The Natural Economic Order
The Natural Economic Order through Free Land and Free Money is a 1916 book by economist, entrepreneur, and social reformer Silvio Gesell.
It is a treatise on land reform and monetary reform.
It attempted to provide a solid basis for economic liberalism, in contrast to the 1900s socialist and communist trends of collectivism and planned economy.
The Natural Economic Order is Silvio Gesell's most famous work, and it is mainly known for describing his monetary theory.
The book was published in Bern, Switzerland and Berlin, Germany in 1916.
The book had six editions during Gesell's lifetime.
It was translated into English by Philip Pye in 1929.
Context
Silvio Gesell moved to Buenos Aires, Argentina in 1887, where he became a successful merchant.The 1890 depression in Argentina hurt his business considerably, which caused Gesell to begin thinking about the monetary economics surrounding the crisis.
He published his first two works, and The Nerve of Things.
He published the second section in Berlin in 1911 as "The new theory of interest"
The two works were joined and published as the NWO in Berlin and Switzerland in 1916 during World War I.
Around three-quarters of the book are dedicated to monetary theory.
Gesell developed his theories in an era when most major world currencies were linked to gold via a gold standard.
By contrast, most major currencies used fiat instead of hard currency by the late 1900s and the 2000s.
Although it is universally accepted in modern times that money can be made out of paper, it was far from obvious to most people during Gesell's lifetime that money does not have to be a commodity with a material existence, i.e. a viable currency does not have to be a hard currency.
For this reason, Gesell dedicated a few chapters of the book to explaining why money can be made of paper, an idea which was further promoted by John Maynard Keynes.
The failure to understand the nature of money versus gold was arguably a critical flaw of the classical and Marxist economic perspectives.
It offers an explanation for why they failed to consider Gesell's idea that interest is caused by the store of value function of money.
Synopsis
The book begins by comparing Proudhon and Marx.Gesell says that Proudhon's analysis of capital was correct, whereas Marx's was fallacious.
Excerpts
In part III, chapter 10, Gesell argued that money that is great for storing wealth, such as hard currency, is bad for functioning as a medium of exchange: "The power of money to effect exchanges, its technical quality from the mercantile standpoint, is in inverse proportion to its technical quality from the banking standpoint."Gesell believed that the only legitimate function of money is to be a medium of exchange:
Reception
In The General Theory of Employment, Interest and Money, John Maynard Keynes wrote:Keynes wrote "The idea behind stamped money is sound".
Gesell's theory of interest influenced Keyne's theory of liquidity preference.
However, Keynes believed that Gesell's theory only amounted to "half a theory", since Gesell failed to discern the importance of liquidity.
Keynes improved upon Gesell's theory of interest by explicitly recognizing that money has the advantage of liquidity over commodities.
Guido Giacomo Preparata claimed that Keynes plagiarized Gesell's ideas, and then deradicalized them to aid the existing capitalist order.
In Call for Socialism , Gustav Landauer wrote:
In Erich Mühsam's Personal Account Report on the Revolutionary Events in Munich, he wrote that Silvio Gesell had the most "comprehensive knowledge in the field of money", and his "recognizable anarchist attitude" were known to them.