FREIGELD: MONEY THAT EXPIRES

As it evolved, money became increasingly symbolic. Early paper money acted as an IOU and could always be exchanged for metallic coins of various values. In the late 13th century, however, the Mongol emperor Kublai Khan invented paper money that was not backed by anything. It was money because the emperor said it was money. People agreed. In the intervening centuries, money has conjured more fantastic leaps of faith with the invention of the stock market, centralized banking and, recently, cryptocurrencies.

More than a century ago, a wild-eyed, vegetarian, free love-promoting German entrepreneur and self-taught economist named Silvio Gesell proposed a radical reformation of the monetary system as we know it. He wanted to make money that decays over time. Our present money, he explained, is an insufficient means of exchange. A man with a pocketful of money does not possess equivalent wealth as a man with a sack of produce, even if the market agrees the produce is worth the money.

In 1898, the Argentine government embarked on a deflationary policy to try to treat its economic ills. As a result, unemployment rose and uncertainty made people hoard their money. The economy ground to a halt. There was plenty of money to go around, Gesell realized. The problem was, it wasn't going around. He argued that the properties of money — its durability and hoardability — impede its circulation: When confidence exists, there is money in the market; when confidence is wanting, money withdraws.

Those who live by their labor suffer from this imbalance. If I go to the market to sell a bushel of cucumbers when the cost of food is falling, a shopper may not buy them, preferring to buy them next week at a lower price. My cucumbers will not last the week, so I am forced to drop my price. A deflationary spiral may ensue.

Only money that goes out of date like a newspaper, rots like potatoes, rusts like iron, evaporates like ether, Gesell wrote in his seminal work, The Natural Economic Order, published in 1915, is capable of standing the test as an instrument for the exchange of potatoes, newspapers, iron and ether.

To achieve this, he invented a form of expiring money called Freigeld, or Free Money. (Free because it would be freed from hoarding and interest.) The theory worked like this: A $100 bill of Freigeld would have 52 dated boxes on the back, where the holder must affix a 10-cent stamp every week for the bill to still be worth $100. If you kept the bill for an entire year, you would have to affix 52 stamps to the back of it — at a cost of $5.20 — for the bill to still be worth $100. Thus, the bill would depreciate 5.2% annually at the expense of its holder(s). (The value of and rate at which to apply the stamps could be fine-tuned if necessary.)

Although many dismissed Gesell as an anarchistic heretic, his ideas were embraced by major economists of the day. In his book The General Theory of Employment, Interest and Money, John Maynard Keynes devoted five pages to Gesell, calling him a strange and unduly neglected prophet. He argued the idea behind a stamp scrip was sound. I believe that the future will learn more from the spirit of Gesell than from that of Marx, Keynes wrote.

To read the complete article, see:
What If Money Expired? (https://www.noemamag.com/what-if-money-expired/)

The "Miracle of Wörgl," refers to the story of currency demurrage and the impact it had on the economy of Wörgl, a small town in Austria. For a bill of such currency to retain its face value, the currency holder must pay a regular, periodic payment (a tax) for a stamp or other marking. Wörgl is regularly touted by advocates of demurrage as a successful implementation of such a currency, one designed to encourage velocity due to the incentive to spend it in order to avoid the periodic tax.

The experiment at Wörgl was implemented by the town's mayor, Michael Unterguggenberger in the midst of the Great Depression. Wörgl, like many towns throughout the world at the time, was suffering from high unemployment and low economic activity. The experiment began on the 31st of July 1932, with the issuing of "Certified Compensation Bills," a form of currency commonly known as Stamp Scrip, or Freigeld. It resulted in a boom in government projects, and a corresponding increase in employment and economic activity not just in the government sector, but throughout the town.

Despite its apparent success, and despite attracting the attention of luminaries such as French Premier Edouard Daladier and the economist Irving Fisher, the "experiment" was terminated by the Austrian National Bank on September 1, 1933.

 

For more information, see:
The 'Strange, Unduly Neglected Prophet' (https://www.npr.org/sections/money/2019/08/27/754323652/the-strange-unduly-neglected-prophet)
The Year of the Freigeld in Wörgl (https://coinsweekly.com/the-year-of-the-freigeld-in-woergl/)
Unterguggenberger Institut (https://unterguggenberger.org/)
STAMP SCRIP IN THE GREAT DEPRESSION: LESSONS FOR COMMUNITY CURRENCY FOR TODAY? (https://ijccr.files.wordpress.com/2012/05/ijccrvol142010a29-45warner.pdf)

To read earlier E-Sylum articles, see:
STAMP SCRIP IN THE GREAT DEPRESSION (https://www.coinbooks.org/v20/esylum_v20n21a27.html)
SILVIO GESELL'S MONEY WITH AN EXPIRATION DATE (https://www.coinbooks.org/v22/esylum_v22n35a16.html)

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