- 23 Feb 2014 02:38
#14367819
As you may or may not know, Freiwirtschaft is an economic philosophy devised by German anarchist economist Silvio Gesell.
Freiwirtschaft consists of three central aspects, usually summed up as The Three Fs:
· Freigeld (free money)
All money is issued for a limited period by constant value (neither inflation, nor deflation).
Long-term saving requires investment in bonds or stocks.
· Freiland (free land)
All land is owned by public institutions and can only be rented, not purchased (see also Henry George).
· Freihandel (Free Trade)
Freiwirtschaft claims that current monetary systems are flawed. According to Adam Smith, prices convey information. For example, dropping prices on a product mean that there is less demand or more supply of that product. This leads to a buyer buying more, or a seller/producer starting to sell/produce something else, thereby reducing the supply of that product. As a reaction, assuming constant desirability, the price of the product rises again. So, the price, together with the market participants, builds up a feedback loop around a stable, "ideal" price. At this stable price, the market is ideal, no one pays too much or earns too little, and there are no tendencies from either party to change that price. The "wobbling" around that ideal price is called self-stabilizing.
This is not the case in the financial markets, according to this theory. Without the continuous increase of the amount of money in circulation by the central bank, the demand would continuously drop, since the velocity of money circulation decreases. Dropping demand forces companies to lower their prices to make any money at all. When prices start dropping, potential customers put off their purchase as long as possible to get the lowest price, resulting in the demand decreasing even more. The feedback loop spirals down to a point where the company does not make any money at all. That, eventually, results in layoffs and even the bankruptcy of the company. Workers in other companies tend to be even more cautious in spending money, ultimately resulting in the breakdown of the economy.
The key error of the current system, according to Gesell, is the ill-transported information in the price. Money is nothing but claim for goods and services, usable in the economies that accept money in exchange for the former. In a weak economy, money is worth less in goods. But instead of an inflation, the result is a deflation as described above, and less money can now buy the same goods. The market players do not realize that they are destroying the very economy that should ensure the value of the money. This feedback loop is self-destabilizing. According to the "Freiwirtschaft" theory, this is the reason for the cycle of crisis in world economy. theory, this is the reason for the cycle of crisis in world economy.
This is all I found on the Internet about Freiwirtschaft (basically it's all from Wikipedia), so it seems like it's always been an overlooked political economy idea.
While I don't quite agree with Gesell that the situation described above is always the case in our current system, his philosophy sounds very plausible (and more just than capitalism or socialism): first of all, ensuring that money will eventually lose its value would mean that every dollar received by economic agents would be pumped into the economy again - thereby impeding what Keynes called the "liquidity preference". Second, preventing the ownership of land would finally abolish the unjust distribution of the resources of our times (no person would inherit the means for survival - he/she would have to work for it). And lastly, ensuring free trade would permit the continual long-run economic development of capitalism.
What do you think of it?
What are its possible limitations?
Freiwirtschaft consists of three central aspects, usually summed up as The Three Fs:
· Freigeld (free money)
All money is issued for a limited period by constant value (neither inflation, nor deflation).
Long-term saving requires investment in bonds or stocks.
· Freiland (free land)
All land is owned by public institutions and can only be rented, not purchased (see also Henry George).
· Freihandel (Free Trade)
Freiwirtschaft claims that current monetary systems are flawed. According to Adam Smith, prices convey information. For example, dropping prices on a product mean that there is less demand or more supply of that product. This leads to a buyer buying more, or a seller/producer starting to sell/produce something else, thereby reducing the supply of that product. As a reaction, assuming constant desirability, the price of the product rises again. So, the price, together with the market participants, builds up a feedback loop around a stable, "ideal" price. At this stable price, the market is ideal, no one pays too much or earns too little, and there are no tendencies from either party to change that price. The "wobbling" around that ideal price is called self-stabilizing.
This is not the case in the financial markets, according to this theory. Without the continuous increase of the amount of money in circulation by the central bank, the demand would continuously drop, since the velocity of money circulation decreases. Dropping demand forces companies to lower their prices to make any money at all. When prices start dropping, potential customers put off their purchase as long as possible to get the lowest price, resulting in the demand decreasing even more. The feedback loop spirals down to a point where the company does not make any money at all. That, eventually, results in layoffs and even the bankruptcy of the company. Workers in other companies tend to be even more cautious in spending money, ultimately resulting in the breakdown of the economy.
The key error of the current system, according to Gesell, is the ill-transported information in the price. Money is nothing but claim for goods and services, usable in the economies that accept money in exchange for the former. In a weak economy, money is worth less in goods. But instead of an inflation, the result is a deflation as described above, and less money can now buy the same goods. The market players do not realize that they are destroying the very economy that should ensure the value of the money. This feedback loop is self-destabilizing. According to the "Freiwirtschaft" theory, this is the reason for the cycle of crisis in world economy. theory, this is the reason for the cycle of crisis in world economy.
This is all I found on the Internet about Freiwirtschaft (basically it's all from Wikipedia), so it seems like it's always been an overlooked political economy idea.
While I don't quite agree with Gesell that the situation described above is always the case in our current system, his philosophy sounds very plausible (and more just than capitalism or socialism): first of all, ensuring that money will eventually lose its value would mean that every dollar received by economic agents would be pumped into the economy again - thereby impeding what Keynes called the "liquidity preference". Second, preventing the ownership of land would finally abolish the unjust distribution of the resources of our times (no person would inherit the means for survival - he/she would have to work for it). And lastly, ensuring free trade would permit the continual long-run economic development of capitalism.
What do you think of it?
What are its possible limitations?