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"wares" probably comes from the German word "Waren" which is the same as goods/services. In essence, everything that is sold in a market.

Odie: the "sold in a market" bit is perhaps important in this context. Would it be correct to say (in German) that Robinson Crusoe produces goods and services, but produces no Waren, because he does not produce for the market? If so, then the word "ware" (as opposed to goods) is very important for Gesell, when he is talking about money. He says that money is a ware.

Nick: I don't think so. The word "Waren" is the economic term for the word "good" in english and it only refers to tangible stuff (as oposed to service).

The german word "Güter" (which sounds somewhat like "good") is the more common term for tangible goods + service.

I have found the German original: http://geokey.de/literatur/doc/nwo.pdf After a quick glance it looks like he means tangible goods by "Waren". The part I have skimmed over he also talks about produced but unsold goods. His definitions may be a bit "fuzzy" than what would be standard today. Maybe not surprising since the book is a 100 years old and neither did he have a formal education in economics. I should take a closer look at the original since I have found it online; looks like it could be interesting.

Sven and Odie: thanks. It doesn't matter much if he's a bit fuzzy. I just wondered if he might be emphasising some distinction, by his choice of words, between goods and goods that are marketed. Because when it comes to monetary economics, goods intended for own consumption don't matter.



What does Gesell mean by money? If money had a negative interest rate, I'd want to have as little as it as possible. And I'm thinking that if I paid for everything using my credit card, and then paid off my credit card from some kind of savings account - would I have any "money"? Is there any kind of liquid financial asset that I could use to pay my credit card bill that wouldn't count as money?

What is the difference between a negative interest rate on money and a tax on wealth held in the form of money? If there is a difference, why does it matter?

Frances: he's talking about currency. I didn't notice him talking about the effect his proposed tax on currency would have on the use of credit, and whether it matters. But maybe I missed it. Good point.


etwas, das in einem Laden zum Verkauf angeboten wird

translates as: something that is offered for sale in a shop.

Oliver: Aha! Then "Merchandise" would be a synonym. Something bought and then sold again by a merchant. Just as all of us buy and then sell money.

Yes, I think that would a good synonym. The dictionary translates its meaning in commerce as product, commodity or merchandise.

Handelsware would be the exact translation of merchandise, I think. Händler = merchant. Ware may just be an abbreviation of Handelsware. Both are used exclusively in an economic / commercial context.

Small point about MV=PT:

PT is the (flow) demand for money, and the (flow) supply of goods

Since T is transactions, and there are many kinds of transactions that don't involve goods (or services), e.g., assets, including paper assets, this isn't quite correct is it? It abstracts from the effect on MV of fluctuations in volume on asset markets (bubbles and their aftermath).

Oliver: Bingo! That's nailed it, I think.

Marcel: true. I didn't notice Gesell discussing that. I wasn't sure whether it would be best to think of him as talking about MV=PY or MV=PT. It seemed to be something in between.

This definitely puts an interesting spin on the banking business. A banker would want to have minimal reserves depreciating in the vault so there is a huge incentive to lend deposits as they arrive. Since no one else wants to hold money, there will always be people eager to make deposits.

Weirdly enough, I suspect the end result would be something very similar to what we have now, except that all interest rates would be negative. In fact, it is likely that all returns on investments would be negative, but some would be less negative than others. The big difference would be the need for a continuous pumping of money into the economy.

I feel awkward about two expressions Nick Howe uses. What Gesell proposes should not be called „negative interest“. This is misleading. It is better to call it a fee for the use of money, or carry tax on money. If interest on money is a phenomenon which is associated with the lending out of money, it is obvious, that the term does not apply here, since the fee is due for holding money, that is when it is not lent out.
The other expression is „monetary policy“. Gesell‘s carry tax / money fee should be called a structural reform. What is usually called „monetary policy“ does not exist in his concept. There is in particular no such thing like an interest policy. Interest rates should be fixed by the market. Under the condition of a money with carrying costs, however, this would mean that the lower bound of interest on money, which is set by the „own rate of interest“ (in the sense of Keynes: yield (interest) - carrying costs + liquidity premium) of holding cash, would be lower (those 5 % carrying costs).
By the way, Gesell does not want negative interest rates (what ist really to be called „interest rates“). But he expects interest rates to fall to zero in the long run, when the existing lower bound of interest on money is lowered, which sets a limit to the level of employment and the production of capital-assets (says Keynes, „it seems ... that the rate of interest on money plays a peculiar part in setting a limit to the level of employment, since it sets a standard to which the marginal efficiency of a capital-asset must attain if it is to be newly produced.“ GT, Ch. 17). The rate of interest on money would fall together with the marginal efficiency of capital.
It is sometimes not worth the while studying the theory of the merchant Gesell. Keynes is at least partly the better theorist, eg when it comes to explaining the lower bound. And definitely a better theorist is Maurice Allais. It is odd that it is not known that Allais also proposed the carry tax (in Allais‘s terms: „dépréciation de la monnaie circulante“) - as a condition for an efficient economy („Ce qui ne coûte rien, est gaspillé.“ Which means that a money whose use is free, for whose advantages users do not have to pay, leads to inefficiencies)! The „socialisme concurrentiel“ which he developped in his Nobel winning „Économie et Intérêt“ from 1947 corresponds with Gesell‘s „Natural Economic Order“.
Everybody who is searching for a rigorous analysis of our monetary and economic order, its flaws and remedies for them should read Allais. And he is the man to beat for all those who do not like the idea of carrying costs on money.

Walter: If I hold an asset it pays a rate of return. With land we call it the rent/price ratio. With a bond or savings account, we call it the rate of interest. With currency, there is no theoretical difference between a Gesellian tax and a negative rate of interest on currency.

Walter and Kaleberg: think about when inflation rates were much higher, say 10%. So the real rate of return (the real rate of interest on holding currency) is negative 10%. That is very much like a 10% tax (negative interest rate) on holding currency. Does this mean that all other real interest rates must tend to 0%? No. Both theory and history say that does not have to happen. For example, if time preference is high, and expected future income growth is high, we can see positive real interest rates. And it all depends on the liquidity of different assets, whether their real rate of interest will be positive or negative. The interest rate on the safest and most liquid asset sets a lower bound, that is all.

Walter: I hesitated whether to call Gesell's negative interest rate proposal "monetary *policy*", because it is indeed a structural reform, rather than month-to-month policy. But then his proposal for a price level target is also a structural reform, rather than something to be changed every month. But he certainly does have a "monetary policy" in the narrower sense of adjusting tax rates to adjust the stock of money to hit that price level target. And "monetary policy" is more than just the month to month adjustments of the central bank. It includes the target (like the price level target, or inflation target, or exchange rate target, or gold price target, etc.). Monetary policy must be understood in that broader context. It does not just mean the central bank adjusting the interest rates on bank reserves. It is strategy, not just tactics.

When I "lend money" for one year, what I am doing is buying and holding an IOU for one year. That IOU is an asset. "Interest" is the return I get for holding that asset. Different assets pay different rates of interest. It is no different if the asset I hold is itself used as money. Balances in a chequing account sometimes pay (positive or negative) interest. Currency is no different. Gesell wanted the central bank (his Currency Office) to set a negative (nominal) interest rate of 5% on the currency it issued.

Hi Nick,

Did you know that Irving Fisher actually wrote up legislation that would allow the U.S. Treasury to issue "script," or stamped money in Gesell's (and Keynes's) terms. There's a bit more here: https://www.blogger.com/blogger.g?blogID=906370602231941570#editor/target=post;postID=8704669232548075066;onPublishedMenu=posts;onClosedMenu=posts;postNum=23;src=postname

Greg: apologies: I just found your comment in the spam filter, and rescued it.

I knew that Fisher was a fan of Gesell, but didn't know he had followed up. I was unable to get access to the link you posted.

On Nick‘s comment from July 27, 2015 at 02:26 PM:
„... think about when inflation rates were much higher, say 10%. So the real rate of return (the real rate of interest on holding currency) is negative 10%. That is very much like a 10% tax (negative interest rate) on holding currency.“
The inflation rate is not like the carry tax when it comes to decide whether to hold savings liquid or to carry them to a bank. This is a crucial point. Inflation is never an incentive to invest money (eg on a savings account), because inflation depreciates money on a savings account just like money under the mattress. The only incentive to invest money (on a savings account) in the absence of carrying costs on money is a sufficient nominal interest rate (we leave aside safety here). Without a sufficient interest rate the liquidity trap snaps. The carry tax, however, is an incentive to save on a savings account even without interest.
Does this mean that all other real interest rates must tend to 0%?
Why 0%?
„there is no theoretical difference between a Gesellian tax and a negative rate of interest on currency“
I do not understand „theoretical difference“ and translate it in my language as „theory does not distinguish ...“. But the theories of Keynes and Allais do distinguish between interest and carrying costs (the very concept seems indeed to be missing in most of the classical literature). Keynes calls Gesell‘s money fee „carrying costs“.


Here's the missing link: http://www.the-human-predicament.com/2012/05/how-to-stimulate-economy-without.html

Thanks Greg. good post.

(Your comment went into spam again. eventually, by fishing you out, I will train Typepad.)

Thanks for taking the trouble Nick,

Perhaps it is spam at some deeper level.


You may find this to be an awkward association, but the ideas here remind me of the most extreme version of MMT.

The common thread is that there are no bonds and fiscal policy is used to optimize M.

One difference is that extreme MMT wants to set rates permanently at zero.

The idea here is to set rates negative.

But in both cases it is bond-free spending that becomes the lever for optimal money creation at the margin.

and taxes are used in a similar way to assist with optimal marginal tightening.

JKH: yes, I noticed that. The Currency Office owns no assets (except the stove and printing press). The stock of bonds is assumed constant when M changes, so is G, so it's T that must change. But the big difference between Gesell and MMT is that Gesell treats M as very different from bonds, and uses MV=PT.

"One difference is that extreme MMT wants to set rates permanently at zero.

The idea here is to set rates negative."

I think it's important to ask *which* interest rate? It's the interest on currency, not bonds, that Gesell wants to set negative. He believes (I think, though I didn't read much of Gesell on interest rates) that if the government does this, then interest rates on bonds will tend towards 0% over time.

Now that you've got that background, the next guy to learn from is Jorge Timon.

( https://twitter.com/timoncc )

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