The Parable of Barataria, Part 1

One of the challenges we face in terms of spreading the theories and proposals of Silvio Gesell is that most of his works are no longer in print. The Silvio Gesell Institute is working on compiling and republishing his writings in book form, but in the meantime we will be sharing some of them here on Substack.

Gesell died in 1930, thus copyright has expired on all of his works and they are now in the public domain.

We will start this series with Gesell’s wonderful Parable of Barataria, originally published in 1922, which is meant to illustrate the inherent conflict between money’s functions as medium of exchange and store of wealth.

The length of the story exceeds Substack’s limits, therefore we will be sharing it in two parts. Here is the first one:

The Parable of Barataria

by Silvio Gesell, translated by Hugo Fack and E.S. Woodward

Preface

By “capitalism” is to be understood a social and economic system founded on land and money privileges by which the people are divided into classes — into interest and rent recipients and workers, into parasites and producers, into takers and makers — a division which today is carried out all over the world.

Wherever you look, to the east or west, to the north or south, to autocratic or democratic states, everywhere we find the same conditions. Hundreds of thousands of interest and rent recipients, who hardly know what to do with their affluence, and workers who, in spite of the gigantically increased capacity of production through the miracles of modern technique, often do not know how to satisfy their most elementary needs and, with it all, endure lack of safety created by the crisis.

These disintegrating forces are as old as culture. They are the inseparable concommitants of any economy founded on money in its present form and on the monopoly of land and natural resources. Money in its present form facilitates the division of labor and encourages specialization but at the same time renders society a prey to forces which disintegrate the people into the few gluttons and the many weary and overburdened.

To what can this transformation be traced? There are innumerable answers to this question.

The first answer that history gives is the account of how Moses about 1500 B.C. declared: “Mine is the land, says the Lord. Thou shalt not sell it.” He prohibited interest and declared the year of Jubilee to give release from debt burdens.

Strange that also Lycurgus about 800 B.C. gave the same answer to the question as to the origin of the social disintegration. Inalienability of the land and substitution of the gold by an iron money were the demands of Lycurgus.

Both these great law givers in antiquity, Moses and Lycurgus, separated from one another by seven centuries, gave to the question of the cause of the social disintegration of the nations the same answer: gold and the private property of land. And today, after 3,500 years of mankind’s distressful history, Free Economy (Neocracy), refers to the replies of Moses and Lycurgus and declares — yes, Moses and Lycurgus were right. The social disintegration of the nations must be traced to the habitual money and money issue and the traditional laws governing man’s relation to the land and natural resources.

Of course, Free Economy is not satisfied to make this assertion. It also gives the explanation why this is so and must be so. Accordingly, the platform of Free Economy is not, as with Moses and Lycurgus, the prohibition of interest, the introduction of iron money and the entailing of properties, but Freed Money and Freed Land, demands which originated in a painstaking analysis of the evils which were to be fought. If therefore the formulation of the demand is a different one, more adapted to the nature of the evils, still the highly significant fact remains that the diagnosis of the social-economic disease supplied today by the Free Economic teachings has already been made 3,500 years ago by Moses and Lycurgus.

This strange fact suggests that we are justified in the assumption that the forces causing social disintegration must have been deeply hidden in the traditional money and laws governing land tenure. Otherwise they could not have evaded discovery for such a long time. And truly this must have been the case, for we know from experience that it is not sufficient to point to the defects of money. It is necessary to painstakingly reveal them. Just as with the puzzle picture, one does not see the thing sought for even if it is pointed out. We are too much distracted by secondary matters. With the puzzle picture, it is the accessory pictures which make it difficult for us to find what we are looking for. With our money, it is the accretion of innumerable prejudices and wrong economic conceptions which, in the course of thousands of years, have adhered to traditional money. Money was the given thing, the thing taken for granted, the fact. And to this fact, however distorted it was, our opinions have adapted themselves.

If we compare the measures of present-day statesmen and politicians here and there and everywhere with the fundamental demands of Moses and Lycurgus, the two outstanding leaders and lawgivers of men in antiquity, and whose surpassing greatness overshadows all their followers up to the present, we recognize the entire inadequacy and complete hopelessness of present-day efforts. It is symptom treatment, leaving the causes intact. It is economic quackery at its worst. The demands of Moses and Lycurgus, centered in fundamental reform of money, money’s function, and tenure of land and natural resources, for lack of a scientific analysis of economic evils which they wanted eliminated, the remedial measures were inadequate.

But today mankind has been endowed, after thousands of years of groping in darkness, with the scientific analysis. Silvio Gesell succeeded where all other economic thinkers failed. And more, he also supplied mankind with the means, borne of his findings, to eliminate naturally the economic evils ravaging the economic system of all nations. All that is needed in order to assure the uninterrupted cultural rise of mankind is a statesman with a grasp of the necessity of the two absolute essentials — Freed Land and Freed Money — a modern Moses or Lycurgus, the glory of whose name will still shine in the memory of man when his ancient prototypes will have sunk into oblivion.

The following story is a new proof of what has been said. It was sent to me by Pedro Tramposo, an old and valued Spanish friend. He found the manuscript, dating from the year 1675, in Granada when putting an old library in order. I selected the title because the socialists, embracing Marx, will, when reading this booklet, more than once be perplexed.

The Translator

Ten Years of Communism

On the same latitude as Utopia and exactly 360 degrees east, there lies the isle of Barataria — a name derived from the Spanish word barato, which means cheap. Everything was amazingly cheap on Barataria — not in the sense of much merchandise for little gold, which is of no advantage to the owners of merchandise, but cheap in the sense that all workers could produce and exchange much merchandise for little work — a mystery which it is our purpose to explain.

The island was colonized with 500 Spanish families in 1612. On the return voyage the emigrant ships were lost with all hands. It thus transpired that in Madrid it was commonly assumed that both ships and colonists had perished. The catastrophe and the island were completely forgotten with the passing of the years. The result was that the Baratarians were cut off from communication with the outside world.

We are interested here in the economic development of the islanders from the time of their isolation to the time of their rediscovery. The narrative which follows is taken from the cronicles of the island compiled right through the years by the minister of the capital city, Villa Ponza.

In the beginning the Baratarians managed their affairs communistically. But the system bred discontent, and within ten years the settlers were called together by the teacher, Diego Martinez, to discuss the introduction of a system which encouraged private enterprise and offered personal gain. Here is a copy of the manifesto which convened the meeting.

Manifesto:

The communistic system to which we have hitherto faithfully adhered has certainly accomplished much, in that we have no hunger amongst us. But it falls short of the larger production possible under a system which fosters personal freedom, independence, and responsibility. As the shirt is nearer to the skin than the coat, so is egoism nearer to human consciousness than altruism. The instinct of self preservation and self expression is more dominant than the instinct of race preservation and social desire. Responsibility for the actions and inactions — the commissions and omissions of society — are not individually realized. If tools are forgotten and lie neglected in the fields, if a sick horse or cow is in need of extra attention after hours, if work is badly done, service indifferently rendered, disservice wantonly inflicted, it is the community which suffers and not the guilty. Daily, goods are lost through negligence. The hay is carelessly hauled and stacked without personal loss to the careless. The strawberries are frozen because no one will take the extra precaution of strawing them against the summer frost. It is everybody’s duty, which means it is nobody’s. Even if duties are allocated and imposed, the loss is social, not personal. In the discharge of collective tasks, the pace is set by the slowest man. The moment that Fatty Gomez says “cease work”, all throw down their tools in the mire, none feeling responsibility for the tools. As in a narrow street, the ox cart in front sets the pace for the speedier vehicles in the rear, so does the lazy, the incompetent, set the pace for everybody in communistic society. Much is omitted which would be done if there were personal responsibility and special reward of effort.

Much could and would be done to make things better and better. But consent must first be obtained from everybody, and this requires notices, meetings, talk, more talk, still more talk, dissention, committees, reports, resolutions, amendments, talk, more talk, still more talk, ending in sterility and puerility. The time for action is lost by the need for talking, and the only actions sanctioned are those understandable by the lowest intelligence. For the final decision, no one accepts personal responsibility and sustains no special loss. Matters requiring special knowledge or technical skill are sidetracked or thwarted. Inventors despair of securing the consent and support of Ragtag and Bobtail. To the unenlightened majority the unusual is always fearful, visionary, and undesirable. The result is that we lose the vast potentialities of skill and efficiency in our men and women. And, despite the wonderful bounties of nature, we remain, not hungry, but poor. The expression of personality is crushed under the dead weight of social constraint.

[Footnote : These serious attacks on communistic management are also valid against democratic or majority ownership and operation of industry. State interference with economic life tends always to human servitude. Free economists share with the more enlightened socialists the concept that the state itself, as it is now known, must be either dismantled or transformed. Freed-land and Freed-money render all the -ocracies and -isms superfluous. Democracy, autocracy, aristocracy, plutocracy — all disappear into history. As Rousseau has well said: “The state of today arises with private property in land.” The state is organized to enforce the disorder consequent on the violation of man’s primary rights in the soil. The very pivot of all political quarrels — the greed of power, party strife, national jealousy, and international discord — is the private misappropriation of the rent of land.]

The New System of Private Property in Proceeds of Labor — not in Land

“I therefore propose that we forthwith introduce a system based on private property, personal freedom, and individual responsibility — i.e. a system in which each individual shall own the proceeds of his labor and bear the responsibility of his deeds. Not private property in land, no privileges in opportunity, but private property in the proceeds of labor, so that whatsoever a man sow, that may he also reap. The land itself to be surveyed and leased to the highest bidders — i.e. each man to assess the value of his own opportunity in competition with his fellows. He who wants the best land must pay the highest rent. He who takes the poor land need pay no rent. The rent of land is nature’s Board of Equalization, by which all her bounties are equitably apportioned amongst all, the proceeds of the rental fund to be equitably divided or socially utilized.”

[Footnote: With Freed-land, all the forces inciting to internecine strife and international animosity vanish. Men compete on equal terms for the occupancy of sites. Each occupies on terms satisfactory to himself and to all others. The state shrinks in influence and power. Religion, science, education, and commerce are freed from state ligaments. The souls of men respond to the Creator. The organism of society grows in obedience to natural law. State tariffs, market barriers, arbitrary control of exports are revealed as the instruments of special privilege and human exploitation and degradation. Freed-land and interest-free money liberates the bodies and souls of men. These are the essential conditions, the indispensable foundation of the stateless state — the ideal of Schiller, Tolstoy, Gesell, and George. Without them, laissez-faire is the license of industrial autocracy. With them, laissez-faire is objective and consummation of glorious freedom.]

The Office of Money

“To permit personal freedom and to coordinate individual effort into a cooperative whole we shall need money. The Office of Money is to inject emulation and competition into static cooperation and to weld into a cohesive whole the diverse activities of competing individuals. It renders cooperation competitive and competition cooperative. It permits the highest possible production and the widest possible diffusion of wealth. It increases individual rewards and facilitates the highest possible social development. Without money, we cannot evolve from primitive communism, with its individual repression and social stagnation, to liberty, culture, and abundance. With money, we can produce wares — i.e. surplus goods for exchange with the surplus of others. Money permits the minute subdivision of tasks, recognizes individual effort, permits the cultivation of special skills, increases the total output, and facilitates the prompt exchange of wares. We can make our money by means of the Gutenberg invention.””

The Potato Standard

Our money will have no gold covering and it will need none. Gold never has made and never can make an efficient money instrument. Our money will be covered by wares. I suggest that we choose our chief crop, the potato, as coverage for our money. We have built warehouses for the storage of our potatoes. Let us issue paper money redeemable on demand in potatoes, the supply of money to be adjusted to the stock of potatoes. Thus we shall have a paper money good in all parts of the island available for the purchase of anything, the supply of which can never be monopolized by anybody. Thus, we shall enjoy the advantages of a system which will enable each man to increase his own reward without injustice to others, which will promote individual freedom, impose self responsibility, foster independence, and permit social growth.

Comrades, attend tomorrow’s meeting for the discussion of this proposition.”

Diego Martinez

Advantages of the Manure Standard

The chronicle records that the proposal of Diego Martinez was discussed fully and ultimately adopted. During the discussion someone objected to the use of potatoes as covering for the currency notes and advocated the use of stable manure on the grounds that the more regular production and use of stable manure would render it better fitted for the purpose in mind. He spoke very much as follows: “There are years when many potatoes are harvested. In those years there would be much money. There are other years when there is a potato crop failure. In these years there would be a shortage of money. All such fluctuations would be avoided by the use of stable manure as money coverage. Moreover, stable manure contains the protoplasmic germ — the very foundation of human existence and hence the primary source of all value. It is in general demand and the demand exceeds the supply. There can never be too much stable manure. The coverage for money should be a stable product of general utility. Such a coverage is not found in gold, which is almost useless, nor potatoes, which fluctuate in volume and in value, but in stable manure, which tends strongly to stability.

Coverage by Goods Only Needed

Martinez replied to the discussion and explained that he had proposed potatoes as money coverage in order to avoid entering into a discussion of monetary theory. It was his conviction, said he, that money needs no coverage at all. The very function of money as the universal exchange mechanism assured its position as a ware of more general utility and value than either potatoes or stable manure. Wherever goods existed, there automatically arose a demand for money. The stock of goods determine the demand for money. The only coverage necessary was the supply of marketable goods designated for consumption. Why then bother with either gold, potatoes, or stable manure? Why not adjust the supply of currency notes to the volume of demand, as determined by the supply of wares?

These declarations of Martinez were evidently not understood by the Baratonians, so enslaved were they by the fetters of custom and tradition as to the necessity for money coverage. The chronicle records that when the vote was taken the men, with an eye to business utility, voted for stable manure coverage, whilst the women, with more regard for the aesthetic, cast their votes for potatoes, and as the women were in the majority the original suggestion of Martinez was adopted.

The Potato Reserve Banks

In accordance with the decision of the majority, a large potato storage cellar was built in every town, to which everyone took their crops of potatoes and received therefore paper receipts in form resembling our bank notes of today. They were inscribed as follows:

“The Baratonian Central Bank will pay to the bearer at sight and without identification 1, 5, 10, 20, 50, 100 hundred-weights of potatoes.”

It is clear from the records that the Baratonians became accustomed to the bank notes without difficulty. He who needed money delivered potatoes to the bank cellars and received therefore payment in banknotes. Conversely, he who wanted potatoes presented notes in payment.

The Regulator of Production

All over Barataria the notes circulated as money and became adjusted in value to other commodities, according to the natural law of demand and supply. The unit of value, or price, was 100 pounds of potatoes, and the value of all other commodities was expressed in potato hundred-weights. As potatoes grew equally well in all parts of the island, the price of other commodities were thus controlled by the cultivation of potatoes. If other prices rose in terms of potato prices, the cultivation of potatoes was discouraged. If other prices fell in terms of potatoes, indicating a lack of money (potato notes), so that the holders of notes received more goods than before, then the growing of potatoes became profitable. Thus the currency of Barataria was much more directly under the control of the people themselves and subject to natural law of supply and demand than is the currency of countries which use the gold standard, because gold cannot be so readily increased or decreased in quantity as and when required — the supply of gold being dependent on the finding of the necessary quantity.

Twenty Percent Deficit in Two Years

Up to a certain point the system worked well. Trade developed to the general satisfaction. Within two years however, Diego Martinez, who was manager of the central bank, could see signs of impending difficulties. He called the Baratonians together to acquaint them with the cause of his uneasiness. He stated the books of the bank showed 20% deficit over the two year period, and the deficit tended to grow larger at the same rate of progression.

The Coverage Illusion

In the two year period there had been issued some 500,000 potato notes, which amount was still outstanding. The stock taking however revealed that these notes were covered by only 400,000 hundred-weights of potatoes. The missing hundred thousand hundred-weights of potatoes could be traced to shrinkage of weight, losses through decay, the ravages of pests, and overhead expenses. Martinez declared that these losses had been kept to a minimum and were unavoidable. In the course of the next twelve months, the loss would not be less than 30%. What was the pleasure of the meeting?

Someone rose to propose that the deficiency be met by the imposition of a tax, by means of which 100,000 potato notes could be withdrawn and destroyed. This would restore equilibrium between the quantity of notes outstanding and the stock of potatoes in hand.

Martinez did not support this proposal. He reminded them of his remarks at the organization meeting about the fallacy of supposing that money requires any special coverage. “You can now see for yourselves that I am right. The notes are now only covered up to 80%, yet you have experienced no inconvenience. And you did not know of the potato deficiency until I told you about it. Even if the deficiency had been 90% instead of 20, the same would still be true. Those who want potatoes don’t come to the bank. They obtain them in the market. The notes would continue to circulate and maintain their value in exchange, even if there were no potato coverage.”

He would prefer to strike out the inscription on the notes respecting the delivery of potatoes. The more the notes were generally used as the medium of exchange, the more indispensable they became and the less important became the question of coverage. If the truth of his words were not yet realized because they involved some knowledge of monetary theory, they would be vindicated by the unfolding of events.

The Dangers of Redemption

Thereupon, Barabino Santiago, who had advocated stable manure for coverage, replied as follows:

“Diego Martinez is perfectly right. Money needs no coverage. Its functional utility is sufficient to guarantee demand for money. No coverage other than active demand can be necessary, as much as we cannot sell our goods except by exchanging them for money. By releasing the stock of potatoes held by the bank, the demand for money will be increased. Thereafter the money will have no claim on the bank. He must look only to the market of wares. The very idea of persons having a right to claim potatoes from the bank and force on the bank the necessity of destroying money is a potential threat to our business prosperity. Theoretically at least, all the notes might be presented for potatoes and all the notes might be canceled. We should then have no money at all. The central bank would be compelled to issue potatoes on demand and cancel the notes as fast as presented. Then what would become of our exchange system? What we need is a system which will guarantee that the central bank will never redeem notes so as to leave us short of money. I propose that we abandon the idea of potato or any other coverage and prohibit the possibility of redemption by changing the inscription on the notes to read as follows:

‘The central bank is prohibited from redeeming this note. He who presents this note for redemption commits a misdemeanor and is liable on sight and without identification to 100 lashes.’

The central bank needs no cellars and no safe. Its legal duty is to supply money, not to destroy it; to keep it circulating, not to hoard it. The adoption of these measures will safeguard us from any threat of money shortage. I want to express myself quite clearly that the holder of money must not look to the bank, but to the market. And if the bank holds no coverage the holder of money will have no alternative. On a former occasion I voted for a stable manure coverage because I did not desire to discuss monetary theory in advance of the practical knowledge and experience of the majority. I desired that you should learn by experience that coverage of any kind for money is quite superfluous.”

The Price of Democracy

Whereupon Diego Martinez rose again and said:

“Although comrade Santiago has made things very clear to you, and while I concede that his explanations are true and right, yet we must respect our democratic institutions and refrain from introducing laws which are not fully understood by a majority of our people, however useful such institutions might prove to be. It would be a crime against democracy to obtain your acceptance merely by the confidence with which you honor me. Everything must be paid for in this world. The price of democracy is a travail of life’s experience. We must see, observe, reflect, and learn. As democrats, we must refuse to sanction anything we do not understand. As long as you do not act on your own judgment, but follow blindly the judgment of others, so long as you have no confidence in yourselves but repose full confidence in a ruling class, you are not worthy of democracy. You are the fit prey for aristocrats. You can never establish institutions in advance of your mental horizon. Power over men is seldom, if ever, used for their advancement. The state should reflect the state of mind of the majority. You must learn to examine everything for yourselves and reach the best decisions of which you are capable. That may not give you ideal government, but it will give you the government you deserve. Do not aim at institutions beyond your mental capacity. If you can only attain the Hottentot standard, be content with the Hottentot state. I know that many amongst you already understand money, just as does Barabino, but such are not yet in the majority. Fiat democracia et pereat mundus. [Let democracy be done though the world perish.] Rather than make use of a money in advance of the grasp of the majority, it would be better to abandon the use of money entirely, irrespective of the undoubted advantages derived from the use of money. Luckily, I think I can propose to you a money system which all of you can understand, because it is rooted in existing habits of thought and practice, but which will permit advancement in both.”

Continuing, he said …

The Nut Money

“We have here on our island a specimen — one only specimen — of the Pinus Moneda, or “the big tree”, as the children call it. The nuts which grow thereon are not put to specific use. The children play with them, and they furnish food to squirrels and other rodents. Let us declare these nuts to be our money. Let us build a wall around the tree and declare the tree and its fruits to be the common property of the people. With this as money we can afford to discard the idea of coverage. Money based on these nuts will be covered only by the goods in the market. It will carry its purchasing power within itself. The tree will be the central bank of issue and replace our expensive potato cellars. We will redeem the potato notes with nuts. The surplus potatoes we can distribute for use.”

A Stable Price Level

“I propose that the nuts from the big tree shall be our money. As ratio of exchange, I propose one pound of nuts for one hundred-weight of potatoes. The nuts, like the potatoes, will be subject to a process of wastage and deterioration, because the oil in them is subject to evaporation. This loss will fall on the users of nut money and not on non-users. But by circulating the nut money quickly, each user will be able to keep his loss from natural shrinkage to a minimum. It will be observed that the constant loss of weight in the nut money in circulation will cause a constant decrease in the quantity of money which will call for a constant replacement by the addition of new nut money. The annual crop of nuts will ensure an ample supply. I estimate the annual shrinkage of weight at ten percent and the requisite new money at ten percent. This will in fact offer a new source of public revenue and will be available for social expenses, such as road construction, or as may be otherwise determined. Furthermore our nut reserves place us in a position of always being able to supply as much nut money as is necessary to preserve a stable price level. It is desirable that the same quantity of nuts shall always command the same quantity of other products. If the prices of goods tend to diminish in terms of nuts, indicating an increase in production, we can throw onto the market as much money as will equate consumption with production. If prices should tend to rise in terms of nuts, indicating a diminution in production, we can diminish the volume of nut money by allowing the natural evaporation to proceed without the customary replacement. We thus establish equilibrium between supply and demand.”

Money They Could Understand

This proposal was very popular with the Baratonians. Nut money consisting of the unused fruit of the pine tree, they felt they completely understood. It had physical form with mass, shape, and size. It could be seen, felt, and weighed. It was hard, smooth, easy to handle, of pleasant odor, and portable. With this nut money all transactions, large and small, could be transacted easily. The Pinus Moneda, the money tree, was duly walled in. The nuts were gathered and used as far as was necessary in the redemption of potato notes. The surplus crop was stored and served as the financial reserves of the Baratarian state.

Marquez, The Value Theorist

In deference to the wishes of Carlos Marquez, the meeting did not accede to the wishes of Martinez in the matter of the distribution of the potatoes in the bank cellars. He felt that the potato reserve should be maintained intact because the potatoes had more intrinsic value than the nuts. The potatoes required more human labor to produce than the nuts, and the nuts could only function as money by reason of the transferred value imparted by the potatoes. It was true that the potatoes would gradually rot in the cellars, but after the putrefaction process — i.e. after the abstraction of the physical qualities — there would remain an abstract of value to be imparted to the nuts of the Pinus Moneda by means of a reincarnation of the soul.

It is significant that although the Baratonians did not understand a word of the argument, it was unanimously accepted. Again, ignorance must be payed for. Santiago Barabino was very much amused over this tomfoolery.

“What simpletons you are,” he said. “Isn’t this plain fetishism? Of course, he who wants to enjoy pure democracy must be prepared to pay the price. Today this enjoyment is costing us 400,000 hundred-weights of potatoes, which we permit to rot because the majority wants it to be so — because they’re unable to conceive money clearly and are now victims of hollow catchwords. Fiat democracia et pereat tubercula. [Let democracy be done though potatoes perish.] Can’t you lift yourselves above matter? Can you conceive money only as inert substance and not dynamically? And yet, you all permit yourselves to laugh at poor Copernicus who well understood that the earth circled around the sun but who could not get away from matter and therefore made the earth revolve on its axis on a solid plane. It was Galleo who jumped this remnant of material conceptions and hurled the earth into space, where it is now permitted to circle freely around the sun. Just as Galileo considered the earth, you must consider money — free, linked with no special product — neither to gold nor to potatoes nor to nuts. Just as the earth receives its force of gravitation from surrounding cosmic bodies, so money draws from the stocks of merchandise of the market, for which it serves as medium of exchange, its living spirit, its dynamic function. If we take away the sun, our earth will disintegrate into dust. If we take away the merchandise, the seeds of the Pinus Moneda tree will revert to what they have always been — i.e. food for rats. But, from the very moment that we say we sell our products of labor only for nuts of the Pinus Moneda, there arises a commercial demand for them which is exactly as large as the volume of products awaiting exchange and can be measured by it. As you know, demand for goods imparts to them the character of wares or articles of exchange at values determined by supply and demand. Formerly the nut of the Pinus Moneda was a very useless object. But now, as we have declared it to be our medium of exchange, it has become one of the most useful goods, inasmuch as we expect our medium of exchange to exchange our products rapidly, safely, and cheaply. It was therefore very foolish to permit the 400,000 hundred-weights of potatoes to rot. Neither the potato notes nor the nuts of the Pinus Moneda function any better because of coverage.”

The Amazing Results of 10 Years of Nut Money

Here the chronicle stops quite abruptly. Not until ten years later is a new money system mentioned. Until then, the nut money seems to have functioned entirely satisfactorily. The chronicle reports progressive and uninterrupted general prosperity, expressing itself in a high standard of art and culture. Also the chronicler expresses his surprise that this general prosperity, in spite of all prophesying, did not disintegrate into social inequality. Apparently there were no poor people during all these long years because in the public budget there was not the least provision for public charity. Surprisingly small in volume is also the register of crimes. Again and again the chronicler expresses his surprise that for purely commercial loans no interest could be exacted. He expressly mentions that this did not happen because of religion or ethical reasons. He states that the supply of loan money equaled the demand, which naturally explains the fact of the interest-free loan. The Baratonians sold their products on strict business principles — i.e. they always took as much as they could get. Had, therefore, the Baratonians been able to exact an interest premium for loans, they certainly would not have refrained from taking interest. This strange fact, that in Barataria the supply of the loan market balanced the demand, the chronicler tries to explain as follows:

Loans Without Interest Charge

The supply of loans consisted of nuts of the Pinus Moneda, which, as we know, were subject, like all other products, to constant depreciation. This depreciation, by imposing carrying costs, exerted a constant pressure on the holder of nuts. The loan giver could therefore not, like our present capitalists, hold back nuts to exact interest. He could not slam the door of the safe in the face of the borrower and say, “No interest, no money.” With gold and our present money notes, this is possible because gold and un-depreciating paper notes are durable and impose no carrying costs. It was in this point that the money of the Baratonians differed from present day money. By loaning money out without interest, the lender avoided the loss which he would have incurred by hoarding it. He lent 100 pounds of nuts and, after a year and a day, received 100 pounds of nuts in return. If he had stored the 100 pounds in the safe because he did not want to consent to interest-free loans, he would have found after this period only 90, 80, or 70 pounds.

“What were savers to do?” asked the chronicler. If they save their own products they suffer loss and expenses for maintenance and depreciation. If they invest their savings in the products of their fellow man, the result is the same. And if they save money, once again it is the same. Thus the interest-free loan is, for the saver, the simplest and most useful investment. But those citizens who require money only for the purchase of wares for their respective industries and trades do not store their money in the savings box. They shift the loss arising out of the depreciation from their own shoulders onto others by accelerating their buying. Thus borrowers enjoy the advantage of loans without interest charges.

Real Capital: Goods for Amortization (Payments Only)

Entrepreneurs obtaining interest-free loans were prevented by the law of competition from charging up interest to their enterprises. They could build factories, apartment houses, ships, canals without paying or charging interest. With us, every enterprise must yield at least as much interest as the entrepreneur has to pay interest for the use of loan money to the mortgage banks. Otherwise the enterprise is financially impossible. For our entrepreneurs, interest is a transitory item in which they are not particularly interested. Whether they have to a pay 3, 4, or 5 percent does not matter to them. What they pay, they must recover from the house, the ship, the factory. What remains to them are their wages. And the amount of the entrepreneur’s wage is determined by the laws of general competition.

So it was in Barataria, only with the difference that the interest system was discarded. The apartment houses in Barataria yielded in the rent only an amount sufficient to cover expenses for maintenance, rent on land (which was collected by the state), and amortization. With the amount of amortization contained in the rent payment, the loan was gradually redeemed. Also in trade the merchandise was not given to the consumers burdened with interest because their competitors started their price figuring from the basis of the interest-free loan.

Savings Through Investment

The banks in little Barataria were, in spite of the lively business, of slight importance. Mortgage land banks did not exist, because in Barataria the land belonged to the community. It represented an entailed property of all the people, and you cannot mortgage entailed property. The Baratonian savers seemed to have invested their savings mostly in the well known enterprises known as corporations, either directly, or through the medium of banks. Bills of exchange and checks were then practically unknown. Cash payment was the order of the day, almost without exception, which is explained by the chronicler by the facts that the country was small and the nature of the money compelled everyone to get rid of it quickly. Sales on credit were practically unknown. He, who for special reasons did not have the necessary money, borrowed it from his friends and relatives and then paid cash. To trustworthy persons, there was an ample supply of loan money available.

Big Private Storage Rooms, Instead of Little Money Hoards

The chronicler also mentions the general custom of the Baratonians in the matter of private storage. In every house a special storage room was built, usually the pride of the lady of the house. These storage rooms were filled with the products for consumption. Instead of private money hoards, people had a store of provisions of all kinds. As money could not be hoarded without loss, every housewife favored the possession of provisions just as much as the possession of money reserves. Money and provisions were equally good and bad. Provisions were bought not in minimum quantities — by pounds and quarts, but by barrels, bags, and bales, in the original packing. As larger quantities were involved at a time, this resulted in a simplification of business — the businessmen acting as brokers and agents, rather than as storekeepers. Their expenses of operation must have been very low. The wares could reach the consumer in Barataria burdened with little commercial cost.

The Full Proceeds of Labor

Now we begin to understand why in Barataria everything was so cheap, as mentioned in the beginning of our story. The goods were not cheap because low wages were paid, but simply because the production and exchange of wares were not burdened with interest and high commercial costs, as with us. If you consider that with us, for example, the cost of transportation is more than fifty percent interest and that by the elimination of interest the tariff rates of the railroads could be reduced by fifty percent; if you consider that, with a general interest rate of five percent, in the USA or Canada, in Central or South America, in Australia or Asia, in Africa or Europe, a sum equal to the entire cost price of all that is built in forms of houses, railroads, factories, constructions of all kinds, roads, gardens, forests, fields, power plants, etc. flows over the counters of the capitalists every 20 years, you will understand why our island receives the significant name of Barataria.

Practical Christianity

I must refrain from communicating a detailed account of the social life which developed from these economic conditions of the Baratonians. Suffice it to mention here that in Barataria everyone was permitted to live and act according to Christian teachings without finding himself in distress. The number of those in need compared with the well-to-do was so insignificant that it was impossible to get into difficulties by the practice of active Christianity. Without embarrassment, everyone could say of himself “I am living according to the teachings of Christ as far as it concerns my relationship to my neighbor.”

Read The Parable of Barataria, Part 2 here!