News that China's digital yuan will have the "capability" to expire,* triggers a walk down Memory Lane
From WGBH public radio Boston, August 27, 2019:
Silvio Gesell hated money. A German entrepreneur who moved to Argentina for business in the late 19th century, he witnessed a massive financial crash in 1890 that convinced him that money was behind the world's economic problems: poverty, inequality, unemployment, stagnation.
The problem, Gesell believed, was that money served two roles that often came into conflict: It was a way for people to store wealth, and it was the thing everybody needed to conduct business. The fact that money could store wealth meant its holders had a reason to cling to it, especially in crises like the one he saw in Argentina, when opportunities to safely put that money elsewhere looked grim. It was a typical story. When people got scared, they hoarded cash and brought business to a standstill. It led, Gesell said, to a situation of "poverty amid plenty."
Gesell wanted to create a new kind of money — a money that would "rot like potatoes" and "rust like iron" so no one would want to hoard it, a money that was "an instrument of exchange and nothing else." And the crazy part is that he did create it. Through a series of pamphlets, articles and books, Gesell inspired a worldwide movement that introduced a completely new form of money. It's one of the most fascinating, and largely forgotten, stories in economic history.
But after 70 years of obscurity, Gesell is making a comeback. All of a sudden, this obscure radical from another age has his name and ideas popping up in unlikely places — like speeches of leaders at the U.S. Federal Reserve, research papers of the International Monetary Fund and the pages of the Financial Times. As the industrialized world grapples with stagnation and as markets signal another recession, policymakers are struggling to figure out what to do. Could Gesell provide an answer?
<b>Money with an expiration date</b>
Gesell was born in 1862 to a German father and a French mother, and he was raised in what is now Belgium. Back then, it was part of the expanding Prussian empire. At 24, he moved to Buenos Aires, Argentina, where he worked as an importer and manufacturer and did well for himself. On the side, he taught himself economics.
In 1891, hoping to end the depression in Argentina, Gesell published his first work, "Currency Reform as a Bridge to the Social State." He proposed a new kind of paper money that would have an expiration date. To avoid expiration, the bills would have to be periodically stamped for a fee. With no new stamp, they would become worthless. In this system, saving money would cost you money. Savings, in other words, would have a negative interest rate. Only by spending or investing it would you be able to avoid stamp fees.
Gesell called it "free money" (or Freigold) — "free" because he believed it would be freed from hoarding and also because it would encourage bankers to lend money without charging interest. The logic was this: If you're holding on to something that's dropping in value, you'll happily part with it — even if it means that it won't make you more money than you started with. It's like a game of hot potatoes. You want to pass it on. Gesell believed this would keep money whizzing through the system, preventing future depressions and increasing public prosperity.
It was a completely radical idea, especially during a time when nations were on the gold standard. That system latched money to the stable value of gold, which meant currency was a pretty safe place to store wealth. Gesell was saying he didn't want money to be like gold. He wanted it to be like most other objects, which decay and rust and go bad. Of course, many people hated this idea, especially people with a lot of money.
In 1899, Gesell began moving back and forth between Europe and Argentina, spreading the gospel of free money and writing extensively on other matters as well. He had a bunch of eccentric views, criticizing monogamous relationships and advocating free love. He lived in a vegetarian commune near Berlin for a time. He was a bohemian utopian who advocated for peace between nations. He was critical of big business and finance, but he believed in individual freedom and market competition. And he was a committed anti-racist. As fascism rose in Germany, Gesell would call the scapegoating of Jews for the nation's problems "a colossal injustice."
After World War I, Gesell watched Europe descend into political and economic chaos. In 1919, anarchist revolutionaries in Munich, Germany, took the helm of the short-lived Bavarian Republic, and they persuaded Gesell to become their finance minister. Led by pacifist poets and playwrights, it has been called "one of the strangest governments in the history of any country." Gesell began pursuing a program that included land reform, a basic income for women with children and, of course, stamped money......
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