Silvio Gesell: The Natural Economic Order
Part 4: Free-Money or Money as it Should Be


G. The Saver

Free-Money disproves all predictions; none of the dismal prophecies of its opponents have been fulfilled. It was said that nobody would be able to save, and that interest would rise to unprecedented heights; but the contrary has happened.

When I have saved a sum of money I now do exactly what I did formerly - I take it to the savings bank which enters the amount in my savings book. In this respect nothing has changed. It was said that the sum of money entered in the savings book would be subject to the same rate of depreciation as Free-Money, but that is nonsense. The savings bank owes me so many dollars, American Standard, but not the notes that I handed in. And the standard dollar stands above the notes. If I lend somebody a sack of potatoes for a year, he will not give me back the same potatoes, which have meanwhile rotted, but a sack of new potatoes. It is the same with the savings bank. I lend it $100 and it agrees to give me back $100. The savings bank is in a position to do so, since it lends the money on the same terms, while the businessmen and farmers who obtain money at the savings bank for their enterprises do not keep the money at home. They buy goods for use with it, and in this way the depreciation loss is distributed among all the persons through whose hands the money has passed in the course of the year.

Nothing has changed, then, with regard to the sum to be repaid by the bank. But I now find that I can save a great deal more than formerly.

A socialist attributed my increased power of saving to a general reduction of "surplus value" which, keeping pace with the decline of the rate of interest, has affected all capital (tenements, railways, factories, etc.). The manager of a consumers' co-operative society explained that with Free-Money commercial costs have fallen from an average of 40% to barely 10%, so that for this reason alone I economise 30% on my purchases. And a social reformer attributed my increased saving capacity to the removal of economic disturbances. They may all three be right. The fact is that instead of $100 I now save over $1000 and live more comfortably than before. And for many people Free-Money has made saving for the first time possible.

How was it formerly with my savings book? At every political rumour there was a slump in trade, accompanied by unemployment which forced me to withdraw some of my money from the savings bank. That was a setback, and it was sometimes years before I had filled the gaps in my savings book caused by an industrial crisis. Saving resembled the labour of Sisyphus. I have now regular employment and am no longer periodically obliged to have recourse to the money saved with so many privations.

I now carry my monthly surplus to the bank with astonishing regularity. And what is happening to me seems to be happening to everybody, for there is always a throng at the counters. The savings bank has already repeatedly reduced the rate of interest, and a new cut is announced for next month. It justifies its action by stating that the sums coming in are in excess of those going out. From 4% the rate of interest has in this short period fallen to 3%, and it is said that with the universal introduction of Free-Money it will fall to zero ! And so it will, in my opinion, if present conditions continue.

For while the influx of money into the savings banks is continually increasing, requests for loans are decreasing, since businessmen, farmers and manufacturers, for the same reasons that make saving easier for me, are now able to enlarge their businesses with their own surplus.

The demand for loan-money is shrinking, and the supply is growing, so the rate of interest is bound to fall. For interest expresses the ratio of demand and supply of money loans.

For the filled pages of my savings book the fall of the rate of interest is, no doubt, regrettable, but it is all to the good for the unfilled pages which are far more numerous. For what is interest ? Who pays it ? What I save today is what remains of my wages after I have paid, in my personal outlay, my share of the interest-tribute exacted by the creditors of the State and municipalities, and my share of the interest-tribute demanded by capitalists for the use of houses, plant, provisions, raw material, railways, canals, gas and water-works and so forth. If the rate of interest falls, everything becomes cheaper and my power of saving increases proportionately. My loss on the sums already saved will be compensated ten-fold by my increased savings. My house-rent, for example, amounts to 25% of my wages, and two-thirds of it is interest on the building capital. If, now, the rate of interest is reduced from 4 to 3, 2, 1, or finally 0%, I save and so on of my house-rent, that is 4 - 16% of my wages on house-rent alone! But house capital is barely one fourth of all capital, the interest on which I pay out of my wages. (*Industrial, commercial and agricultural capital, National Debt, capital sunk in means of transport.) If the rate of interest fell to zero I could therefore save a much larger proportion of my wages.

Out of my income of $1000 I was able to save $100 a year. At 4% compound interest that would produce $1236 in ten years. Since the elimination of interest my wages have doubled, so instead of $100 I can now save $1100 a year, or $11,000 in ten years. (*This is on the assumption that the prices of commodities are kept at the same level by the Currency Office. Elimination of the interest that now goes into price, will, in this case be expressed, not by lower prices, but by higher wages. On the opposite assumption, that the prices of goods fell with the rate of interest, wages would remain at the same level. Savings would then increase because of the fall in the cost of living. But the sum thus saved is not immediately comparable with the savings formerly, since commodity prices were then higher.) Should I not therefore rejoice at the abolition of interest ?

So far from injuring me, therefore, the complete elimination Of interest would enormously facilitate my saving. For example, if I work and economise for twenty years and then retire I shall possess:

With compound interest at 4%$3,024
With interest at 0%$22,000

My income from the former sum with interest at 4% would be $120 a year. If I exceed this sum and touch the capital, an annual expenditure of $360 would in ten years exhaust my savings, whereas with $22,000 I can for ten years spend $2,200 a year.

The old notion that gold and interest facilitate saving was a fallacy. Interest renders saving impossible for the majority of mankind; with interest at zero everyone will be able to save, whereas formerly only exceptionally efficient workers or those possessing exceptional courage to face privations were able to practice this bourgeois virtue.

For rentiers the conditions are reversed, if the rate of interest falls to zero. Since their property no longer yields interest, and since, as non-workers, they gain no advantage from the rise of wages resulting from the elimination of interest, they are forced to live on their capital until it is exhausted. The contrast between a saver and a rentier is great. When the workers save, the interest must be found out of their work. Savers and rentiers are not colleagues, but adversaries.

In return for the privilege of drawing interest on my $3,024 savings I must pay $18,976 ($22,000 less $3,024) interest to the rentiers !

Rentiers may deplore the decline of interest, but we savers or saving workers, on the contrary, have every reason to rejoice. We shall never be able to live on interest, but we can live comfortably to the end of our days on our savings. We shall leave our heirs no perpetually-welling source of income, but is it not provision enough to bequeath economic conditions that will secure them the full proceeds of their labour ? Free-Land and Free-Money double the income of the worker, so by the mere act of voting for the introduction of these two reforms I have bequeathed my offspring the equivalent of a capital bearing interest equal to my former wages.

And again, let us not forget that if saving is a virtue that should be preached, unreservedly, to all men, it ought to be possible for all men to practice this virtue without injury to anyone and without destroying the harmony of economic life as a whole.

Now, in the economic life of the individual, to save means to do much work, to produce and sell much, and to buy little. The money taken to the savings bank is the difference between the money received from the sale of our own produce and the money we paid in purchasing the produce of others.

But what must happen if everyone brings produce worth $100 to market, and buys produce for only $90 - that is, if everyone wishes to save $10. How can this contradiction be resolved, how can all men be enabled to save ? The answer is given, the contradiction is resolved, by Free-Money. Free-Money applies the Christian maxim: whatsoever ye would that men should do to you, do ye even so to them. It says: If you wish to sell your produce, buy the produce your neighbour wishes to sell. If you sold for 100, buy for 100 in return. When everyone acts in this manner, everyone will be able to sell his whole produce and to save. Otherwise savers mutually deprive one another of the possibility of carrying out their purpose.


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