What is “Money to Depreciate”?

DepreciatingMoney

“Money to depreciate” or “Free money” is a theory proposed by Silvio Gesell (1862-1930), which is said to change the existing currency system fundamentally.

This time I’d like to introduce this theory to you.

 

 

What is the Problem of Legal Currency?

Have you ever thought about the problem of legal currency currently in use?

Silvio Gesell considered problems with the privilege of money that the value of currency would not decrease when compared to the value of products.

The Value of Products will be Lost.

Any product will lose its value as time goes by.

For example, nobody wants to buy and read yesterday’s newspaper today, and perishables such as fish and meat will be spoiled after several weeks, and no one wants to buy them.

When it comes to rice, clothes, or housing, quality will be maintained for a certain period, but it will inevitably deteriorate over time.

 

The Value of Money will not Decrease.

The value of products will be lost over time, but how about the value of money?

As a general rule, money does not reduce its value unless inflation occurs. For example, while a lunchbox shop is trying to sell all the lunchboxes when they’re hot and fresh, even giving some discount, the owner of money can buy the lunchbox whenever he/she wants with his/her money without losing its value.

As seen in above, since money has the characteristics that its value does not decrease, when you lend money you can claim interest.

 

 

What Happens if Money Depreciates?

Chiemgauer

Reference:「Chiemgauer」Community Currency Knowledge Gateway

Then Silvio Gesell proposed to “extinguish the privilege of money.” Specifically, suppose you had bills of 1,000 yen, 5,000 yen, and 10,000 yen, and on every Monday you had to buy a stamp of 0.1% of face value and paste it on the back of the bill. With this system, they tried to extinguish the privilege of money by reducing the value of money as time passes, just like the value of products.

 

This proposal actually demonstrated in some experiments. The most famous experiment took place in Wörgl, Austria from 1932 to 1933.

In this experimental result, public works worth 100,000 shillings (≒9,000 US dollar) were implemented in just 4 months, all delinquent tax were paid, and tax revenue exceeded 30%, which is 8 times of the previous. Furthermore, it is said that the unemployment rate declined and almost delivered full employment. In other words, the currency depreciation made people use more and more money, which created a virtuous cycle of employment.

 

 

Problems of Depreciating Money

Apparently, the money depreciation policy seems to be excellent, but what kind of problems does it have?

 

Possibility of Promoting Environmental Problems

The money depreciation theory proposes that money should be implemented a character of depreciation in order to equalize the transactions of a seller and a buyer, since money itself doesn’t lose its value as time passes, different from products.

However, on the other hand, trading can be done equally if we could maximize the durability of products.

Therefore, if we adopt the money depreciation policy, consumption will increase and cycles to replace things will be faster, and there is a concern about negative effect to the environment.

 

Defects of Financial Institutions

Another problem is that financial institution might stop functioning.

If the value of money decreases, less and less people will think about depositing their money in the bank, as they lose the value of money while depositing.

Since banks are built upon our deposits, they cannot make loans if no one deposits to them and it is possible for banks to stop functioning.

 

 

Conclusion

The money depreciation policy can be an epoch-making policy to circulate the economy by promoting consumption and generating a lot of employment.

However, it is true that we have to overcome many problems in order to implement the policy. Maybe those problems can be solved if every person considers about them.

It is good time to think about problems of money and their solutions.