A Concrete Plan of Action

How do we get there from here?

A common response when people hear Silvio Gesell’s theories for the first time is, “yes that makes sense, but how do we get there from here?”

It’s a critically important question, because even if Gesell’s analysis is 100% correct, if there is no practical way of applying his ideas to the real world, what good are they?

It is indeed hard to imagine that national governments will embrace a program which calls for replacing our existing form of money with depreciating currency and eliminating private ownership of land. So are Gesell’s ideas limited to the realm of wishful thinking and unrealistic Utopias?

We don’t think so. But the onus is on us to illuminate a path forward — to outline a concrete plan for using Gesellian principles to generate better real-world economic outcomes.

The following is a document that has been circulated internally within the Silvio Gesell Institute and which we are now ready to share with the public. It describes an approach to implementing Gesell’s ideas without directly challenging or confronting established systems and institutions.

Rather than engaging in an intellectual discussion aimed at converting established institutions to a Gesellian perspective, we prefer the approach of putting these ideas into action and letting the results speak for themselves. Here’s how we propose to do that:

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[Please note: while the proposal outlined below is specifically oriented toward the situation in Argentina, there is no reason why the same approach could not be used all around the world.]

“You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.” ― Buckminster Fuller

“I believe that the future will learn more from the spirit of Gesell than from that of Marx.” — John Maynard Keynes

The Problem

Our planet is at an inflection point. We are at the end of an epoch, and it is increasingly clear that the prevailing economic models and systems are not working. Nowhere is this clearer than in Argentina, where today 40% of the population lives below the poverty line and inflation is running at 60% per annum. The economic, social and environmental fabric of the country are rapidly deteriorating. Ironically, this makes Argentina the ideal laboratory in which to develop and test new solutions.

Every ending presents opportunities for new beginnings. The Silvio Gesell Institute is dedicated to building an alternative economic paradigm which salvages what was working in the old model and discards what wasn’t. We are inspired and guided by the economist and entrepreneur, Silvio Gesell (1862-1930), who diagnosed the root causes of this degeneration over a hundred years ago. He also provided a concrete set of solutions which are the basis of our work.

Although Gesell’s name is virtually unknown today, his ideas were admired by some of the best economic minds of his time. John Maynard Keynes, the most influential economist of the 20th century, spent five pages in his book The General Theory discussing Gesell’s ideas and referred to him as “an unduly neglected prophet.” Irving Fisher, the renowned Yale economist and intellectual godfather of the New Deal described himself as “a humble servant of the merchant Gesell.”

Most economic debate today pits two ideologies — capitalism and socialism — against each other. People have been persuaded that these philosophies stand in opposition to each other and that they must pick a side. On the other hand, real world experience tells a very different story. Virtually every country on earth uses some combination of capitalism AND socialism. Therefore the evidence indicates that the conceptual framework which views these two ideologies as oppositional and mutually exclusive is a false construct. It is our belief that much harm has been done to the world through the belief that capitalism and socialism are incompatible. We view them as complementary rather than contradictory.

If Argentina’s (and the world’s) economic problems are analyzed according to the capitalism-versus-socialism framework, then the range of possible solutions must consist either of reducing government involvement in the economy and relying on markets to solve society’s problems (capitalism) or replacing markets with various forms of centralized control (socialism). But we believe this is an artificially narrow spectrum of possible solutions.

Silvio Gesell argues that the problems which inspired the rise of socialism — i.e. unemployment, poverty, wealth inequality and recurring economic crises — have never been properly understood. He shares the concerns of the socialists and agrees that the economic status quo prevents workers from receiving the full proceeds of their labor. However, he does not believe that free enterprise and private property are the root causes of economic and social injustice. Therefore, unlike Marx, he does not advocate for the overthrow of the free market system. Rather, he argues for its perfection.

Marx attributes our economic problems to private ownership of the means of production. This is a superficially compelling narrative, but it does not hold up to close scrutiny. Marx was a brilliant polemicist, but he was a terrible economist. His analysis goes astray from the very first pages of Capital due to the way in which he builds his theory on the basis of the nebulous concept of value.

Silvio Gesell argues that value is a chimera. It is a figment of the imagination. The proof of this can be illustrated simply by observing that a glass of water can have infinite “value” to a man dying of thirst, but allow that man to quench his thirst and all of a sudden that same glass of water has no economic “value”. How can the same glass of water vary between infinite value and zero value?

Marx theorizes that value is an abstract substance, devoid of any specific, tangible characteristics, that is imbued in goods and services by virtue of the human labor that goes into producing them. Gesell, on the other hand, says that value does not exist. There are only prices. Prices can be observed and analyzed with scientific precision. They are not inherent qualities of goods and services. Rather, they are dynamic states determined by the interaction of supply and demand. Any analytical framework which is built on the foundation of value is based on an illusion. We can only understand the creation and distribution of wealth as a dynamic process by studying the factors which determine prices.

Looking at things in this way leads to a completely different understanding of the nature of our economic problems as well as their potential solutions. Viewed from a Gesellian perspective, economic dysfunction is not a consequence of the inherent properties of goods and services. Rather, the observed problems of our economic system should be understood as circulatory disorders. There is nothing in the nature of real goods and services which necessarily leads to their maldistribution. The root causes of the disorder are our flawed systems of money and land ownership. Silvio Gesell diagnosed these flaws in clear, accessible terms in his book, The Natural Economic Order (1916).

According to Gesell, both our existing form of money and our system of land ownership give rise to unearned income. In other words, these two factors cause wealth to flow into the pockets of people who have not contributed to the creation of that wealth. This is the root cause of poverty, wealth inequality, recurring economic crises and environmental destruction. Therefore, the solution is not to use government as a tool to redistribute wealth. Rather, the only way to cure the disease is to remove its causes — i.e. to correct the flaws in our systems of money and land ownership.

The Solution

Gesell’s proposals consist of two fundamental reforms of our existing economic arrangements. First, he argues that we must decouple the two primary functions of our current form of money — i.e. medium of exchange and store of wealth. He believes that the former — medium of exchange — is the sole legitimate function of money and that by designing a monetary medium which is also intended to be used as a store of wealth we cause it to systematically fail to perform its function as medium of exchange. This is the “original sin of money” and is the source of many of the circulatory problems that plague our economic system. Gesell proposes to resolve this problem by replacing our existing hoardable form of money with a depreciating currency which loses purchasing power with the passage of time and therefore cannot be used to store wealth. He argues that a monetary medium designed in such a way would circulate more efficiently and consistently, resulting in a more rational and fair distribution of resources as well as a more stable and robust economic system.

Secondly, Gesell argues that private ownership of land is a violation of natural law as well as of the core principles of the free market system. Free market ideology says that people should be allowed to keep and enjoy the fruits of their labor to the greatest extent possible with a minimum of government interference. Therefore human labor is the principle upon which the concept of private property is built. However land is not the fruit of anyone’s labor. It existed before man, and therefore there is no legitimate basis upon which private individuals can stake a claim to its ownership based on free market principles. Rather, private land ownership should be seen for what it is — theft from present and future generations effected by violence and force. In Gesell’s view, land (and all of the natural resources contained therein) should be viewed as the common property of society as a whole. But to be clear, this is not communism. It is in fact the exact opposite.

Gesell’s theories and proposals are not limited to the realm of intellectual speculation. His ideas have been implemented in various forms in places all around the world, from the Argentinian economic reform package of 1899, in which the gold standard was abandoned, leading to the longest period of sustained growth in the country’s history, to the Swiss WIR bank which has operated a successful complementary currency system uninterruptedly for nealy a century.

One of the most famous examples of the implementation of Gesell’s ideas took place in the Austrian town of Wörgl in the years 1932-33. The world was in the depths of the Great Depression, and the town was suffering from extreme unemployment. The mayor of the town, Michael Unterguggenberger, was familiar with the writings of Gesell and proposed the creation of a complementary currency system along the lines described in The Natural Economic Order. The experiment was a stunning success. The new money circulated rapidly and led to greatly increased economic activity, reduced unemployment and increased public revenue. The extraordinary results attracted the attention of municipal leaders throughout Austria and beyond, prompting 200 mayors and local officials to assemble in order to hear Unterguggenberger talk about the project in the hopes of replicating the project in their towns. Sadly, the Austrian central bank viewed the experiment as a threat to its power and shut it down. The world is left to speculate how different history might have been if the country that gave birth to Hitler had been wise enough to foster, rather than suppress, Gesell’s revolutionary ideas. In any case, ninety years later, Wörgl still stands out as a beacon of hope to the world. And we aim to use the same principles to address the desperate economic circumstances of communities throughout Argentina and beyond.

The Innovation — Enterprise Zones, a Better Mouse Trap

In keeping with the Buckminster Fuller quote with which this document began, our aim is to build the foundations of an alternative economic system which serves the needs of local communities better than the prevailing model. Under the current economic paradigm, the twin flaws in our systems of money and land ownership are like two giant holes in the hull of the economic ship. The basic design of the system — i.e. the free market model — is theoretically sound, but these two errors of implementation mean that the system has never been given a chance to succeed and deliver on its promises of broad based prosperity and stability. By patching the two holes in the hull of the ship we believe we can deliver superior results. And the proof, as they say, will be in the pudding. Once our model is operational it will no longer be necessary to engage in hypothetical discussions about economic theory. All we will need to do in order to win people over to our paradigm is to show them the actual results. If our system performs as we expect it to, the results will speak for themselves.

In concrete terms, our plan is to build Natural Economy Enterprise Zones (EZs) in communities throughout Argentina, in which free market dynamics are enabled to function without the corrupting influences of hoardable money and privately owned land. The two specific innovations are, 1) a complementary currency ecosystem in which depreciating money based on the proposals of Silvio Gesell is used instead of conventional, hoardable money, and 2) allocation of space/land use via competitive bidding, the revenue from which is payable in complementary currency and will therefore remain within the EZs and circulate rather than being extracted by distant land owners or financial institutions.

The Enterprise Zone model is a bottom-up, rather than top-down approach. Each EZ will begin with the same basic design, but from that point on each one will evolve in its own way according to the needs and wishes of the members of each community. Therefore no two EZs will be the same, but they will all operate according to the same foundational principles — free markets, generation of local wealth that stays within the communities, and participatory self-governance by the members of the communities.

The initial implementation phase of each EZ will be based on two institutions which are already familiar to all Argentinians because they are part of the country’s history and culture — the local mercado and the barter network. Anyone who has lived in Latin America is familiar with the mercado, which is a feature of daily life throughout South America. Mercados are similar to Western shopping malls, but with smaller spaces and more primitive infrastructure. Independent vendors rent booths and sell their wares (primarily foodstuffs and household items) side by side with other vendors. Throughout South America the mercado is a more familiar, traditional place to procure daily necessities than supermarkets.

While not unique to Argentina, barter networks have played an important part in the economic history of the country. Following the meltdown of the national financial system in 2001, between four and seven million Argentinians participated in barter networks in order to procure daily necessities. Some of the key players in this movement are members of our organization, and their wealth of experience combined with their deep ties to local communities throughout Argentina give us a unique ability to engage with the populace and convince them to buy into our model. And the fact that the initial phase of each EZ will have a look and feel that is familiar to the members of the community means they will engender a level of comfort that would be absent from any alternative economic system that is developed elsewhere and implemented in a top-down manner.

Each EZ will begin with the acquisition of a piece of land. The land will either be purchased or deeded over to the EZ by the governing municipal body. (To be clear, the model DOES NOT call for the expropriation of existing landowners.) The specific parcels of land will be chosen based on a variety of factors, including proximity to existing population centers, buy-in from local government, businesses, civic organizations and members of the communities, availability of basic infrastructure (i.e. roads, electricity, water, internet, etc.) and availability of surrounding parcels of land for future purchase/expansion.

The first phase of each EZ will essentially be a combination of a mercado and a flea market, in which anyone who wants to offer goods and services for sale can rent space via a competitive bidding process. In the beginning, the space will consist of nothing but a roof, four walls and an array of tables where vendors can display their wares. Initially, space will be inexpensive, since rental prices will be determined by competitive bidding. While the model is yet unproven to the members of the community it is unlikely that they will bid aggressively for space. Only as commerce grows and the participants see concrete results will they become willing to pay more for space.

As activity grows and rental income increases, the growing revenue will represent a funding source to expand and upgrade the premises and infrastructure. EZs will likely develop structures and facilities suitable for food service businesses, merchandising, manufacturing/light industry, agriculture, services, etc. But the important point is that every specific investment in expansion or infrastructure will be decided upon by the EZ community, rather than being imposed in a top-down manner. This will ensure that the expansion/improvements suit the specific needs of the community and also that the community members feel invested in the specific ways in which each EZ evolves.

It should also be noted that in addition to rental income (which, as noted above, will be payable in complementary currency), EZs will also have a built-in mechanism for accumulating conventional currency. Since conventional currency cannot be used inside of the EZs, anyone who wishes to make purchases will need to acquire the complementary currency issued by the EZ. This can be done in one of two ways. One can either engage in commerce within the EZs and earn complementary currency or one can exchange conventional currency for complementary currency *. And, because the complementary currency depreciates while conventional currency does not, this means the communities will generate an ongoing surplus of conventional currency. And this surplus will become larger as the economic activity within the EZs expand, thereby creating increased demand for the complementary currency. Therefore, as time goes on the surplus of conventional currency will grow, making possible an ever-greater scale and variety of improvements. (* Note: People would also be allowed to exchange complementary currency for conventional currency, but there would be a penalty for doing so — probably around 10%. The optimal amount for the penalty would need to determined by trial and error with the aim of balancing the need to give people a sense that they are not throwing their money away when they convert it into complementary currency with a strong incentive to keep money inside of the EZ.)

Lastly, one more enormous benefit of the EZ model is that it is invulnerable to the extractive practices of traditional finance. What is Blackrock going to do with a bunch of local currency that can only be used in a specific community in Argentina? Are they gonna send one of their vice presidents to the EZs to buy eggs and then sell them for conventional currency?