velocity in circulation of the currency, and THAT IS TRUE: Nobody doubts that there is a paralysis in the matter of circulation. The velocity has almost disappeared."

There is not much one need to add to this. They were right and saw the situation much clearer as our politicians see ours now, the only problem is with their proposed solution.


To I.

The Bankhead-Pettengill Bill 1933 is long forgotten and was never known in Europe. It is Irving Fishers Stamp Scrip proposal in legal terms and asks the Government to issue 1,000,000,000 Dollars worth of stamp scrip - again with the 104% Tax. I do not think that it was meant to pass. The numbers were just too outrageous.

To II.

Connects stamp scrip with the barter idea.


Suggests forms for practical use when introducing stamp scrip.

To IV.

An adaptation of stamp scrip for Reading, Pennsylvania, written by Hans R.L. Cohrssen. Again a 104% Tax is proposed.

To V.

This is Congressman Pettengill´s speech, in which he essentially speaks for Irving Fisher. He expresses some truisms which in this time of a nearly 60 year long lasting inflation are all but forgotten. He says for instance: "The reservoirs of credit have been filled, but they remain stagnant.....On a falling market no one will buy except from hand to mouth. Therefore, available credit is not used....Business does not wish to borrow until it is sure of buyers. In a depression the buyers wait for business to inspire confidence, and business can not inspire confidence until it gets back on a normal borrowing basis. If only buying could be started first, business borrowing would follow." This shows that he saw quite clearly that the root of the causal chain is in the buying decisions of the consumers.

Later he says: "The proposal increases the volume of circulating medium, but, more important, it increases its velocity which students of the money question recognize to be as important, if not more important than volume. An increase in the volume of money if it, too, goes into hoarding or drives other money into hoarding, might not affect the price level."

To this we can add today. An increase in the volume of money if it, too, goes only into the stock market or tempts other money to go there, might not affect the price level.

To VI.

This is a bill to the Pennsylvania state legislature which is similar to the Bankhead-Pettengill bill only there is no set amount - but the ominous 104% are included.

This concludes the remarks on Irving Fishers book and I will only add my view on the basic differences between Fishers stamp scrip and Gesells free money.

Gesell and Irving Fisher.

Gesell proposed a tax on idle money, as Irving Fisher admits, more than 40 years before stamp scrip was proposed by Irving Fisher. He even proposed the exact form of this alternative money with fields to which stamps had to be pasted. There was only one mayor difference. Gesells proposal called for a 5.2% annual tax which is only a twentieth part of Fisher=s 104%.

The reason for Gesell's tax was that he wanted the dominance which money enjoys compared to goods and services to be broken and give the money the same disadvantages which goods have. Goods and services must be offered on the market or they become worth less. Money, especially gold coins or gold-backed notes do not have this handicap and can therefore charge a bonus for entering the market. This bonus is called interest and this theory of interest is it which Irving Fisher did not understand. In a straight buy the interest is collected by a forced reduction in the price of the good which is bought. The trade between buyer and seller is not even, but only a trader like Gesell could notice this.

Gesell only wanted to put money and goods on a level playing field in which the ability to strike was taken away from money. He wanted money to be forced on the market just as goods are forced but he did not want to give the advantage now to the goods because he knew quite well that this would cause inflation.

His 5+% were in his opinion just the right amount because this was only a little bit more than the interest which money could now blackmail out of the economy.

It is interesting to note that John Maynard Keynes figured that the 5% were too high and also thought that a slight Inflation caused by deficit-spending would be sufficient to keep the money in circulation.

He did not realize that the dominant money could raise the Interest-rate to include a premium for Inflation. In time with compound interest this brought us to our present stalemate, where impossible debts on one side and blackmailing wealth on the other side will force a showdown. But this is another theme. There is only one thing we should know. The superiority of money cannot be broken by a slight inflation alone. Then it just forces interest rates up. We have to cut it out at the base. On money (cash) itself. But only to even the playing field, which is about 3% AND NOT 104%.

The experiments in Germany and Austria which sparked the stamp scrip of Irving Fisher followed Gesell's idea much closer with only 12% of stamps to be applied each year ( 1% monthly). Therefore they were accepted by the public much more willingly and would have gone on forever if the government would not have stept in to forbid them. Fact is, they worked so well that that in the case of Woergl ( with only 5,200 Schilling worth of Woergl money circulating at one time on the average) there were another 200 villages and towns ready to join and therefore the Zentral bank saw their deflation policy in jeopardy and forced the government to end the experiment.

Waera in Germany, which followed Gesell's idea even closer because they had already thought of a stable purchasing power and would have introduced a exchange rate if the German Mark would have strayed more than 5% off a stable currency, was going strong too. They had spread from 11 people who started it in Ulm all though Germany and moved, as Irving Fisher admits with only 20,000 Waera Millions worth of goods. Here also the government stepped in.


Now, in hindsight, and with another crises looming on the horizon, we should try to learn something from history.

First: Stamp scrip with 104% Tax does not work.

Second: If you do it right and 6% instead of 12% would work better ( 1% every two months) one has to be aware that Government does not like competition. But, even a very restrictive government like the USSR could not prevent a black market. So.

Third: If the government does not supply you with a stable currency which is forced on the market by a 4 to 6% Tax on idle money like proposed 1933 with the Bankhead-Pettengill Bill ( but with only 6% instead of 104%) get your community or your church to do it.

Forth: If your community or church do not help you, join a new church which does or do it within a barter club.


The new stamp scrip should have 12 fields on the back side to affix self-pasting stamps with 1% of face value every two months. After two years fully stamped scrip will be exchanged for new one..

Scrip will be issued in 1, 10, and 100 denominations as well as 1/100, 1/10 and 1 stamps. Non affixed stamps can be used as change.

If deemed necessary other denominations can be added.

To simplify matters script will be issued at par with the Dollar but will be called one credit, 10 credit and 100 credit with the full understanding that it will be kept stable to the consumer price index, which means that it eventually must have an exchange rate to the Dollar if the Dollar changes its value..

This applies to all other currencies where stamp scrip would be introduced. Later and especially with government involvement it would not even be necessary to use stamps, if all money has prominently a date displayed at which it will be declared worthless and exchanged against new money with a 5% discount. For every 100 old Credit's one would get 95 new. This might even work with alternative money. People, off course, would try to get rid of the money, whose date was imminent and sometimes a buyer would probably have to add a little bit to the price, if a seller is not willing to take money which loses 5% in the near future.


To understand how stamp scrip ( or free money as Gesell called it) works we have to look a little bit on the workings of the law of supply and demand, the most basic law of economics

This age old law states quite simply that the price of a good depends on the relation of supply and the demand for it. P = D divided by supply S. The old economists showed it also in form of a scale.

In the case of money, which is in a economy based on it and on a market with wide-spread division of labor the nearly only form of demand, the formula is stated: P = M/G meaning the price changes with the relation between amount of money in circulation to the supply of goods and labor. This was called the quantity theory of money. It also was shown in form of a scale.

When they found out that money is used over and over again they introduced the concept of turnover into the formula and the formula now looked like this: P = M.V/G with V for velocity. Gesell was one of the first to use this formula and called it the refined quantity theory of money. This also can be shown in form of a scale only now you have to extend the arm of the scale with the pan for money and have the pan movable to show the velocity. The farther out the more speed and angular force and the closer to the pivot of the scale the slower the speed. I am very proud of this scale because it is my invention.

Irving Fisher used a slightly different formula. MV = PT. If one asks for the price this formula would look like P = MV/T. The only difference between the formulas is that Irving Fisher takes T for transactions as an already done deal while Gesell and others take G (standing for goods and services as a potential deal taking so into consideration also the Leftovers" like unsold goods (surplus) and unsold services (unemployment).

Now the workings of stamp scrip (free money) are maybe easiest understood if you take my scale and think that the tax on idle money pushes the speed of turnover so far out on the arm that the speed only comes to an end when there is no more surplus of goods or services there which money can be exchanged into. Isn't this what we want? No more unemployment and no more unsold goods. Think about it!

Do not think this would mean an empty market. Production was never a problem and the market would continuously be replenished. It was always the under-consumption which caused the problems of the ages. People hungered not because there was not enough food but for lack of the medium of exchange. People were unemployed not because there was no work. They were unemployed because there was no money to pay them with.




15) Speech


There lived once a man in this world to whom most of you owe your life and you have probably never heard from him.


I am going to tell you about this economic prophet, who told the world 1918 that another and more terrible war would happen within 25 years if gold would not be de-throned as money and a better medium of exchange put in its place. Nobody listened to him but a few followers and an economist by the name of Maynard Keynes. He only made the mistake that he did not heed fully the advice of the master. He thought that deficit spending which would cause a slight inflation would be sufficient to prevent a depression and widespread unemployment. These are the main causes of wars.


He was partly right and depression could be postponed now for more than 60 years and this is the reason

why we had no mayor war with a possible nuclear holocaust and most of you are therefore still alive. This is what I meant when I said at the beginning that most of you owe your life to the man, who thought him.


Let us have a short look at recent history to see how the method of Maynard Keynes worked:

In 1944 the world-powers decided in Bretton Woods on a system with a gold-backed Dollar as world reserve currency. They only followed part of Keynes proposal, so Keynes’ watered down version got diluted some more but still, the deficit spending forced from day one a over-issuing of Dollars to the available gold at the fixed price which a gold standard demands. This could be hidden until 1971 when the lies and mirrors had to be abandoned. Since then we could only hope that the powers that be not over-issue the Dollar to much. Of course, they still did and now we are on the end of this road and the debts are not manageable any more.

When they try to put a lid on inflation by curbing the expansion of the amount of money unemployment and business failures get rampant. There are huge amounts of Dollars floating around all over the world. It will be a sad awakening if this Dollars are exchanged for real goods one of this days. People will find out that there are to many Dollars around and that they are not worth what they thought them to be worth. Once the Dollar starts to fall it will be an endless slide.


I do not want to bore you to death with economics and whoever is interested to learn more about the background of this matters that have such an influence on your very life and survival can join some classes, which some people will provide for a small charge. There is only one more thing, which I will tell you now. This is the original method, which should be used to break the power of Mammon over everyday life. This is first and foremost the abandonment of the gold standard, which in fact happened already 1971. Never let this come back. But there is still on more thing. Money is still more powerful than goods and services and can demand an extra interest paid with every deal made. You do not notice it, because it is only a forced price discount of less than 5% but it adds up to usury and no commandments against it will work. The old churches did forbid the taking of interest, but to no avail. Only one thing can do it. You have to take the superiority away from money which it enjoys opposite goods and services (which means labor).

A slight inflation cannot do this because money would just add a premium to the interest rate, which would only make the burden of interest harder to bear and would speed the transfer of money from the poor to the rich up even more.


The only way to prevent this is to put a tax on money itself so it has the same urgency to go on the market as goods and services have. It can then never go on strike as it now does when its interest demands are not satisfied. This tax should not be more than 5%. Because the tax would speed up the average turnover of money so it will change hands at least 500 times a year the tax for each change of hands would amount only to one thousand part of the amount of the deal on the average. It will only hit those people who hoard money with full force. Part of today's money turns over just as fast, so that would not be an excessive and impossible speed. The only thing would be that ALL money would circulate, which today it does not do.

The only people who would lose with this money would be the few who get more Interest now as they pay in the prices of goods and services they use. It is very few indeed because the amount of interest in the price of houses for instance is staggering and can reach up to 80%. It takes a lot of interest payments until one can break even. If you for instance have a house free and clear which is worth 100,000.-$ 70,000 of this was interest and that is not counting the interest you paid on your mortgage before you paid it of. It would need interest payments for more than 30 years at an average interest on a savings account on the same amount of money to break even on this alone. Add to this your car and all the living expenses and you would need a Million in the bank to break even. But even those few very rich people, who have more than that, would gain some good out of this new money. It would lose none of its purchasing power and they could therefore get out of the rat-race and could slowly use up their money. And this money would keep its worth.


It is hard to understand that some of them fought hard to prevent this blessed money to come into being. They killed the experiments that were done using such a money and the miracles of Woergl and Schwanenkirchen ceased to be. It did them no good because for that they had to suffer though the war and the holocaust. These experiments had shown that such a money works and even on this small scale lessened unemployment by a great deal.


The same thing would happen now if we introduce such money and that is what we are going to do. We are tired of waiting for the government to do it for us and we are tired of the economists in their ivory towers to make up their minds. They did nothing against world-wide inflation and nothing against rising unemployment. We have to help ourselves before it is too late.


So, what is it we can do? Here it is! This is the money we have to use instead of the cursed one. The picture on it is the picture of the man, who came unknown among us and showed the way. This man’s name was Silvio Gesell and if you follow him, he will set you free.


You will notice that this money has an expire date on it. This is that nobody can hoard it longer than to this date. Then it has to be exchanged for a bill with an expire date for the same month a year later. This (or a new stamp with the new expire date) will cost 5% of the face value. That is all. All year the money can be used for buying and selling at no cost and no interest will be charged for its use. This money will be issued in the exact quantity necessary to ensure its buying power without inflation or deflation. Therefor it must have an exchange rate to all other money which shows exactly the difference in buying power. If the other money gets inflated it will show on the exchange rate in that way that an inflation of say 10% in the other money will mean that when exchanging you exchange 110 units of the other money for 100 units of Gesells credits.


Now I will tell you what will happen when you use this money instead of the cursed one you used until now. The temporary owner of this money and it might be even you is more likely to part with it for goods or services because he/she knows that he/she has to pay 5% if it expires while it is in his/her hand. But so does the next owner and the next and in no time at all business is blooming and the sold articles have to be replaced and the businessmen need workers to make the new goods therefore nobody needs to be unemployed. This is only the beginning. With uninterrupted labor so many goods, houses and factories can be built that the competition will not allow them to charge interest on top of the  replacement cost either. Therefore no more interest in the prices will be paid and labor gets its full deserts.


Without interest everything is possible. One could build machines to do away with nearly all physical labor. Only a few hours of work would be necessary to feed and shelter everyone. Now this is impossible because every time, when the uninterrupted labor of the people, even with lots of deadwood like bureaucrats and politicians and forced unemployment builds to many houses, factories and all other capital goods competition forces their price down. They cannot bring high interest any more and then the strike of money sets in. It looks for profitable investment somewhere else. Today it is only gambling in the casinos called stock exchange and speculates in wheeling and dealing of any kind. It never goes into long term investments that would bring employment for many, because a modest return is not enough for it. It is used to usury rates and rather stays idle, if no other choice is available.

Here is it where Gesells money goes to work. It forces money into the market. Money has no more choice. It must be invested or lose 5% every year. It has to be invested even when the profit without work goes down to zero. This will not happen over night as long as in other countries all over the world profitable investments because of scarcity are still possible. Only the instability in these countries will prevent the money to go there. It is only your tax Dollars which back up the loans to these countries which allows the banks to loan the money now.


Slowly, very slowly the interest will go down but in the meantime Gesells money will give you work and steadily more and more money will be shifted with every quarter point of lower interest rates from capital to labor. At the end you will realize that Gods kingdom here on earth could be possible and all you have to do is this.


Use this money!



16) Keynes versus Gesell

As far as I know there was never a closer look offered about what Keynes said for and against Gesell. The followers of Gesell gratefully accepted what good Keynes had to say about Gesell and never asked where he disagreed with Gesell. The enemies of Gesell, of course, never mentioned the fact that a world renowned economist did take Gesell seriously. To add to the lack of working out this differences is the fact that most followers of Gesell used only the German language and there was never an English speaking economist with enough interest to follow up the lead of Keynes.

Poor, as my English may be, this is the task, I set myself and I will write in English because many Germans understand it, while it is rare for an English speaking person to understand German well enough to follow a difficult subject. I hope it will be possible for me to do Gesell justice with my translations. Keynes I will let speak in his own words. Here they are:(general theory p353)

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.

Which is, of course, only his opinion.

In the post-war years (WW1) 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 us often the case with imperfectly analyzed 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 well acquainted with the significance of Gesell, I will give to him what would be otherwise a disproportionate space.

Palpable defects, original strivings, and a disproportionate space for the man, who gave him the only insights, which made him stand out among his fellow economists are words I can only attribute to envy of a better mind.

Gesell was a successful German merchant in Buenos Aires who was led to the study of monetary problems by the crisis of the late >eighties, which was especially violent in the Argentine, his first work, Die Reformation im Münzwesen als Brücke zum sozialen Staat, being published in Buenos Aires in 1891.End Quote

I will skip the following passages because they contain only some historical facts and will continue with:

The purpose of the book (Natural economic order) 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 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.

Gesell's specific contribution to the theory of money and interest is as follows. In the first place, he distinguishes clearly between the rate of interest and the marginal efficiency of capital, and he argues that it is the rate of interest, which sets a limit to the rate of growth of real capital..Next, he points out that the rate of interest is a purely monetary phenomenon and that the peculiarity of money, from which flows the significance of the money rate of interest, lies in the fact that its ownership as a means of storing wealth involves the holder in negligible carrying charges, and that forms of wealth, such as stocks of commodities which do involve carrying charges, in fact yield a return because of the standard set by money. EQ

While this sentences are essentially correct Keynes misses here that Gesell not only argues the rate of interest. Gesell always points out that all interest is a monetary phenomenon. Money only gets invested in commodities if their possible re-sale value including carrying charges yield at least as much interest as money. It only gets invested in means of production if they also promise at least the same interest. And it is not liquidity preference which prevents money from being invested but simply the fact that sometimes there are not enough safe investments available and with falling prices no commodities with enough re-sale value to make it worthwhile to buy them.

I skip again a few passages in which Keynes tries to say that Gesell constructed only half a theory of interest because he did not see the spurious liquidity preference and go to Keynes' explanation of Gesells proposal to force money in the market even when interest-rates drop below the point on which money goes on strike.(3%)

This led him to the famous prescription of "stamped" money, with which his name is chiefly associated and which has received the blessing of Professor Irving Fisher. According to this proposal currency notes (though it would clearly need to apply to some forms at least of bank-money) would only retain their value by being stamped each month, like an insurance card, with stamps purchased at a post office. The cost of the stamps could, of course, be fixed at any appropriate figure. According to my theory it should be roughly equal to the excess of the money-rate of interest (apart from the stamps) over the marginal efficiency of capital corresponding to a rate of new investment compatible with full employment. The actual charge suggested by Gesell was 1 per mil. per month, equivalent to 5.4 per cent per annum.. This would be to high in existing conditions, but the correct figure, which would have to be changed from time to time, could only be reached by trial and error.


Here, I will interrupt to clear up some errors. Gesell advocated demurrage only for cash and said so on different occasions. He said that it will with "Freigeld", as he called his money cost the banks, because they have to pay demurrage on their cash reserves, money, which they will have to charge at least in part to the accounts. Nobody can escape therefore this charge by putting the money for short terms in a bank. He said: "(NWOp366) If the owners of bank accounts deposit money in their accounts the banks will have excessive cash and the loss will force them to lend it out or unload the loss unto the depositors. In both cases will the purpose of "Freigeld " be fulfilled because more than that it circulates is not asked of it." Irving Fisher saw that quite clearly and said that banks could also not hoard money which gets taxed for being idle.

And, of course, Gesells first proposal was a weekly charge of 1 per mil. And not a monthly charge. He later simplified it to 1 per cent bimonthly and the successful experiment in Woergl used 1 per cent every month. How such an obvious error cold escape printings since 1936, I can not understand.

Irving Fisher, by the way, wanted to charge 2% a week, a whopping 104% a year, which shows that he missed understanding Gesell by a wide margin.

Keynes again: The idea behind stamped money is sound. It is, indeed, possible that means might be found to apply it in practice on a modest scale. But there are many difficulties which Gesell did not face. In particular, he was unaware that money was not unique in having a liquidity-premium attached to it, but differed only in degree from many other articles, deriving its importance from having a greater liquidity-premium than any other article. Thus if currency notes were to be deprived of their liquidity-premium by the stamping system, a long series of substitutes would step into their shoes C bank-money, debts at call, foreign money, jewelry and the precious metals generally, and so forth.


Here Keynes leaves the question open. Which shoes of money does he mean? Surely not the shoes of a medium of exchange. I cannot see people paying with jewelry at the grocer. The shoes as a store of value is another thing. Yes, some of this things will take over this attribute of the money as it is now. The demurrage will make it impossible to use money as such any longer. It will be medium of exchange and a measure of value but nothing else. It is this main problem of the money we have now that it can be used as both, store of value and medium of exchange. It is an impossible dual role.

Keynes never realized that with stamps ( or exchange with costs attached) money looses its power as preferred store of value and is forced to be medium of exchange and measure of value solely. It sounds like a joke when he writes: " It is,indeed, be possible that means might be found to apply it in practice on a modest scale." Modest scale, my foot, a money like this will force all other money out of the market as happened in Woergl, when 5000 Schillings worth of free money were the only circulating money while the other money stayed hidden.

Towards the end of what he has to say about Gesell he only repeats the erroneous belief that all kinds of surrogates will take over the role of medium of exchange, never seeing that their costs are prohibitive while the cost of demurrage ( 5% or 6%) is split up over 500 to 1000 exchanges of money over the run of a year. These surrogates are now used only because high interest rates make it possible.


17) Letters to Milton Friedman

The following is a short correspondence and since Prof. Milton Friedman did not answer my last letter from November 2nd I fell free to put it now on the web-site


Letter one


Dear Mr. Friedman!

Since English is only my second language, I beg your forgiveness for possible grammatical errors. My understanding of the English language is much better than my writing.

With this out of the way I will proceed. I have read your book "Money Mischief" recently after having read your "Free to choose" quite a while ago and enjoyed the progress of your thoughts and I could not agree more with somebody, who is surely not a "monomaniac", to use your own expression, any more. I like your style of writing and use passages from your book frequently, when I write about economics.( Always quoting name and page.). I even bought one as a present for a friend. :-)

Having said that - I miss in your book the money mischief on the side of deflation. You mention it only as an afterthought on page 263 when you write: "Rapid increases in the quantity of money produce inflation. Sharp decreases produce depression.".( Why sharp?).

You say on page 193 under the proximate cause of inflation quite rightly: " Before turning to those questions, it is worth dwelling a while on the proposition that inflation is a monetary phenomenon. Despite the importance of that proposition, despite the extensive historical evidence to support it, it is still widely denied - in large part because of the smoke screen with which governments try to conceal their own responsibility for inflation."( I would have added here...and in this they are aided and abetted by their tame economists).

Yet nowhere do you say something like that for deflation which is usually (hyperinflation excluded) much worse than inflation. Just a page earlier as the cited passage you also made assumptions about the role of inflation in preparing the ground for communism and Nazism, with which I can not fully agree. The communists inflated the money after they were in power and the rise of Nazism was caused by the deflation crises. Without unemployment they would not have had a chance. I think you are somewhat blind sided about deflation.

Irving Fisher, whom you quote quite often and even call "the greatest economist the united states has ever produced" had other ideas about that and wanted to get the then idle money into the market with his famous stamp scripts. He had this idea from Silvio Gesell and had the academic integrity to say so.

Keynes knew this concept too and said that the 5.2% tax on idle money which Gesell proposed were too high and hard to introduce and figured that deficit spending would bring enough new money into the economy, just as you thought that a 5 percent increase would keep the economy running smoothly.

It really worked after a fashion and we are still spending our way out of a deflation. Only now the with compound interest growing debts are not manageable anymore and it looks that we have to rid ourselves of them by an even higher inflation.

By the way, your greatest economist, Irving Fisher, thought that the from Gesell proposed 5.2 % which Keynes thought were too high, were not high enough and even introduced stamp script with a 104% per anno charge. This only shows that even eminent economists can be quite wrong.

Now back to your book. It looks to me that all your newer ideas ( with the exemption of the stone money, which was new to me) I have already read by Gesell, whom I have studied for a long time.. You might have come by them via detour Irving Fisher or Keynes and some of them might be just in the air for searching minds to pick up, but I am really curious.

Have you read Gesell or books by one of his followers? If yes, why haven’t you mentioned it? Irving Fisher and Keynes did it and did not get ridiculed for it.

Do you think that stamp script properly used and with only 4% Tax instead the 104% proposed by Irving Fisher would put an end to unemployment and in time an end to unearned interest? What are your proposals for keeping the money in circulation if inflation is not doing it anymore? Do you think stamp script or periodic exchange of banknotes combined with a charge for this could do it? Or is this all nonsense?

In the hope that you will answer a curious seeker for the truth

Yours truly Hans Eisenkolb


August 11, 1998

Dear Mr. Eisenkolb

Thank you for your letter of July 15. The reason I have never cited Silvio Gesell is that while I have heard of him, I must admit I have never read his books or books by one of his followers.

I agree with you thoroughly that deflation is worse than inflation. That view is clearly implicit and explicit in my and Anna Schwarz’s discussion of the Great Depression in our Monetary History of the United States and in chapter on the control of money in my 1962 Capitalism and Freedom.

I suppose the reason I have not emphasized in later and especially popular writings is because I believe that the Great Depression has made deflation very unlikely. As you may know, in 1954 I gave a lecture in Stockholm under the title"Why the American Economy Is Depression Proof," a talk that was reprinted in my 1968 collection of papers Dollars and Deficits.

Re the stamp script idea of Silvio Gesell and Irving Fisher’s of it during the Great Depression, I am sure the reason I have hot discussed it because I think it is a very bad idea. There are much easier ways of preventing and avoiding deflation. All that is necessary is to print money and that is something that every government in the world has the capacity to do. Right now Japan is making the great mistake of not printing enough money. It has printed enough over the past eight years to avoid actual deflation. It has been going through an experience which in character is the same as that of the U.S. Great Depression — serious yes, disastrous, no --because it has not allowed the growth in the quantity of money to become significantly negative. Quite frankly, I do not believe there is a problem of "keeping money in circulation." Central banks during the 1930s, certainly the Fed, were always in a position to avoid any such problem with much less drastic measures than stamp script

It is clear that we have a difference of opinion on this subject.

Sincerely yours,

Milton Friedman

Senior Research Fellow



Hoover Institution

Stanford University

Mr. Milton Friedman

Senior Research Fellow

Dear Mr. Friedman 27. September 1998

With great joy did I receive your letter from 21/09/1998. It made my day and you surpassed my expectations when you wrote : "It declined because the Federal Reserve — which is incidentally a government agency; the notion that it is a private bank is simply a subterfuge — did not operate as it was intended to when it was set up."

I must admit that I set you up for this by my sneaky remark but it is nevertheless something that no tame economist of the establishment would have admitted. Do you think that Alan Greenspan or Diethmeier of the German Bundesbank could have written this? No, I am sure, but you came though with flying colors.

I am sure that I will not be able to persuade you about Gesell but your own curiosity and the joy of using your brain might do it. I can only give you a few nudges in his direction. One of them is the following:

You wrote: "There is already a tax on the holding of money; it is the loss of interest that could be earned by using the money to buy an interest-bearing asset."

This is correct, but have you taken into consideration that this is dependent on the availability of safe interest-bearing assets? There would be no business cycles if that would always be the case.

I find it surprising that you seem to disregard the role of interest. We have now reached the stage where the debt crisis caused by the continuous deficit spending and the unwillingness of the politicians to pay them back as Keynes proposed has reached panic proportions. With only 7.2% interest and they paying of this interest by new debts - so compounding them - debts double every 10 years. If one starts 1950 we have now 30 times as much debt as we started with and that takes not into consideration the new debts which were made along the way.

And a second nudge: You wrote:

"The fact is that the quantity of money in the United States — currency plus commercial bank deposits — declined by a third from 1929 to 1933. It declined because the Federal Reserve — which is incidentally a government agency; the notion that it is a private bank is simply a subterfuge — did not operate as it was intended to when it was set up. At all times during the thirties it had the power and the capacity to prevent the decline in the quantity of money and increase it as much as it might want to. Had it used those powers, there would not have been a Great Depression."

This is also a true statement but what was the reason that the Fed and the rest of the Central Banks of the world did not do it?

Do you realize that you found with your statement a new explanation of the business cycles? You say in other words that a depression occurs because the Central banks do not use the powers they have. Why, for heaven's sake, do they get it into their collective minds to let the quantity of money decline? Is the reason for that maybe that they have no control whatsoever over the speed with which money circulates once they have it issued?

I hope you will write again and that you will find joy in using your brain. This I say without sarcasm, because I have the utmost respect for a brain who wrote Money Mischief.

Yours sincerely


Hans Eisenkolb

Senior Pupil of Gesell

P.S. I add a little memento

which I made up.


September 21, 1998

Dear Mr. Eisenkolb:

I admire your persistence in trying to educate me about Silvio Gesell. I am sorry you are not going to be able to succeed. There is already a tax on the holding of money; it is the loss of interest that could be earned by using the money to buy an interest-bearing asset. However, I come not to discuss Gesell. I cannot hope to persuade you as you cannot persuade me.

I write instead simply because you have a complete misunderstanding of what the situation was in the United States between 1929 and 1933. It was not a case in which there was lots of money around that could have been used but was simply being hoarded for whatever reason. The fact is that the quantity of money in the United States — currency plus commercial bank deposits — declined by a third from 1929 to 1933. It declined because the Federal Reserve — which is incidentally a government agency; the notion that it is a private bank is simply a subterfuge — did not operate as it was intended to when it was set up. At all times during the thirties it had the power and the capacity to prevent the decline in the quantity of money and increase it as much as it might want to. Had it used those powers, there would not have been a Great Depression.

These are of course dogmatic statements but you will find the basis for them in chapter 7 of Milton Friedman and Anna J. Schwartz, A Monetary History of the United States, 1867 - 1960 (Princeton University Press, 1963).

Sincerely yours,

Milton Friedman


Hoover Institution

Stanford University

Mr. Milton Friedman

Senior Research Fellow


Dear Mr.Friedman: 2. November 1998


This time I have a few remarks to your answer to my letter which consisted of a few hand-written remarks to my letter from September 27.

First there was the remark that Alan Greenspan did say that the Federal Reserve is nothing but a government agency, as you said in your letter to me. This is news to me and I would like for you to give me the exact time and place of this remark. As far as I know he always talks as if the Fed is independent.




Your second remark ( not so) to the following remark I made:

>>>You wrote: "There is already a tax on the holding of money; it is the loss of interest that could be earned by using the money to buy an interest-bearing asset."

This is correct, but have you taken into consideration that this is dependent on the availability of safe interest-bearing assets? There would be no business cycles if that would always be the case.<<<EQ

How do you explain then the fact that in Japan they now can not even get the horses to drink with less than 1/2% interest? There does seem to be no safe interest-bearing investments available .For sure none which would pay more than 1/2%. Otherwise the Japanese would borrow money like crazy to profit from such a windfall.

I think the monetarist Milton Friedman fell here into the trap "only money matters". He, who always stood foursquare on "money matters" against the other groups of economists, if one can call the ones who say: "Money does not matter," even economists instead of soothsayers.



Now we have the passage:

>>>With only 7.2% interest and the paying of this interest by new debts - so compounding them - debts double every 10 years.<<<


To this you only wrote "nonsense" on the margin. What do you mean by that? Do you doubt the mathematics? Or the fact that by continuing this process for 50 years the debts are exactly 32 times as high? Did you become what you are without doing even a simple compound interest calculation? I can not believe this.




Now to the last paragraph. I wrote:

>>>You say in other words that a depression occurs because the Central banks do not use the powers they have. Why, for heaven's sake, do they get it into their collective minds to let the quantity of money decline? Is the reason for that maybe that they have no control whatsoever over the speed with which money circulates once they have it issued?<<<EQ

And you suggested that I should read your Monetary History of the US 1867 - 1960.

I did plow through all 850+ pages of it in the meantime and could find nothing that would contradict my statement.

As an aside. One lonely Monetary History seemed to be the only one in all of the public library’s in BC But you don’t have to feel bad about it . John Maynard Keynes they never even heard of and I had to order his book in a book store. I have read it before but only in a library and wanted now to check something.




The space I left between the paragraphs is meant for your notes if you feel so inclined. I will add two small letters which I wrote during the last few days and intend to post in the Internet. I hope you find time to read them.



Hans Eisenkolb


The pathfinders of the economy. Some thoughts about depression. Copy of returned letter



 .jpgFriedman.jpg (33395 bytes)




.jpgFried2.jpg (26387 bytes)


It seems clear that Prof. Milton Friedman has a closed mind in some matters, which is actually a shame by an otherwise brilliant mind. He thinks, that it is enough to print money to stave of deflation and does not see that there are no takers if there are no safe interest bearing assets available in which to invest..Yes printing enough money, if done ruthlessly, will not allow a deflation but at the cost of dangerous levels of inflation. This game is played out and without some kind of method to keep money in circulation even if interest levels are low we will never see an end to the eternal boom and bust cycle with nice wars spaced in between.

It seems quite clear that Prof. Milton Friedman has avoided to read Gesell, because he feared that he will then loose a few cherished misconceptions and, as my young

friend suggested quit answering me, when he had no answers.


Robinson Crusoe

The following is an old story, which Silvio Gesell wrote to prove that interest is not a law of nature but something that is caused by the superiority of money. It is still as illuminating today as it was 80 years ago and the same false theories of interest are also still around in the best scientific circles of economics. One must wonder how long it will take to see, that the earth is not flat.


By: Silvio Gesell

Mai 5th, 1920


To introduce the theory of interest here expounded, and to facilitate the

removal of old prejudices, which are nowhere stronger than in connection

with the subject of interest, I shall begin with a story of Robinson Crusoe. *

Robinson Crusoe, as is well known, built his house, from motives of health, on

the south side of the mountain, whereas his crops grew on the damp but

fruitful northern slopes. He was therefore obliged to carry his harvests over

the mountain. To eliminate this labour he decided to construct a canal around

the mountain. The time required for this enterprise which, to avoid silting,

would have to be continued without interruption, he estimated at three years.

He had therefore to lay in provisions for three years.

He slaughtered some pigs and cured their flesh with salt; he filled a deep trench with wheat, covering it carefully with earth. He tanned a dozen buckskins for suits and nailed them up in a chest, enclosing also the stink-glands of a skunk as a precaution against moths. In short, he provided amply and, as he thought, wisely, for the coming three years.

As he sat calculating for the last time whether his "capital" was sufficient for the projected undertaking, he was startled by the approach of a stranger, obviously the survivor of a shipwreck.

"Hallo, Crusoe!" shouted the stranger as he approached, "my ship has gone down, but I like your island and intend to settle here. Will you help me with some provisions until I have brought a field into cultivation and harvested my first crops?"

At these words Crusoe's thoughts flew from his provisions to the possibility of interest and the attractions of life as a gentleman of independent means. He hastened to answer "yes."

"That's splendid ! " replied the stranger, "but I must say at once that I shall pay no interest. I would prefer to keep myself alive by hunting and fishing, for my religion forbids me to pay, or to receive, interest."




* To save space I have not subjected the loan-contract here described to the regulating effect of competition. If the conditions of the loan were determined by competition in the form of several loan-givers (Crusoes) to one loan-taker (the Stranger) the contract would be still more favourable to the loan-taker. It is also assumed that both parties are guided by the principles of Free-Land, for otherwise the outcome would be, not a loan contract, but a fight.


18) Robinson Crusoe! Part of Gesells famous parabel

Robinson Crusoe:

An admirable religion! But from what motive do you expect me to advance you provisions from my stores if you pay me no interest?


From pure egoism, my dear fellow, from your self-interest rightly understood. Because you gain, and gain enormously.


That, stranger, you have yet to prove. I confess that I can see no advantage in lending you my provisions free of interest.


I shall prove it in black and white, and if you can follow my proof, you will agree to a loan without interest, and thank me into the bargain. I need, first of all, clothes, for, as you see, I am naked. Have you a supply of clothes?


That chest is packed with buckskin suits.


My dear Crusoe! I had more respect for your intelligence. Just fancy nailing up clothes for three years in a chest - buckskins, the favourite diet of moths! And buckskins must be kept aired and rubbed with grease, otherwise they become hard and brittle.

R C.

That is true, but I have no choice in the matter. They would be no safer in my clothes-cupboard - less safe, indeed, for it is infested by rats and mice as well as by moths.


The rats and mice will get them in any case. Look how they have already started to gnaw their way in!


Confound the brutes! I am helpless against them.


What! A human being helpless against mice! I will show you how to protect yourself against rats and mice and moths, against thieves and brittleness, dust and mildew. Lend me these clothes for one, two or three years and I agree to make you new clothes as soon as you require them. You will receive as many suits as you have lent me, and the new suits will be far superior to those you would have taken from the chest. Nor will you regret the absence of the particular perfume you have employed! Do you agree?


Yes, stranger, I agree to lend you the chest of clothes; I see that in this case, the loan, even without interest, is to my advantage. *


Now show me your wheat; I need some for bread and seed.


It is buried in this mound!


Wheat buried for three years! What about mildew and beetles?


I have thought of them and considered every other possibility but this is the best I can do.


Just bend down a moment. Observe this beetle crawling on the surface of the mound. Note the garbage and the spreading patch of mildew. It is high time to take out the wheat and air it.


This capital will be my ruin! If only I could find some method of protecting myself against the thousand destructive forces of nature!


Let me tell you, Crusoe, how we manage at home. We build a dry and airy shed and shake out the wheat on the boarded floor. Every three weeks the whole mass is turned over with wooden shovels. We also keep a number of cats; we set mouse-traps and insure against fire. In this way we keep the annual depreciation

down to 10%.


But the labour and expense!


Exactly! You shrink from the labour and expense. In that case you have another course. Lend me your wheat and I shall replace it, pound for pound, sack for sack, with fresh wheat from my harvest. You thus save the labour of building a shed and turning over the wheat; you need feed no cats, you avoid the loss of

weight, and instead of mouldy rubbish you will have fresh, nutritious bread.


With all my heart I accept your proposal.


That is, you will lend me your wheat free of interest?


Certainly: without interest and with my best thanks.


But I can use only part of the wheat, I do not need it all.


Suppose I give you the whole store with the understanding that for every ten sacks lent you give me back nine sacks?




* This obvious fact has been overlooked by every writer upon interest up to the present day, even by Proudhon.




I must decline your offer, for it would mean interest - not indeed positive, but negative interest. The receiver, not the giver of the loan, would be a capitalist, and my religion does not permit usury; even negative interest is forbidden. I propose therefore the following agreement. Entrust me with the supervision of your wheat, the construction of the shed, and whatever else is necessary. In return you can pay me, annually, from every ten sacks two sacks as wages.


It makes no difference to me whether your service comes under the heading of usury or labour. The agreement is, then, that I give you ten sacks and that you give me back eight sacks?


But I need other articles, a plough, a cart and tools. Do you consent to lend them, also, without interest? I promise to return everything in perfect order, a new spade for a new spade, a new, unrusted, chain for a new chain, and so forth.


Of course I consent. All I have at present from my stores is work. Lately the river overflowed and flooded the shed, covering everything with mud. Then a storm blew off the roof and everything was damaged by rain. Now we have drought, and the wind is blowing in sand and dust. Rust, decay, breakage, drought, light, darkness, dry-rot, ants, keep up a never-ending attack. We can congratulate ourselves here upon having, at least, no thieves and incendiaries. I am delighted that, by means of a loan, I can now store my belongings without expense, labour, loss or vexation, until I need them later.


That is, you now see the advantage you gain by lending me your provisions free of interest? *




* Knut Wicksell, Wert, Kapital und Rente, p.83, "Böhm-Bawerk asserts that present goods are at least equal to future goods, since, if need be, they can simply be 'stored for use in the future.' This is certainly a great exaggeration. Böhm-Bawerk does, indeed, mention that perishable goods, such as ice, fruit, etc., are anexception. But this exception applies more or less to all foodstuffs. Perhaps, indeed, all goods except precious stones and precious metals, if kept for future consumption, require special labour and attention to which must be added the danger of loss through accidents such as fire."  (Banks now provide, for private use special store-rooms for gold, precious stones and securities. For the use of these rooms, rent must be paid. The "present goods" are here inferior to the "future goods", by at least the amount of this rent.)




Of course I do. But the question now occurs to me, why do similar stores of provisions at home bring their possessors interest?


The explanation lies in money which is there the medium of such transactions.


What? The cause of interest lies in money? That is impossible, for listen to what Marx says of money and interest:

"The change of value of money that converts it into capital cannot be derived from the money itself, since money in its function of medium of payment does no more than pay the price of the commodity it purchases, and, as hard cash it is value petrified, never varying. Just as little can the change occur in the second act of circulation, the re-sale of the commodity. [For in both cases] equivalents are exchanged, and the commodity is paid for at its full value. We are therefore forced to the conclusion that the change originates in the use-value of the commodity, after its purchase and before its sale." (Capital I. VI).


How long have you been on this island?


Thirty years.


I thought so! You still appeal to the theory of value. My dear sir, that theory is dead and buried. At the present day it has no defenders.


What ?, Marx's theory of interest dead and buried. Even if no one else defends it - I defend it


Well then, defend it not only with words but also in practice if you wish, in relation to me! I hereby break off the bargain we have just made. From their nature and destination your goods are the purest form of what is usually called capital. But I challenge you to take up the position of a capitalist towards me. I need your stuff. No worker ever appeared before a capitalist as naked as I stand before you. Never has there been so clear an illustration of the relation between the owner of capital and the individual in need of capital. And now make the attempt to exact interest ! Shall we begin our bargaining again from the beginning?


I surrender ! Rats, moths and rust have broken my power as a capitalist. But tell me, what is your explanation of interest?


The explanation is simple enough. If there were a monetary system on this island and I, as a shipwrecked travelled needed a loan, I should have to apply to a money-lender for money to buy the things which you have just lent me without interest. But a money-lender has not to worry about rats moths, rust and

roof-repairing, so I could not have taken up the position towards him that I have taken up towards you. The loss inseparable from the ownership of goods (there the dog running off with one of your - or rather my -buckskins!) is born, not by money-lenders, but by those who have to store the goods. The money-lender is free from such cares and is unmoved by the ingenious arguments that found the joints in your armour. You did not nail up your chest of buckskins when I refused to pay interest; the nature of your capital made you willing to continue the negotiations. Not so the money-capitalist; he would bang the door of his strong room before my face if I announced that I would pay no interest. Yet I do not need the money itself, I need it only to buy buckskins. The buckskins you lend me without interest but on the money to buy buckskins I must pay interest!


Then the cause of interest is to be sought in money? And Marx was mistaken?


Of course Marx was mistaken, and as he was mistaken about money, the nervous system of economic life, he was mistaken about everything. He and his disciples excluded money from the scope of their enquiry; he was fascinated by the shining 'metal disks', otherwise he could never have written: "Gold and silver are

not by nature money, but money is by nature gold and silver, witness the coincidence of their natural properties and its functions."


Practice certainly doesn't confirm Marx's theory, that has been clearly shown by our negotiations. For Marx money is simply a medium of exchange, but money does more, it seems, than "merely pay the price of the commodities it purchases," as Marx asserted. When the borrower refuses to pay interest, the banker can close the door of his safe without experiencing any of the cares wich beset the owner of goods - that is the root of the matter.


Rats, moths and rust are powerful logicians! A single hour of economic practice has taught you more than years of study of the text books.

From Silvio Gesell's "Natural Economic Order", Mai 5th 1920



19) Who was Silvio Gesell ?

Since fifty years when I first heard about Silvio Gesell I believed in the soundness of his ideas and the only reason for my reluctance to do more for them was the realization that the Keynesian methods caused a growing economy. In such a climate there was no interest in alternative economic experiments. Therefore I used the economic knowledge I had learned for myself and only recently when the economic failure of Keynes deficit spending became visible, did I start working for Gesells cause again.

Now besides being a Gesell fan, I am also an agnostic with leanings more toward Atheism than anything else. I agree in lots of ways with Max Stirner and Ayn Rand. But, of course, this may mean that I only have not seen the light so far. Anyway, when I heard that there was a man who believed that Silvio Gesell had been the reincarnation of Jesus Christ, I thought: this guy must be nuts. All this new age ideas look wacky to me, even when as an agnostic I try to keep an open mind..

Then I remembered Nostradamus and here is the story.

In my youth, when I first heard about Gesell, I tried to prove to myself, that these ideas must have something wrong with them, which I just could not see and I was therefore a daily guest at a library for some years to find out what I could .

The librarian there was also a follower of Gesell and I had access to all books in this library, even the ones on the index of forbidden books.

This was in Austria and the books on this list were started before Worldwar 1 and with every change of government new ones were added but hardly ever any taken out. The books were not destroyed. They even stayed in their place in the shelves, which were not open to the public. The public had only access to a card-file and attendants brought them the requested books to study. Even this one had to do on the premises most of the time. The forbidden books were removed from the public by simply lifting their cards and putting them in an extra locked room.

I had a jolly good time with all the forbidden books and learned a lot about things, the different governments did not want people to know.. One of this books was by a fellow named Kemmerich about the famous French prophet Nostradamus. It was published 1924 and this guy interpreted some of the prophecies and also made some guesses into the future. Now this Nostradamus predicted Montgolfiere, the inventor of the hot air balloon by name, also Franco and his counterpart Riviera, Pasteur. Nau po leon, Hitler (only slightly disguised as Hister) America before there was one and Grand Germany. That was a bit to much for this skeptic. One such name guessed right would be way beyond the law of probability and all of them - impossible. But what impressed me the most was the prediction that the British empire would fall apart around 1950. There was no doubt that this prophecy was written before there even was an British empire and the book I was reading was from 1924 and here I read it and India has just left the empire.

When this came back to my mind, I thought, if prophecy is possible, maybe some of the old prophets in the Bible were also inspired men and even if it is not the word of God, as some claim, it is, there might still be some truth in it. Now, as a life-long student of Gesell I knew that his reforms would bring, what one could call an Utopia and a change, so profound that one could call it a paradise on Earth or even the Kingdom of God.. I still do not know whether there is even such a thing as reincarnation, or if Silvio Gesell is a reincarnation of somebody or that God has sent him or this Jesus. I do not even know if there is a God.

There is only one thing I am sure of. If there is a God and Silvio Gesell was sent by him, I am on the side of the angels and I am glad of it.


20) The scale of the quantity theory

Hans_Waage.gif (32624 bytes)


This is my scale which shows it in a monthly configuration. Used to descript a years worth of business the pan on the money side should be smaller and the longer arm of the scale should be longer,but in any case it shows the economic forces.

(graphics by Dirk Petri)





21) A hard question

When you ask a crowd of people whether they want a stable currency the answer would probably be a resounding yes, even when there would be only a few who would really know what a stable currency is. Okay, a stable currency is when your money buys the same amount of goods all the time, whether losing on value through inflation nor gaining on value through deflation. This is usually measured by a cost of living index. That is all!

We will not go to the more complicated details why there never was a stable currency in all the history of mankind but will only state a few basic facts which are incompatible with a stable currency. There is for one a stable exchange rate to other currencies or to gold. It is impossible to have one if the inflation rates of these currencies differ unless there is no trade at all between these countries with different currencies. Another thing that makes a stable currency impossible is when the government and its National bank do not keep the amount of money in line with the goods and services offered on the market. In short, if they print too much money prices will go up and if they or others pull money out of the market prices will fall. It is as simple as that.

The only reason why people do not throw out governments like that, is, that they do not know how simple it would be to keep a currency stable. They also do not know how easy it would be to create a local or regional money which is stable when they do not have enough power to throw a government out which is not willing or able to supply then with a stable currency. All they have to do is to create one and give it an exchange rate which shows where the governments money is going. This would not be counterfeiting money, which is prohibited by law. The government could keep its money and nobody would counterfeit it. They need only to replace it by another medium of exchange and then the government would soon see how much its money is really worth.. The hard question now is: Do you really want a stable currency?




22) The quantity theory of money!

Milton Friedman says on page 39 of his "Money Mischief" the following: "In short, Fisher's equation plays the same foundation-stone role in monetary theory that Einstein's E = mc2 does in physics." He speaks there about the quantity theory of money in the form Irving Fisher used: MV = PT.

The same formula was used in the form of P = MV/T by other economists but they often used instead of T (for transfers) W which means wares and means the supply of Goods and services on the market. Both formulas were an outgrowth from the original raw quantity theory which only stated P = M/W.

Hardly anybody though explained that this in turn was just the application of the age-old law of supply and demand: P = D/S to money.

The raw quantity theory was formulated when economists noticed that in a market economy with a medium of exchange (money) all of demand is expressed by money.

Only later it was realized that money is used on the market over and over again while wares disappear once they have reached the final consumer. Therefor the aspect of turnover and its speed was introduced. V (for velocity).

This is as far as economic science has come so far in spite of the glowing commentary of Milton Friedman. The formula is still not satisfactory because it has not incorporated the use of demand account transfers (the so-called book-money).

There are three ways to do this. Two right ones and one wrong one and to nobody's surprise the wrong one is chosen in most cases. It is the one where credit is erroneously added to the factor M, the amount of money on the market.

One right way would be the one Silvio Gesell used. He amended the formula in this way: P = MV/W - C. This shows that buying on credit (C) removes wares from the market. Therefor the remaining W is exactly as much smaller as the credit bought and the remaining W is a true counterpart to MV.

Another right way (and I am not sure, who originated it) is to add the transfers to V in this form: P = M(V+b)/W. Small b is in this case the development of the banks and the commercial usage of transfers, which are only a slowly changing factor in relation to cash movements. It could also be called h descibing commercial habits and was done so by some authors.

Even these two last correct formulas have not much exactly practical use until the very nature of money is changed and then, as Gesell explained, the old raw quantity theory will also work. The reason for this is, that non-hoard able money, which is earned by selling goods and services on the market must be used to buy the same amount of other goods and services from the market without leftovers like surplus goods and unemployment. (Which is surplus services).

This, by the way, ties the possible speed of turnover to the availability of wares. While always new wares come on the market, only the sold ones generate income for buying.

I know that these observations go completely against the grain of generally accepted economic beliefs, but so be it. Here I stand, and this, may God help me, is the truth, as I see it.





23)What can be learned from the miracle of Woergl - Silvio Gesell's miracle?

During the time of the great depression 1930 to 1935 there were quite a few - mainly faulty -monetary experiments to overcome it. All the ones which used the high from Irving Fisher proposed demurrage of 104% a year failed right away out of the simple reason that there are always two people involved in a deal and both must believe that they get a good deal. In the case of Fisher=s stamp script the receiver of such a money got a bad deal and therefore refrained from it. This happened to all North American experiments.

With Waera in Germany which found a focal point in Schwanenkirchen and with the money of Woergl it was different. The relatively small demurrage of 12% in a year ( 1% every month) did not prevent the uncoerced acceptance of this money even if we know now that half of that amount would also be sufficient and would allow an even easier acceptance.

Waera was started by a few people in a widely spread market and only really took of when it found a local market in Schwanenkirchen. There were only sketchy records kept and therefore we will concentrate on Woergl where such records were kept.

The experiment of Woergl was started by printing 32,000 Schilling worth of alternative money but this amount was never used. They started by using only 1000 Schilling worth, had at most about 8,000 Schilling in circulation and used an average 5,293 Schillings which resulted in a total demurrage cost for the 14 months the experiment lasted of 740 Schillings. There was a local market of about 5000 people involved.

The surprising result of 3 Millions worth of trade done with the small amount of money involved can only be explained by the faster average turnover of the FULL amount of this money. It changed hands nearly twice every day (around 500 times a year) compared to an average turnover of money without demurrage of 20 times a year. (Less in times of deflation). This fact must be taken into consideration by anybody who will start such an experiment again if deflation makes the other money unuseable. It also makes it much easier to do so because there should be no difficulty to issue and back such a minimal amount of alternative money. (About one Schilling or one Dollar worth for every participant in the market - remember, in

Woergl it was 5,294 for about 5,000 people)

This was lesson two, after we learned already that 104% demurrage does not work and 0% does not work either and that 12% worked and as a guess 5% would work even better.

Now to lesson three.

The money in Woergl worked so marvelously that the example seen by the people all around made them eager to join. It is a fact that 40 times as many people as the original 5,000 were ready to join after a year and only the force of law prevented them. What can we learn from this?

In Woergl the spread of this money would have been 40 times within a year and there is no reason why it should be different now. From the original 5,000 people it would have been 200,000 or 0.2 Millions and in another year by continuation of the trend - and again there is no reason why it would not continue

- it would have been 8 Millions.

Of course, we do not know that really 40 times the amount of people would today follow such an example in a years time. It could be only 10 or 20 times as many but it is also thinkable that even more would be ready to join or be ready to start such an experiment of their own. So let us take 10 times in a year as a minimum number and start counting. First year 50,000, second 500,000, third year 5 Million, forth year 50 Million. By then we can stop counting because by then the whole world would have joined the marvelous System, where there are no unemployed and no unsold surplus goods and no hunger.

The funny thing is, that these numbers of Woergl are known for more than sixty years and nobody saw the significance of them, just as nobody saw how minimal the amount of demurrage was, when put into relation to the trades done with this money.

Maybe now people might start to think about it some more and realize that this money could in a very short time replace the other currency. In fact, in such a short time that the slowly moving other money (we know the relation - about 10 to 500 in times of deflation) could not even react

There is only somebody who will react. It is the owners of the huge amounts of money which will become worthless in a very short time. They will react as they did against the money of Woergl. They will try to have the government pulling their chestnuts out of the fire by using force against Freemoney. This has to be taken into consideration by anybody who starts such a for them dangerous money against which they have no other means of defense.

Therefore means have to be found to keep such a money going for at least two years. By then it will be unstoppable. It is sure that now, when we know how short the time is, that has to be bridged that such means will be found. They do not need to be much more as the means that are used by illegal currency trade and a black market for services and goods and it is not necessary to go into details for that here.

As long as the rulers of money also rule the government this would only be justified self-defense.