Reduce your debt!! ... I'm curious.

[ewmayer]

Originally Posted by joblack

Albert Einstein was talking about the Freigeld invention of Silvio Gesell:

"Ich erfreue mich an dem glänzenden Stil von Silvio Gesell. ... Die Schaffung eines Geldes, das sich nicht horten läßt, würde zur Bildung von Eigentum in anderer wesentlicherer Form führen."

http://www.politik-forum.at/freiwirt...ise-t6514.html

Translation:

"I enjoy myself on the glossy style of Silvio Gesell. ... The creation of money which can be hoarded, would lead to the formation of property in other form of major lead."

Actually, a nearer translation is:

"I take joy in the wonderful (literally: shining) style of Silvio Gesell ... The creation of a currency which cannot be hoarded, would lead to formation of property in another essential form."

[joblack]

Originally Posted by cheesehead

The Wikipedia article says

"The name results from the idea that there is no incentive to store the money as it will automatically lose its value after some time"

and I wasn't sure whether that applied only to the paper currency, or to abstract accounts.

I don't understand how Freigeld solves that problem, then.

The actual money (cash) is losing value by inflation. In a deflationary depression (which we are all heading) your cash is gaining value by itself (you can observe that on the real estate market and soon on other assets). So why should you invest it on a bank or company if you have the risk of losing all of it?

The English wikipedia article is a little bit short to explain the concept.

Originally Posted by cheesehead

When we say people are holding onto "cash", that means paper currency plus demand (checking) accounts (and the demand accounts total is higher than the paper currency total IIRC).

If Freigeld demand deposit accounts don't lose value over time like paper Freigeld does, then it seems to me that there's no more incentive for folks to move their Freigeld out of those accounts into investments (but see below) than there would be with dollars. Correct?

But if Freigeld demand deposit accounts _do_ lose value over time, that would lessen the incentive to deposit it in the bank in the first place, rather than hold onto also-value-losing-but-no-worse paper currency, wouldn't it? (Some incentive remains, such as security. But that's the same with dollars.) So, again I don't see the advantage of Freigeld.

Now, with fractional reserve banking, the banks are allowed to invest a portion of their demand deposit balances. Does Freigeld make any difference there, or does fractional reserve banking work the same with it?

I´m only talking about cash. Money on a checking account is invested by definition and you can only request to convert it back to cash (if the bank is able to).

If Freigeld would be the official money you would have to invest it to not loose value or get a profit.

On a checking account you would would have negative interest but not as much as in Freigeld cash.

Let´s say you have a 'negative interest' for Freigeld cash of 5 percent /year. On a checking account you would have 2 - 3 percent. On longer investments you would have around -1 up to +2 - +3 percent.

That would mean that you would invest in a company even if you get 'only about 2 - 3 percent profit'. If you have an economical growth you could get even more.

The idea is to tax hording the cash (because you hurt the economy by that).

You don´t want to change the 'free trade' or corporate freedom.

Everything else (Fractional Banking, ...) can work like it works at the moment - Fractional Banking is actually a problem if the investors start hording cash and don´t invest it.

Addendum: In the middle ages there were another similar concept. The Brakteaten coins were only valid for a year. After that peroid you had to change them to the newer one with a fee. With that fee you paid your taxes.

http://en.wikipedia.org/wiki/Bracteate

In that times the biggest churches and art building were built and the economy was on a high. That money system broke down after the gold standard was forcedly introduced. After that the economy went down and gold hording started once again.

[Fusion_power]

The underlying problem with our economy is that it functions well only when liquidity is high. Define liquidity as the continuous flow of money. People earn it, then spend it. A taxi driver buys food. Sale of food pays the bills for the grocery store, the grocery store buys food from a distributor, the distributor buys food from a producer, who buys the raw food products from the farmer. I won't talk about the ways to shorten that path, permit me to use it for the moment. The concept is that a dollar got spent 5 times which generated liquidity. Now, let us say the taxi driver saved his dollar instead. What happens?

DarJones

[cheesehead]

Originally Posted by joblack

The actual money (cash) is losing value by inflation.

I'll use the term currency to denote coins and paper bills. You're using the term cash for the same, right?

In a deflationary depression (which we are all heading) your cash is gaining value by itself (you can observe that on the real estate market and soon on other assets). So why should you invest it on a bank or company if you have the risk of losing all of it?

If you stuff it into your mattress you risk losing all of it.

Is Freigeld better than currency only in deflationary times?

I´m only talking about cash. Money on a checking account is invested by definition and you can only request to convert it back to cash (if the bank is able to).

Okaaayyy... these definitions may be difficult to get used to.

If Freigeld would be the official money you would have to invest it to not loose value or get a profit.

But you just wrote, "why should you invest it on a bank or company if you have the risk of losing all of it?" and "Money on a checking account is invested by definition".

That implies, to me, that putting your Freigeld into a checking account is riskier than keeping it as currency/cash.

On a checking account you would would have negative interest but not as much as in Freigeld cash.

But you've already said that one could lose all of the value of one's checking account. So there has to be some incentive to put Freigeld into a checking account in order to balance this extra risk, and this incentive is part of the spread between the (negative) interest rate on Freigeld and the interest rate on the checking account. Correct?

Let´s say you have a 'negative interest' for Freigeld cash of 5 percent /year.

... which is equivalent to having an inflation rate of 5% in our current monetary system.

But Freigeld's advantage so far seems to be only in deflationary times.

On a checking account you would have 2 - 3 percent. On longer investments you would have around -1 up to +2 - +3 percent.

That would mean that you would invest in a company even if you get 'only about 2 - 3 percent profit'. If you have an economical growth you could get even more.

The idea is to tax hording the cash (because you hurt the economy by that).

That's what inflation does, in effect: tax the hoarding of currency.

So the concept of Freigeld is to conserve certain financial principles (not principals :) in deflationary times?

Addendum: In the middle ages there were another similar concept. The Brakteaten coins were only valid for a year. After that peroid you had to change them to the newer one with a fee. With that fee you paid your taxes.

http://en.wikipedia.org/wiki/Bracteate

In that times the biggest churches and art building were built and the economy was on a high. That money system broke down after the gold standard was forcedly introduced. After that the economy went down and gold hording started once again.

You're not going to convince many people that Freigeld is a good idea by citing examples from the Middle Ages! Those medieval "biggest churches and art building" often took generations, or even centuries, to build, not for lack of technology or labor, but because of shortages of financing.

[joblack]

Originally Posted by cheesehead

I'll use the term currency to denote coins and paper bills. You're using the term cash for the same, right?

If you stuff it into your mattress you risk losing all of it.

Is Freigeld better than currency only in deflationary times?

Okaaayyy... these definitions may be difficult to get used to.

But you just wrote, "why should you invest it on a bank or company if you have the risk of losing all of it?" and "Money on a checking account is invested by definition".

That implies, to me, that putting your Freigeld into a checking account is riskier than keeping it as currency/cash.

Theoretically it is riskier to invest it in a bank instead of having it as cash.

But these sentences are related to our actual money and the actual situation. With Freigeld you won´t get the situation we have today (because the money hording is unattractive and strong deflations will not be available anymore).

Originally Posted by cheesehead

But you've already said that one could lose all of the value of one's checking account. So there has to be some incentive to put Freigeld into a checking account in order to balance this extra risk, and this incentive is part of the spread between the (negative) interest rate on Freigeld and the interest rate on the checking account. Correct?

Yes - you have less of a fee ( lets say 2.5 % instead of the original 5 %). For longer investments you could even get a positive interest rate.

The actual interest rate would be setup by the free market situation.

Originally Posted by cheesehead

... which is equivalent to having an inflation rate of 5% in our current monetary system.

But Freigeld's advantage so far seems to be only in deflationary times.

That's what inflation does, in effect: tax the hoarding of currency.

So the concept of Freigeld is to conserve certain financial principles (not principals :) in deflationary times?

No, Freigeld is applicable in every economic situation. In deflationary times it would help a lot (because the money hording would stop to an extent).

At the beginning of a new economy cycle (after a war) the two money systems are equally effective, but after some centuries you don´t have the growth you got at the beginning. Our actual monetary system will destroy itself if there is no more growth (exploding debt and declining economy).

Originally Posted by cheesehead

You're not going to convince many people that Freigeld is a good idea by citing examples from the Middle Ages! Those medieval "biggest churches and art building" often took generations, or even centuries, to build, not for lack of technology or labor, but because of shortages of financing.

The Middle Ages weren´t all "Dark Ages". The Bracteaten coins used between 1150–1450 brought (at least in Germany) a growing economy.

For that I have only German sources ( like http://www.geistigenahrung.org/ftopic3494.html ).

Anyway - we will see if the American people will search for alternative systems in the Second Great Depression.