Hi, I’m starting to learn Austrian economics. I agree with almost everything I’ve read so far, but there’s things I do not share about money.
I’m influenced by Silvio Gesell, although I think I have a more libertarian view that he had. Is there any critique from the Austrian school against Gesell that I can read?
Thanks in advance.
I do not believe there is a specific Austrian article critiquing Gesell directly but his monetary policy is wrong… Keynes actually praised Gesell on his monetary theory and was greatly influenced by it… The main fear that Gesell had in monetary policy was deflation… and he held to the myth that with the lowest interest rate, an economy can grow.
You shouldnt have troubles in finding writings about Austrians defending deflation… or debunking the whole low interest rate myth (Austrian Business Cycle)
There’s a search box on the main site. Just type in Gesell there.
[quote=“Isaac “Izzy” Marmolejo”]
I do not believe there is a specific Austrian article critiquing Gesell directly but his monetary policy is wrong… Keynes actually praised Gesell on his monetary theory and was greatly influenced by it… The main fear that Gesell had in monetary policy was deflation… and he held to the myth that with the lowest interest rate, an economy can grow.
You shouldnt have troubles in finding writings about Austrians defending deflation… or debunking the whole low interest rate myth (Austrian Business Cycle)
[/quote]
One can learn about deflation here:
The Economics of Deflation (by Jörg Guido Hülsmann) - Introduction to Austrian Economics, 8of11
I’ve already seen that video (and the whole introductory series). Thank you anyway.
What I think is worse of his monetary theory is his proposal, which needs a government to issue the currency. Nevertheless, I think there’s some ignored truth in its theory of interest. It is true (as business cycle theory claims) that with inflation, not all the investments can be successfully ended. But without it, not all the investments that could be done will be done. I’m not saying it is necessarily bad, but liquidity premium prevents all demands to be fulfilled. Gesell didn’t use the term “liquidity premium”, he used just interest instead, but I see that the risk premium shouldn’t be avoided. Here’s a link for more on this:
http://www.finanzcrash.com/english/aberrations.html
I should have search gesell before. I’ll do it now. Thanks.
“What I think is worse of his monetary theory is his proposal, which needs a government to issue the currency.”
That is not true at all… he was an anarchist and his view on economics expressed that clearly… he highly criticized national currency
He was almost anarchist. The government was responsible for issuing his freigeld.
By the way, I didn’t found any serious critique to him in the web.
Not sure if the “it” that gets all demands fulfilled is inflation or low interest rates.
In either case, why are not demands fulfilled? If you mean consumer demands, it’s because the consumer doesn’t have the money, right? Gving it to him for free is not the way to grow the economy [=increase production and wealth]. He has to put into the supply of resouces [=get a job and earn money being productive] before he can draw from the pool [=consume].
If you mean businesses will not find someone willing to lend them momey so they can grow their business, the question is “Why not? Why did that business not get anyone to lend them?” Obviously because the potential lenders feared they would not get their money back. So why is inflation [=stealing purchasing power from people who have no knowledge of the business, and will not share in the profits even if the business succeeds] agood idea? And who lend the money at low interest rates? If the govt, why should they tax or inflate innocent bystanders who not share in the profits, to lend to these busuinesses?
I didn’t found any serious critique to him in the web by using the search box.
Not sure if the “it” that gets all demands fulfilled is inflation or low interest rates.
I would say low interest rates.
In either case, why are not demands fulfilled? If you mean consumer demands, it’s because the consumer doesn’t have the money, right? Gving it to him for free is not the way to grow the economy [=increase production and wealth]. He has to put into the supply of resouces [=get a job and earn money being productive] before he can draw from the pool [=consume].
If you mean businesses will not find someone willing to lend them momey so they can grow their business, the question is “Why not? Why did that business not get anyone to lend them?” Obviously because the potential lenders feared they would not get their money back. So why is inflation [=stealing purchasing power from people who have no knowledge of the business, and will not share in the profits even if the business succeeds] agood idea? And who lend the money at low interest rates? If the govt, why should they tax or inflate innocent bystanders who not share in the profits, to lend to these busuinesses?
First of all, I want to make clear that I’m not for inflation. We can assume there’s a fixed money supply to our examples (and stable prices, for the shake of simplicity).
The reasoning of the business cycle theory (correct me if I’m wrong, because I just have seen the introductory lectures from Nielsio’s youtube channel), uses a list of all the possible investments ordered by decreasing return on investment.
It’s said that with inflation/fractional reserve, more investments will be started than can actually be ended because the measurement of available resources is distorted.
I agree.
But without it, not all the investments that can be ended will be started, just the ones with a bigger return than the interest rates.
If an investment doesn’t return at least the “liquidity premium” (or the protection to uncertainty that the money owner has, by the way, for free), the money owners will prefer to just hoard it instead of making such investment.
That is, the available resources is not the limit for investments but the interest rate.
Some resources (with a value equivalent to the total money hoarded) will not be bought nor used. The producers can store them too, but in many cases they will lost, because most goods aren’t durable as money.
There are plenty of “investments” that do get successfully “ended” in every Ponzi scheme. Plenty of people get more out than what they had put in. The fact that those “investments” would not get started/ended without the Ponzi scheme is not an argument in favor of Ponzi schemes.
Thanks for claifying, jtimon.
Yes, true enough. As you said in an earlier post, this might not be a bad thing, even if the goods aren’t as durable as money and will be lost.
After all, giving someone money means, obviously, giving him the power to buy stuff. Meaning the power to take resources away from everyone else in the universe and keep them for himself. So that you might be giving him the power to save his frozen popsicles by buying him a freezer, but on the other hand, a lot of other people will not get to use the resources he took over. Maybe they need those resources more. Or could put them to better use. For example, maybe that freezer could be used by a store to stock up on more meats than they currently do.
So something is lost and something is gained whenever money changes hands. What’s the best way to decide who will get to use the resources?
One way of thinking is this: If you do not print more money, the one who gets the freezer is the one who as already proven productive to society. That’s how he got his money in the first place, and how he can afford to buy the freezer. If you print money and give it to the popsicle salesman, the money is going to someone who has not proven productive yet. In fact, he has already shown poor judgement, having bought popsicles in the hot sun without being able to afford a freezer to store them.
jtimon,
He was an anarchist…Government taking influence from his economic policy has nothing to do in determining whether he is anarchist or not…Nor does his economics call for govrnments to handle monetary policy. He called for communities to do such thing… Secondly, you probably will not find a lot of critiques directly on Gesell but you can find critiques on what he wanted to achieve through his econ policy. He advocated full employment, low interest rates, he feared excessive saving ( hoarding money), etc. These conclusions are very common among modern economic policy.
@Isaac “Izzy” Marmolejo
From this chapter of his book:
“The choice is, therefore, either State money or no money. Freedom of enterprise in the manufacture of money is an impossibility.”
That’s what I don’t like about him. Nevertheless, I think his theory of interest is undervalued.
He advocated full employment by zero interest rates by preventing hoarding (note that hoarding is not the only way to save) by demurrage in a paper-money issued by a government. Demurrage may be good, but money issued by a government is definetely not the way to go from my point of view.
I think you will profoundly disagree with that text since you think that an “intinsic value” is needed for a commodity to become money. I agree that it is necessary for a commodity to become money espontaneusly in a barter economy, but I don’t think it is a requirement for money. Even if you don’t change your mind a little bit, reading “the natural economic order” can be a good exercise for you, because it could improve your arguments against paper-money and demurrage.
@Smiling Dave
My point is that with money as austrians think it should be (hard money) prevents some enterprises to take place, even if they will have customers and there’s available resources to start and end it. The interest rate prevents businesses with less return than it to take place.
Not every investment in a ponzi scheme can end sucessfully. I meant investments that can really be sucessfully ended (like building a house or making a net to fish).
Just like foregoing Ponzi schemes “prevents” some profitable enterprises (“investments”) taking place, as well.
You weren’t talking about every investment. You were concerned about the “investments” that would not have happened were it not for the Ponzi scheme.
Or lending printed money to guy A so he could buy a shovel (made by guy C!), and lending printed money to guy B so he can pay guy A to dig a ditch for guy B’s enternainment? Then lending some more printed money to guy B so he too could buy a shovel (made by guy C!), and lending more printed money to guy A so he can pay guy B to cover said ditch for guy A’s entertainment? Or some different “investments” altogether?
I mean, if it weren’t for the Ponzi scheme of printed money (out of thin air) being lent out how else would we have two entertained guys (A and B), one happy shovel salesman (guy C), and one dug out ditch being filled back up? Right?
I should clarify myself further. I was assuming free market, full reserve and fixed monetary base. You don’t need to warn me about the adversal effects of printing, fractional reserve and ponzi schemes.
Then why are you bothered by “investments” being foregone because of not enough money being made available (i.e. because of interest rates not being low enough)? You are aware that interest rates are but the price of money, and no one “sets” them in a free market where supply (lenders) meets demand (borrowers)?
These were your words:
The key word is “available”. There is always a demand for the resources that are going to be used to start and finish. If there was no demand, they would be available for free, by definition, and the popsicle guy could get his freezer without anyone printing money. Meaning, whatever resources are available that he needs money for, somebody else wants.
The fact that the other guy can get a greater return means he makes more profit. Meaning he has satisfied greater needs wasting less resources, for that is what generates profit.
EDIT: If you don’t print money, how do you lower interest rates?
I should clarify myself further. I was assuming free market, full reserve and fixed monetary base. You don’t need to warn me about the adversal effects of printing, fractional reserve and ponzi schemes.
Then why are you bothered by “investments” being foregone because of not enough money being made available (i.e. because of interest rates not being low enough)? You are aware that interest rates are but the price of money, and no one “sets” them in a free market where supply (lenders) meets demand (borrowers)?
What I understand Gesell claims is that interest rates, or the price of money if you wish, sets a minimum return to all other capitals. As the interest rates cannot go to zero, neither the capital returns can. Then some capital accumulation is not made just because it performs worse than money, not necessarily because there’s not enough resources offered in the market to create the capitals.
It’s said that with inflation/fractional reserve, more investments will be started than can actually be ended because the measurement of available resources is distorted.
I agree.
But without it, not all the investments that can be ended will be started, just the ones with a bigger return than the interest rates.
Exactly. Only the investments with a higher return than the interest rates will be made.