Autrian school and Silvio Gesell

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Rcder replied on Fri, Jul 13 2012 2:35 PM

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So Silvio Gesell basically advocated an extremely crude variety of inflationism?

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skylien replied on Fri, Jul 13 2012 2:50 PM

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@jtimon

Again you completely sidestepped my question. That's purely arbitrary numbers they say, he could have said a trillion just as well. You cannot  trade meaningfully if you can trade things that you do not even possess. Listen, you seem to be a nice guy, but you have no idea what actually the problematic part is with those schemes you offer. It is the problem of economic calculation. Prices are signals that give people information on current supply and demand situations in the market. And in order to form meaning full prices (which is nothing more as an exchange ratio) you need trade. Real trade that is constraint by limited goods and limited money.

Please read those two things, then I hope you will understand:

1. Carl Mengers Principles of Economics (This is an important book about value theory).

2. Mises Socialism (In this one the Economic Calculation Problem is described).

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jtimon replied on Tue, Jul 17 2012 4:59 AM

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So Silvio Gesell basically advocated an extremely crude variety of inflationism?

Silvio Gesell didn't advocated mutual credit monetary system (LETS, Ripple, etc) because they didn't exist yet. Someone asked and I just answered.
My belief is that he wouldn't have considered them capital money. Being abundant, they present no interest and their velocity is also higher than that of capital-money.
Free monies (scarce monies with demurrage) aren't necessarily inflationary. For example, Freicoin will have a fized supply.
Mutual credit (abundant monies) aren't inflationary neither. It all depends on the unit they're denominated, they can even be deflationary. The credit can be denominated in ounces of gold, bitcoin or even 1970usd (usd from 1970 adjusted to inflation). You can even define your own unit through a basket of commodities or any other currency. Whatever the money users agree upon. Credit money has indeed more potential for price stability than cash-money.

Again you completely sidestepped my question. That's purely arbitrary numbers they say, he could have said a trillion just as well.

I don't know where he got those approximations from, but you're not refuting it with other data. You say you don't beleive it, fine.
The point is...do you agree that the best money is the one that enables trade with the lowest total costs?

You cannot trade meaningfully if you can trade things that you do not even possess.

I don't understand this. Is it about mutual credit? You're trading wares for debt that is redeemable for other wares. It is voluntary and serves as medium of exchanges. What's your problem with that?

Listen, you seem to be a nice guy, but you have no idea what actually the problematic part is with those schemes you offer. It is the problem of economic calculation. Prices are signals that give people information on current supply and demand situations in the market. And in order to form meaning full prices (which is nothing more as an exchange ratio) you need trade. Real trade that is constraint by limited goods and limited money.

Cash-money needs to be limited, credit money doesn't. Anyway, Gesell wanted cash. What would be wrong with a scarce money with a demurrage fee? How society would collapse using this kind of money instead of gold?

 Demurrage != monetary inflation. Demurrage lowers the interest rates but not by manipulating the financial market like central banks. Price signals are still there. The only flawed signal that is suppressed is the one that stops investments where capital yields fall below the basic interest even when they're still profitable (captial yields greater than zero). I'm not talking about today's monetary system but about gold. Look, money is a tool, a technology. Why do you expect one of its first implementations (gold) to be the best one?

Please read those two things, then I hope you will understand:

1. Carl Mengers Principles of Economics (This is an important book about value theory).

2. Mises Socialism (In this one the Economic Calculation Problem is described).

I'm familiarized with austrian economics. I'm for "subjective theory of value" and if you had read Silvio Gesell you would know he thinks the same. He doesn't call it "subjective theory of value" and in fact he just says that all theories of "value" are wrong, specially critic with Marx's labor theory of value. He talks about  "the phantom of value". But in the end Menger and Gesell are saying the same thing on this point: prices depend on supply and demand (not on costs) and value is always subjective.

Gesell is very critic with Marxism and the state. I know what Mises's book says more or less but I still want to read it because I'm sure I'll find very powerful arguments to convince my leftists friends that the state is not the solution to our problems. I don't have much time and I've started human action first. Thank you for both links.

I recommend you to read Silvio Gesell's main book to know what I'm talking about, but if you're not in the mood or don't have time, I'm happy to exmplain you his thoughts (and my own hybrid "gesell-austrian theory" too).
I disagree with him when he says:

1) Money is a natural monopoly and therefore a task for the state (I'm with E.C. Riegel here annd think issuance of money should be a fundamental right of the individual).

2) Stable prices are necessary for a healthy economy. I think his demurrage prevents hoarding and hoarding caused deflationary spirals. That's enough. Nothing wrong with growth caused deflation.

I disagree with the austrian school in its time-preference theory on interest. The free-money theory is better. Time preference doesn't cause the basic interest, it's the other way around: interest causes time preference. Our monetary system imposes a short-term view of investments and the world on us. Look at this picture and ask whatever you don't undesrtand about the tree metaphor there:

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skylien replied on Wed, Jul 18 2012 5:11 AM

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I am really sorry, but you are talking complete rubbish in my opinion ;)

If you think you can have a “debt” money based on labor hours I really cannot help you. I hope you know this is stupid since you already said yourself value theories based on labor are wrong. It is just impossible to trade IOUs of “average skilled worker hours”.

If you think you can have a “debt” money based on IOUs that are based on silver ounces, then in fact you have a silver commodity standard. The issuer of such notes will be asked time and time again to show that he really can redeem the IOU in physical silver. This IOUs represents a money substitutes in this case.

It is impossible to believe that all people do is only trading those IOUs without ever having to redeem them, just because they are all so trustworthy. And even if all did that and didn't gather physical silver in the market to redeem such IOUs how would you ever know how much you could actually acquire if you tried? If you do it, physical silver is money. If you don’t do it you cannot put a value on it. And that is why you could only offer IOUs with absolute arbitrary numbers like trillion ounces of silver which would create meaningless prices in the market. Trade was outright impossible anyway, because no one could ever agree on a price.

Also people in a free market would not favor any demurrage on the money offered to them, if there is a demurrage free alternative which, you can bet your farm on, IS in a free market! I am sure Gesell knew this. This is exactly the reason why he favors a government to issue demurrage money. Only a government is able to push this into the market.   

And no, money is not a technology. You can use technology to trade money more easily. However money is a concept. You need to understand this concept to understand what kind of technology will help and which won’t. Demurrage is not a technology either, it is a concept as well that doesn’t work well with money naturally. It is like having a car and thinking they will drive better if you put a little bit of sand into the gearbox. The concept of sand in the gearbox is just wrong.

I will read Gesell, but I mainly will do that because I want to know how far Gesell and Keynes are overlapping. It was Keynes who praised Gesell’s theories not Mises. Both (Gesell and Keynes) believe “hoarding” is something unnatural that is bad. I don’t. And for the record: Prior to 2008 nobody “hoarded” cash under his mattress. So “hoarding” could hardly be the cause for that downturn.

I want to repeat. I don’t think you really understand value theory to its full extend, which must include money, and therefore you cannot understand what is a meaningful price and what is not (Economic Calculation Problem). And I guess it will end there, because we start to turn in circles already, and I am amazed that you even deny people naturally have a time preference. Therefore I really don’t see much chance of progress in this discussion. Anyway, no hard feelings! Cheers!

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jtimon replied on Thu, Jul 19 2012 7:42 AM

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I am really sorry, but you are talking complete rubbish in my opinion ;)

Then refute Gesell's theory on interest with praxeology, that's what I'm asking for in the thread. Or just link me to an austrian econimst that has a decent critique of Gesell if there's any.

If you think you can have a “debt” money based on labor hours I really cannot help you. I hope you know this is stupid since you already said yourself value theories based on labor are wrong. It is just impossible to trade IOUs of “average skilled worker hours”.

There's lots of private credit currencies in circulation today. It's not what I think, they work and that's a fact despite you ignore it.
I never said "average skilled worker hours", I said "unskilled hours of labor". Anyway, that's just the unit. If you don't like it, you can use usd, 1970usd (adjusted for deflation), ounces of silver or gold, a basket of commodities you define...Mutual credit can use ANY unit that their users are comfortable with. You think that private monies are always backed (redeemable for somthing stored), but that's not the case. Here you have a list with complementary currencies, many of them are based on mutual credit:
http://www.complementarycurrency.org/ccDatabase/

If you think you can have a “debt” money based on IOUs that are based on silver ounces, then in fact you have a silver commodity standard. The issuer of such notes will be asked time and time again to show that he really can redeem the IOU in physical silver. This IOUs represents a money substitutes in this case.

No, you're wrong. You're not asked to redeem your debts for real ounces of silver, just like you're not asked to redeem them for usd is that's the chosen unit. You redeem your debts for your goods and services and all the participants in the exchange system (if you don't want ot call it money) know it.
Mutual credit systems are not money substitutes, they are money according to my definition, which probably differs from yours.
For me money = medium of exchange. If you're not confortable with that definition, just replace "money" with "medium of exchange" in everything I said.

It is impossible to believe that all people do is only trading those IOUs without ever having to redeem them, just because they are all so trustworthy. And even if all did that and didn't gather physical silver in the market to redeem such IOUs how would you ever know how much you could actually acquire if you tried? If you do it, physical silver is money. If you don’t do it you cannot put a value on it. And that is why you could only offer IOUs with absolute arbitrary numbers like trillion ounces of silver which would create meaningless prices in the market. Trade was outright impossible anyway, because no one could ever agree on a price.

You're not getting it. You redeem the IOUs and destroy them. But you don't necessarily need to redeem them for the common unit of value chosen.
Imagine the baker printed IOUs like this "I owe you a loaf of bread", the bartender "I owe you a beer on my pub", etc.
They could trade these IOUs and when they get them back, they destroy them because the debt is settled. But everyone using a different unit to denominate their IOUs is not convenient, that's why they chose usd or silver. People is not issuing a silver backed currency as you think.

A few authors I can recommend you:
E.C. Riegel: a libertarian that advocated for a free monetary market and credit money. (http://www.newapproachtofreedom.info/)
Bernard Lietaer: the future of money
Thomas Greco: The End of Money and the Future of Civilization

Hopelly you will undesrtand LETS and mutual credit in general later. The Ripple wiki may help too:

http://ripple-project.org/

And remember, this is not what Gesell proposed. It's more similar to Proudhon's proposal (banks of exchange). Gesell said about Proudhon something like this: "Proudhon - unlike Marx - undesrtood the problem with capitalism (different from free market), but his solution didn't work".

Also people in a free market would not favor any demurrage on the money offered to them, if there is a demurrage free alternative which, you can bet your farm on, IS in a free market! I am sure Gesell knew this. This is exactly the reason why he favors a government to issue demurrage money. Only a government is able to push this into the market.

No. Gesell believed that money was a natural monopoly. He didn't talked about monies competing in a free market. Since he understood tha money needs no backing, he thought that only the state could issue it. Nowadays we have lots of competing currencies (for example, there's more than 700 complementary currencies in Japan) that prove he was wrong. We even have unbacked non fiat scarce money today (bitcoin), something that was unthinkable in his time.

But we will have a non fiat currency with demurrage competing with a very similar to a a currency without it soon. It's called freicoin and will compete against bitcoin. What I think will happen, is tha people will trade more with freicoin and hoard more bitcoin. It is even possible that bitcoin has a bigger market capitalization but freicoin conducts more trade, since it will have a faster velocity.

And no, money is not a technology. You can use technology to trade money more easily. However money is a concept. You need to understand this concept to understand what kind of technology will help and which won’t. Demurrage is not a technology either, it is a concept as well that doesn’t work well with money naturally. It is like having a car and thinking they will drive better if you put a little bit of sand into the gearbox. The concept of sand in the gearbox is just wrong.

All words refer to concepts, yes.
But Money still is a tool for trade. If it's not a tool, what is it? And please don't repeat the "funcions of money".
Demurrage has proven to work well several times. The best known example is the Wörgl experiment. It was far better than the national currency for the main purpose of money: serve as a medium of exchange. Free money is faster than capital money, your methapor doesn't llok good.

I will read Gesell, but I mainly will do that because I want to know how far Gesell and Keynes are overlapping. It was Keynes who praised Gesell’s theories not Mises. Both (Gesell and Keynes) believe “hoarding” is something unnatural that is bad. I don’t. And for the record: Prior to 2008 nobody “hoarded” cash under his mattress. So “hoarding” could hardly be the cause for that downturn.

Keynes praised Gesell but he ignored several critical points of his theory. Gesell predicted tha a paper money like the one we have (Keynesian money) would end up with hyperinflation. But thank you. Our discussion can be far more interesting after you read it. You can skip the first two parts that talk about land.

I want to repeat. I don’t think you really understand value theory to its full extend, which must include money, and therefore you cannot understand what is a meaningful price and what is not (Economic Calculation Problem). And I guess it will end there, because we start to turn in circles already, and I am amazed that you even deny people naturally have a time preference. Therefore I really don’t see much chance of progress in this discussion. Anyway, no hard feelings! Cheers!

No, no. I want money. I agree, money is needed. What I don't accept is that "only precious metals can be money". Monies, just like the rest of the tools we've invented, can be improved. And gold has a fatal flaw as money, which is preventing competition between real capitals by not financing further investment if capital yields are below the basic interest rent.

The time preference theory on interest is actually the main point of disagreement between austrian school and Gesell. I'm not saying that people don't have a time preference, what I say is that it is influenced by the interest (which depends on the type of money). Austrians see it the other way around. Money (they often ignore that there's many types with different properties) doesn't influence the time preference and the basic interest is equal to the average time preference of people. Interest is caused by cause preference. But if there was no everlating commodities to use as money, if money was, for example fish (like in some island examples), people would not always prefer all the fish now. They may prefer it in the future even at no interest. Don't know what's wrong with my oranges example. Do you necessarily prefer 5000 fresh oranges today over one fresh orange each day for the next 5000 days?

No hard feelings here neither. After all, we're both monetary reformists that want to change the current system. And I guess we're both on the "free monetary market" side of this reformism. You don't want a gold standard enforced by the state, right?

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skylien replied on Thu, Jul 19 2012 8:08 AM

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@jtimon.

Just two last things:

1: No Right, I don't want the government involved in any of the money business.

2: You misunderstand the time preference theory. It only says that given all else equal you prefer to receive something that you value you now to later. This means all variables are the same except time! Your example with the oranges violates this condition. Not only does time change. Also the amount of oranges changes that you get. The right comparison was: (If you had to decide today) Would you rather have 5000 fresh oranges today or in one year from now? This thought experiment even includes that your preferences will be exactly the same next year (All else equal!). Really everything is the same, except the point of time! That's all. It is very trivial in fact.

Edit above.

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jtimon replied on Mon, Jul 23 2012 3:58 AM

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Just two last things:

1: Right, I don't want the government involved in any of the money business.

We advocate for the same "free monetary market" reform.

2: You misunderstand the time preference theory. It only says that given all else equal you prefer to receive something that you value you now to later. This means all variables are the same except time! Your example with the oranges violates this condition. Not only does time change. Also the amount of oranges changes that you get. The right comparison was: (If you had to decide today) Would you rather have 5000 fresh oranges today or in one year from now? This thought experiment even includes that your preferences will be exactly the same next year (All else equal!). Really everything is the same, except the point of time! That's all. It is very trivial in fact.

No, I was only changing the time. What do you prefer, 5000 usd today or 1usd each day for the next 5000 days?

Time preference theory says anyone would prefer the 5000 usd today because of time preference.

The same doesn't apply to oranges, for example. That only applies to scarce and everlasting money. That is, to capital-money.

This little story may fix your intuition or eliminate your prejudices on interest:

http://www.community-exchange.org/docs/Gesell/en/neo/part5/1.htm

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Daniel James Sanchez replied on Sun, Nov 4 2012 6:53 PM

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He proposed a tax on holding money.

He's mentioned by Mises in passing.

Hayek dealt with two other underconsumptionists, and some of his arguments may apply to Gessel. See: http://mises.org/daily/2804

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Jon Irenicus replied on Mon, Nov 5 2012 2:19 PM

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The same doesn't apply to oranges, for example. That only applies to scarce and everlasting money. That is, to capital-money.

...because? TP applies to any good. Money is simply by its nature homogeneous, but it is directed towards procuring other goods, whichever those may be. You can certainly face the choice between oranges (for the same uses i.e. homogeneous in their goods-character) now or oranges in the future. If the supply is the same, the present good will command a premium over its future alternative.

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liberation replied on Sun, Nov 18 2012 7:33 PM

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> Hayek dealt with two other underconsumptionists, and some of his arguments may apply

> to Gessel. See: http://mises.org/daily/2804

Thanks... but it was not so easily understandable. Maybe I should sign up for Free Market Econ. 101 by Tom Woods or Bob Murphy.