Gesell’s economic thought
Although most economic textbooks state that money has to be a store of value, the very “nature” and history of money suggest otherwise. Money was not invented to be a store of value. Store-of-value money only emerges in the specific case where a single thing is given the functions of unit of account and medium of exchange. This form of money, however, is self-destructive. A money that performs the function of being store of value is likely to preclude it from performing its function of medium of exchange. This is because if there is the institutional certainty that money will preserve its value over time, there will be growing incentives to hold it, thereby taking it out of circulation. If less money is available for to perform as a medium of exchange, less transactions can take place.
In order to fully exploit communities’ capacity to produce and satisfy their needs, different forms of money (compared to the forms of money that have established as mainstream) are needed. The decoupling of the functions of unit of account and medium of exchange would be a good starting point: two different things should be performing each of these crucial functions. Another helpful step would be the introduction of incentives to make the money of exchange circulate fast. In countries with relatively high inflation rates, the sole fact that prices tend to rise encourage people to get rid of money. In countries with price stability, demurrage could be an interesting option. Demurrage was proposed by the German-Argentinean economist Silvio Gesell, and it consists of a mechanism whereby saved money loses its purchasing power through negative interest or a tax. The case of the Austrian town of Wörgl in the 1930s is a good example of the benefits that demurrage can deliver: after launching a currency subject to a monthly 1% demurrage, the local economy was swiftly stimulated, employment grew and the chaotic state of public finances was reversed. Gesell’s monetary theories were so delighting for Keynes that the latter claimed that “the future will learn more from the spirit of Gesell than from that of Marx”.
Mutual credit currencies are based upon Gesell’s idea that money’s sole purpose should be to enable communities to take full advantage of their productive capabilities by facilitating the exchange of goods in a safe, fast and inexpensive way. Whenever money is used as means of saving rather than exchange it tends to be withdrawn from circulation and its dearth turns out be an obstacle to the reciprocal exchange of wealth. This is the case of money as we know it. Products cannot be sold and are unwillingly accumulated, idle capacity grows, production comes to a halt and unemployment grows. That’s why Gesell suggested a kind of currency whose circulation should be compulsory or at least strongly stimulated. This property can be facilitated through a mutual credit system.
Along with MonedaPAR, many complementary currencies around the world are based on mutual credit. A well-known example is Sardex, a system designed for Sardinian businesses which was launched in 2010. The accounting infrastructure of mutual credit systems has also been clearly described by the Credit Commons initiative.