The questions list is interesting, but I disagree that the reason why money earns interests is circular. I'm going to continue reading through your posts.
Edit: After watching the video course by the Silvio Gesell Foundation, I've changed my mind about this. It is circular indeed.
I think another way to say it is that consumption has diminishing marginal utility. So as long as money doesn't have diminishing marginal utillity it will be able to exact interest.
But I'm not sure if there's an example of negative time preference (all the above examples are of diminishing marginal utility, not straight up negative time preference)
„In a free society, when offered payment in a stable/rare currency, and a depreciating currency, a person will rationally chose the stable/rare. The general adoption of a depreciating currency would therefore require a deep invasion into the personal freedom of the citizens to prevent the spontaneous arising of black markets using stable/rare money.“
Regarding the question of how to implement Gesellian money, it is interesting to note Gresham‘s Law. It roughly says ‚bad’ (here: depreciating) money always supersedes ‚good‘ (here: value stable) money. This is because everyone wants to keep the value stable money and wants to pay with the depreciating money. Therefore, depreciating money is circulating more widely and eventually supersedes value stable money by means of a simple market mechanism. It is utterly possible that depreciating money, once introduced (maybe in crypto form), outperforms value stable money in the long run.
Hi Selina. Thanks for your comment. I believe Gesell's response to your observation would be that there should be no such thing as "stable/rare" currency. Currency is a creation of the state for the purpose of facilitating economic exchange. And there is no reason why that instrument should be hoardable. The vast majority of real goods and services are not hoardable, so why should money be? Creating a hoardable currency is contrary to the laws of nature. Why should money be immune to the forces of nature when the goods and services it was invented to serve are not immune? Gesell argues that it was an unnatural, irrational choice to create a form of money that is not subject to the same forces that affect real goods and services. Doing so results in a fundamentally flawed medium of exchange which fails to circulate at precisely the moments when society most needs it to do so. A rationally created medium of exchange would not have that problem.
And, to be clear, Gesell didn't have any problem with the hoarding of wealth. He had no objection to people using things like gold, silver, precious stones, art, oil, agricultural products, etc. to store wealth. So there would be no need for black markets. Hoarding stable/rare assets would be perfectly legitimate and legal. The only thing Gesell believed should not be used as a means to store wealth is the government designated medium of exchange. So I fail to see how creating an unhoardable form of currency represents any invasion of personal freedom.
I totally agree with you on this. My post was intended to be a reply to Franklin Lonberg. You answered to the quote of him which I was also trying to address. :-)
Franklin questioned if depreciating, Gesellian money would have a chance in a free market society and feared it would only be possible to implement it by force, against the will of the people, which would, as he puts it, mean an invasion to personal freedom. My reply is to point out Gresham's Law (see https://en.wikipedia.org/wiki/Gresham%27s_law), which makes it very likely that depreciating money indeed would prevail in a free market situation with maybe two or more competing forms of money.
My complements on a thoughtful and stimulating presentation. As you invite comments it submit:
I read the excerpt from Gesell’s book. I liked it a lot. I am a great believer in the use of dialog to present a case.
Gesell cites a quotation form Marx.
‘Like all his disciples he (Marx) made the mistake of excluding money form the scope of his inquiry. He was fascinated by the shining metal disks, otherwise he could never have used the following words: "Gold and silver are not by nature money, but money is by nature gold and silver, witness the coincidence of their natural properties with its functions”.’.
In the spirit of fair debate, since he brought this up, I think the full context of the quote should be cited. It comes from a chapter of Marx’s Critique of Political Economy, entitled “The Precious Metals”.
Marx description of that natural evolution of precious metals as a store of value and medium of exchange seems quite convincing to me. If there is a flaw in this argument I would like to know where it is. Furthermore the adoption of stable/rare materials as money takes place across many cultures, supporting the assertion that it is natural.
If one accepts as true the natural evolution of stable/rare monetary systems, this does not imply that it is the best monetary system. I will stipulate that a depreciating monetary medium may well be better, in providing a more level bargaining field as you point out. However, there is the question of how such a system is to be implemented over the natural rare/stable system. In a free society, when offered payment in a stable/rare currency, and a depreciating currency, a person will rationally chose the stable/rare. The general adoption of a depreciating currency would therefore require a deep invasion into the personal freedom of the citizens to prevent the spontaneous arising of black markets using stable/rare money.
In my view, the amelioration of the faults of capitalism and stable/rare money can be accomplished with far less invasion, namely by welfare capitalism. Here the government redistributes resources, thereby undoing the exploitation inherent in capitalism, without repressing the natural stable/rare monetary system The good thing is that the poor will always outnumber the rich, so, in a democracy, the poor have the power to demand a fairer share then is provided them by pure capitalism. There are presently quite a few democratic countries which in which the effect welfare capitalism in reducing income inequality can be seen. The effectiveness of welfare capitalism is shown in the below chart of a measure on income inequality equality.
Thanks so much for your comment! There is a lot to respond to, so here goes...
First, I will readily acknowledge the difficulty of implementing Gesell's ideas. Personally, I am much more interested in exploring the logic and mechanics of monetary systems than thinking about the politics of implementation. So, to the extent that I have any contribution to make, it is in the realm of keeping these ideas in circulation and getting them out to a wider audience. My belief is that eventually circumstances will align to make the adoption of Gesell's ideas politically feasible, but I have no idea how or when that will happen. I very well may not be around to see it. (One possible route to the adoption of Gesell's ideas could be via financial collapse. So, while I agree with you that it is hard to imagine how these ideas could be implemented under the present circumstances, a meltdown of the global financial system -- something that I think is a real possibility -- might make such a thing possible.)
As for your argument in favor of a "less invasive" approach to solving our problems, I would compare the situation to the overthrow of the earth-centered view of the universe in favor of the heliocentric worldview. The basic mechanics of our existing system are irrational, and it will require more and more band-aids to hold that system together. That is because we are fighting against logic and reason.
It is as if we built an incredibly powerful engine (the free market system) and then inadvertently poured the wrong kind of fuel into the gas tank. We could go on endlessly addressing the symptoms of the problem -- maybe the spark plugs need to be changed, maybe fuel line is blocked, maybe the timing belt is going bad -- when the fact is that the engine can't possibly function properly if we're not using the right kind of fuel.
So I'm not particularly interested in efforts to save the existing system -- because I don't believe it can't be saved. We can only delay its demise. So I view policies aimed at propping up the existing system -- such as welfare capitalism -- as comparable to the bizarre contortions that adherents of the earth-centric universe engaged in to avoid accepting the heliocentric paradigm shift. Such policies may help slightly at the margins, but they are ultimately efforts to swim against the tide of logic and history. This is why I don't get involved with specific policy debates over issues like raising the minimum wage, forgiving student debt, etc. For one thing, I have serious doubts that such measures will accomplish their stated goals, and secondly I consider them to be ways to avoid confronting the fundamental issues and thus counterproductive.
Moving on, I would take issue with your description of specie-based monetary systems as "natural" or "stable". In my view, they are neither. Throughout history, economies built on foundations of metal currencies have been plagued by recurring crises and ever-increasing inequality. Both of these problems are completely logical and predictable consequences of hoardable currency. (Stay tuned for my next article, which will be about the gold standard. In it, I will discuss Gesell's diagnosis of the reasons why specie-based monetary systems have crises and inequality built into their DNA.) In my view, the system proposed by Gesell is both more natural and would be more stable than any monetary system that has been tried thus far.
Regarding Marx's discussion of the precious metals, one single sentence encapsulates Gesell's entire critique. Marx wrote, "The high specific value of precious metals... make precious metals the natural material for hoarding." That is exactly the problem! That is why they are the worst possible choice for use as media of exchange. As discussed in one of my other essays, this boils down to the problem of the dual functions of money. The conventional wisdom is that money should function both as a medium of exchange and a store of value. What the conventional wisdom fails to understand is that these two functions are mutually contradictory. Any object that can function as a store of value will systematically fail to function as an effective medium of exchange. So, by all means, people can and should use precious metals to store wealth. But metals absolutely should not be used as the officially designated form of legal tender. (Incidentally, the very next sentence from the Marx passage that you shared furthers the point. He mentions the fact that sacks of cocoa were used as money in Mexico and that cocoa "protects its innocent possessors from the infernal disease of avarice, since it cannot be long hoarded." Marx seems to be making this point in jest, but he has inadvertently hit the nail right on the head. Specie-based money is one of the root causes of avarice. This was understood as far back as ancient Greece, when the Spartan lawmaker Lycurgus outlawed the use of precious metals as money and replaced them with iron money, which was much harder to transport or hoard. This change in monetary arrangements reportedly led to a swift decrease in crime, corruption and inequality and an increase in overall prosperity.) The fact that every single country on earth that has ever used specie-backed currency has been forced to abandon it should be strong evidence of the unsuitability of precious metals for use as media of exchange.
Gesell held Marx in pretty low regard (as do I) and compared him unfavorably with the French economist Pierre Joseph Prouhon, who was a contemporary and acquaintance of Marx. The two men wrestled with the same problems and came to very different conclusions. Here are a couple relevant excerpts from Gesell's book:
"No capitalist is afraid of his [Marx’s] theory, just as no capitalist is afraid of the Christian doctrine; it is therefore positively an advantage to capital to have Marx and Christ discussed as widely as possible, for Marx can never damage capital. But beware of Proudhon; better keep him out of sight and hearing! He is a dangerous fellow since there is no denying the truth of his contention that if the workers were allowed to remain at work without hindrance, disturbance or interruption, capital would soon be choked by an over-supply...
The abolition of unearned income, of so-called surplus-value, also termed interest and rent, is the immediate economic aim of every socialistic movement. The method generally proposed for the attainment of this aim is communism in the shape of nationalization or socialization of production. I know of only one socialist — Pierre Joseph Proudhon — whose investigations into the nature of capital point to the possibility of another solution of the problem. The demand for nationalization of production is advocated on the plea that the nature of the means of production necessitates it. It is usually asserted off-hand, as a truism, that ownership of the means of production must necessarily in all circumstances give the capitalist the upper hand when bargaining with the workers about wages — an advantage represented, and destined eternally to be represented, by ‘surplus-value’ or capital-interest. No one, except Proudhon, was able to conceive that the preponderance now manifestly on the side of property can be shifted to the side of the dispossessed (the workers), simply by the construction of a new house beside every existing house, of a new factory beside every factory already established...
Marx succumbs to a popular fallacy and holds that capital consists of material goods. For Proudhon, on the contrary, interest is not the product of material goods, but of an economic situation, a condition of the market. Marx regards surplus-value as spoil resulting from the abuse of a power conferred by ownership. For Proudhon surplus-value is subject to the law of demand and supply… According to Marx, surplus-value must invariably be positive. For Proudhon the possibility of negative surplus-value must be taken into consideration. (Positive surplus-value is surplus-value on the side of supply, that is, of the capitalist, negative surplus-value is surplus-value on the side of labor). Marx's remedy is the political supremacy of the dispossessed, to be achieved by means of organization. Proudhon's remedy is the removal of the obstacles preventing us from the full development of our productive capacity. For Marx, strikes and crises are welcome occurrences, and the final forcible expropriation of the expropriators is the means to the end. Proudhon, on the contrary, says: On no account allow yourselves to be deterred from work, for the most powerful allies of capital are strikes, crises and unemployment; whereas nothing is more fatal to it than hard work. Marx says: Strikes and crises will sweep you along towards your goal; the great collapse will land you in paradise. No, says Proudhon, that is humbug, methods of that kind carry you away from your goal. With such tactics you will never filch as much as one per cent from interest. To Marx private ownership means power and supremacy. Proudhon, on the contrary, recognizes that this supremacy is rooted in money, and that under altered conditions the power of private ownership may be transformed into weakness."
P.S. Since you're a physicist, you might be interested to know that Gesell and Einstein were reportedly friends and liked to play cards together. Einstein was an enthusiastic supporter of Gesell's ideas, and there are reports of a conversation between Einstein and Charlie Chaplin in Berlin in 1931 in which the two men discussed Gesell's ideas.
The questions list is interesting, but I disagree that the reason why money earns interests is circular. I'm going to continue reading through your posts.
Edit: After watching the video course by the Silvio Gesell Foundation, I've changed my mind about this. It is circular indeed.
The story of robinson crusoe link is broken :(
Fortunately, this link still works: https://web.archive.org/web/20240623022909/https://www.appropriate-economics.org/materials/crusoe.html
Fixed the link. Thanks!
I think another way to say it is that consumption has diminishing marginal utility. So as long as money doesn't have diminishing marginal utillity it will be able to exact interest.
But I'm not sure if there's an example of negative time preference (all the above examples are of diminishing marginal utility, not straight up negative time preference)
Hello everyone,
„In a free society, when offered payment in a stable/rare currency, and a depreciating currency, a person will rationally chose the stable/rare. The general adoption of a depreciating currency would therefore require a deep invasion into the personal freedom of the citizens to prevent the spontaneous arising of black markets using stable/rare money.“
Regarding the question of how to implement Gesellian money, it is interesting to note Gresham‘s Law. It roughly says ‚bad’ (here: depreciating) money always supersedes ‚good‘ (here: value stable) money. This is because everyone wants to keep the value stable money and wants to pay with the depreciating money. Therefore, depreciating money is circulating more widely and eventually supersedes value stable money by means of a simple market mechanism. It is utterly possible that depreciating money, once introduced (maybe in crypto form), outperforms value stable money in the long run.
Hi Selina. Thanks for your comment. I believe Gesell's response to your observation would be that there should be no such thing as "stable/rare" currency. Currency is a creation of the state for the purpose of facilitating economic exchange. And there is no reason why that instrument should be hoardable. The vast majority of real goods and services are not hoardable, so why should money be? Creating a hoardable currency is contrary to the laws of nature. Why should money be immune to the forces of nature when the goods and services it was invented to serve are not immune? Gesell argues that it was an unnatural, irrational choice to create a form of money that is not subject to the same forces that affect real goods and services. Doing so results in a fundamentally flawed medium of exchange which fails to circulate at precisely the moments when society most needs it to do so. A rationally created medium of exchange would not have that problem.
And, to be clear, Gesell didn't have any problem with the hoarding of wealth. He had no objection to people using things like gold, silver, precious stones, art, oil, agricultural products, etc. to store wealth. So there would be no need for black markets. Hoarding stable/rare assets would be perfectly legitimate and legal. The only thing Gesell believed should not be used as a means to store wealth is the government designated medium of exchange. So I fail to see how creating an unhoardable form of currency represents any invasion of personal freedom.
Dear Josh,
I totally agree with you on this. My post was intended to be a reply to Franklin Lonberg. You answered to the quote of him which I was also trying to address. :-)
Franklin questioned if depreciating, Gesellian money would have a chance in a free market society and feared it would only be possible to implement it by force, against the will of the people, which would, as he puts it, mean an invasion to personal freedom. My reply is to point out Gresham's Law (see https://en.wikipedia.org/wiki/Gresham%27s_law), which makes it very likely that depreciating money indeed would prevail in a free market situation with maybe two or more competing forms of money.
My complements on a thoughtful and stimulating presentation. As you invite comments it submit:
I read the excerpt from Gesell’s book. I liked it a lot. I am a great believer in the use of dialog to present a case.
Gesell cites a quotation form Marx.
‘Like all his disciples he (Marx) made the mistake of excluding money form the scope of his inquiry. He was fascinated by the shining metal disks, otherwise he could never have used the following words: "Gold and silver are not by nature money, but money is by nature gold and silver, witness the coincidence of their natural properties with its functions”.’.
In the spirit of fair debate, since he brought this up, I think the full context of the quote should be cited. It comes from a chapter of Marx’s Critique of Political Economy, entitled “The Precious Metals”.
https://www.marxists.org/archive/marx/works/1859/critique-pol-economy/ch02_4.htm
Marx description of that natural evolution of precious metals as a store of value and medium of exchange seems quite convincing to me. If there is a flaw in this argument I would like to know where it is. Furthermore the adoption of stable/rare materials as money takes place across many cultures, supporting the assertion that it is natural.
If one accepts as true the natural evolution of stable/rare monetary systems, this does not imply that it is the best monetary system. I will stipulate that a depreciating monetary medium may well be better, in providing a more level bargaining field as you point out. However, there is the question of how such a system is to be implemented over the natural rare/stable system. In a free society, when offered payment in a stable/rare currency, and a depreciating currency, a person will rationally chose the stable/rare. The general adoption of a depreciating currency would therefore require a deep invasion into the personal freedom of the citizens to prevent the spontaneous arising of black markets using stable/rare money.
In my view, the amelioration of the faults of capitalism and stable/rare money can be accomplished with far less invasion, namely by welfare capitalism. Here the government redistributes resources, thereby undoing the exploitation inherent in capitalism, without repressing the natural stable/rare monetary system The good thing is that the poor will always outnumber the rich, so, in a democracy, the poor have the power to demand a fairer share then is provided them by pure capitalism. There are presently quite a few democratic countries which in which the effect welfare capitalism in reducing income inequality can be seen. The effectiveness of welfare capitalism is shown in the below chart of a measure on income inequality equality.
https://data.oecd.org/inequality/income-inequality.htm

Thanks so much for your comment! There is a lot to respond to, so here goes...
First, I will readily acknowledge the difficulty of implementing Gesell's ideas. Personally, I am much more interested in exploring the logic and mechanics of monetary systems than thinking about the politics of implementation. So, to the extent that I have any contribution to make, it is in the realm of keeping these ideas in circulation and getting them out to a wider audience. My belief is that eventually circumstances will align to make the adoption of Gesell's ideas politically feasible, but I have no idea how or when that will happen. I very well may not be around to see it. (One possible route to the adoption of Gesell's ideas could be via financial collapse. So, while I agree with you that it is hard to imagine how these ideas could be implemented under the present circumstances, a meltdown of the global financial system -- something that I think is a real possibility -- might make such a thing possible.)
As for your argument in favor of a "less invasive" approach to solving our problems, I would compare the situation to the overthrow of the earth-centered view of the universe in favor of the heliocentric worldview. The basic mechanics of our existing system are irrational, and it will require more and more band-aids to hold that system together. That is because we are fighting against logic and reason.
It is as if we built an incredibly powerful engine (the free market system) and then inadvertently poured the wrong kind of fuel into the gas tank. We could go on endlessly addressing the symptoms of the problem -- maybe the spark plugs need to be changed, maybe fuel line is blocked, maybe the timing belt is going bad -- when the fact is that the engine can't possibly function properly if we're not using the right kind of fuel.
So I'm not particularly interested in efforts to save the existing system -- because I don't believe it can't be saved. We can only delay its demise. So I view policies aimed at propping up the existing system -- such as welfare capitalism -- as comparable to the bizarre contortions that adherents of the earth-centric universe engaged in to avoid accepting the heliocentric paradigm shift. Such policies may help slightly at the margins, but they are ultimately efforts to swim against the tide of logic and history. This is why I don't get involved with specific policy debates over issues like raising the minimum wage, forgiving student debt, etc. For one thing, I have serious doubts that such measures will accomplish their stated goals, and secondly I consider them to be ways to avoid confronting the fundamental issues and thus counterproductive.
Moving on, I would take issue with your description of specie-based monetary systems as "natural" or "stable". In my view, they are neither. Throughout history, economies built on foundations of metal currencies have been plagued by recurring crises and ever-increasing inequality. Both of these problems are completely logical and predictable consequences of hoardable currency. (Stay tuned for my next article, which will be about the gold standard. In it, I will discuss Gesell's diagnosis of the reasons why specie-based monetary systems have crises and inequality built into their DNA.) In my view, the system proposed by Gesell is both more natural and would be more stable than any monetary system that has been tried thus far.
Regarding Marx's discussion of the precious metals, one single sentence encapsulates Gesell's entire critique. Marx wrote, "The high specific value of precious metals... make precious metals the natural material for hoarding." That is exactly the problem! That is why they are the worst possible choice for use as media of exchange. As discussed in one of my other essays, this boils down to the problem of the dual functions of money. The conventional wisdom is that money should function both as a medium of exchange and a store of value. What the conventional wisdom fails to understand is that these two functions are mutually contradictory. Any object that can function as a store of value will systematically fail to function as an effective medium of exchange. So, by all means, people can and should use precious metals to store wealth. But metals absolutely should not be used as the officially designated form of legal tender. (Incidentally, the very next sentence from the Marx passage that you shared furthers the point. He mentions the fact that sacks of cocoa were used as money in Mexico and that cocoa "protects its innocent possessors from the infernal disease of avarice, since it cannot be long hoarded." Marx seems to be making this point in jest, but he has inadvertently hit the nail right on the head. Specie-based money is one of the root causes of avarice. This was understood as far back as ancient Greece, when the Spartan lawmaker Lycurgus outlawed the use of precious metals as money and replaced them with iron money, which was much harder to transport or hoard. This change in monetary arrangements reportedly led to a swift decrease in crime, corruption and inequality and an increase in overall prosperity.) The fact that every single country on earth that has ever used specie-backed currency has been forced to abandon it should be strong evidence of the unsuitability of precious metals for use as media of exchange.
Gesell held Marx in pretty low regard (as do I) and compared him unfavorably with the French economist Pierre Joseph Prouhon, who was a contemporary and acquaintance of Marx. The two men wrestled with the same problems and came to very different conclusions. Here are a couple relevant excerpts from Gesell's book:
"No capitalist is afraid of his [Marx’s] theory, just as no capitalist is afraid of the Christian doctrine; it is therefore positively an advantage to capital to have Marx and Christ discussed as widely as possible, for Marx can never damage capital. But beware of Proudhon; better keep him out of sight and hearing! He is a dangerous fellow since there is no denying the truth of his contention that if the workers were allowed to remain at work without hindrance, disturbance or interruption, capital would soon be choked by an over-supply...
The abolition of unearned income, of so-called surplus-value, also termed interest and rent, is the immediate economic aim of every socialistic movement. The method generally proposed for the attainment of this aim is communism in the shape of nationalization or socialization of production. I know of only one socialist — Pierre Joseph Proudhon — whose investigations into the nature of capital point to the possibility of another solution of the problem. The demand for nationalization of production is advocated on the plea that the nature of the means of production necessitates it. It is usually asserted off-hand, as a truism, that ownership of the means of production must necessarily in all circumstances give the capitalist the upper hand when bargaining with the workers about wages — an advantage represented, and destined eternally to be represented, by ‘surplus-value’ or capital-interest. No one, except Proudhon, was able to conceive that the preponderance now manifestly on the side of property can be shifted to the side of the dispossessed (the workers), simply by the construction of a new house beside every existing house, of a new factory beside every factory already established...
Marx succumbs to a popular fallacy and holds that capital consists of material goods. For Proudhon, on the contrary, interest is not the product of material goods, but of an economic situation, a condition of the market. Marx regards surplus-value as spoil resulting from the abuse of a power conferred by ownership. For Proudhon surplus-value is subject to the law of demand and supply… According to Marx, surplus-value must invariably be positive. For Proudhon the possibility of negative surplus-value must be taken into consideration. (Positive surplus-value is surplus-value on the side of supply, that is, of the capitalist, negative surplus-value is surplus-value on the side of labor). Marx's remedy is the political supremacy of the dispossessed, to be achieved by means of organization. Proudhon's remedy is the removal of the obstacles preventing us from the full development of our productive capacity. For Marx, strikes and crises are welcome occurrences, and the final forcible expropriation of the expropriators is the means to the end. Proudhon, on the contrary, says: On no account allow yourselves to be deterred from work, for the most powerful allies of capital are strikes, crises and unemployment; whereas nothing is more fatal to it than hard work. Marx says: Strikes and crises will sweep you along towards your goal; the great collapse will land you in paradise. No, says Proudhon, that is humbug, methods of that kind carry you away from your goal. With such tactics you will never filch as much as one per cent from interest. To Marx private ownership means power and supremacy. Proudhon, on the contrary, recognizes that this supremacy is rooted in money, and that under altered conditions the power of private ownership may be transformed into weakness."
P.S. Since you're a physicist, you might be interested to know that Gesell and Einstein were reportedly friends and liked to play cards together. Einstein was an enthusiastic supporter of Gesell's ideas, and there are reports of a conversation between Einstein and Charlie Chaplin in Berlin in 1931 in which the two men discussed Gesell's ideas.