Keynes said in his book <General Theory> that future generations will learn more from Silvio Gesell than Marx. But this is only the use of Gesell as a counter-argument against Marxism, not the affirmation of Gesell's theory itself. In fact, Keynes denied Gesell. According to him, other goods also have liquidity premium, so even if money lose it by stamp script, substitutes will come out and Gesell's plan will be failed. But what is the liquidity here? It means how easy it is to exchange your property for money. Why do you want to do that? Because you can keep your wealth without loss. Therefore, this liquidity is only liquidity in words, and Its essence is solidity, the solidity of capitalists. Paper money, coins, electronic money, whatever its form, most money does not flow like a liquid and is piled up like a solid in their safe. why? All the goods are worn out and rotted, and the loss increases with time. But those who have money do not suffer losses. Because the face value of money is constant.1 But if money does not circulate, it cannot mediate the exchange of goods. It means periodical crisis. So Silvio Gesell proposed regular depreciating the face value of money through stamp script. In the condition, you cannot hoard money. It destroys the so-called 'liquidity premium'. By free-money reform money only work as a medium of exchange, not as a medium of saving.
So what happens to the substitutes? Do Keynes' substitutes replace the medium of exchange or the medium of savings? They can't replace the medium of exchange. Gresham's law proves it. Bad money drives out good money. Here bad money is a good medium of exchange. Because you can't hoard it and you will dispose of it. It means you will buy something with your money. At present, there are many substitutes for the medium of exchange in order to compensate for the irregular circulation of money. Free-money reform eliminates them all.
Substitutes for the medium of saving could appear. But no problem. They could be problems only when speculation is possible. In Gesell's new order, speculation is impossible. At present, most goods are in the hands of the merchants. For this reason, demand is sensitive. When supply is falling, demand becomes urgent. They want to get a little more goods as soon as possible. As a result, demand increases rapidly. On the other hand, when supply is increasing, demand drops sharply. Price fluctuations are severe. Thus, the existing economic order worsens the situation by further amplifying the imbalance between supply and demand. But in Gesell's order, this is the opposite. Consumers do not wait any longer because they want to avoid regular depreciation of the money they have. They buy something regularly. If you do not have anything to buy, you lend it to someone else who needs to buy something. So most goods are in the hands of consumers. In this condition, supply fluctuations have little impact. The demand can't increase rapidly because there are extra goods in consumer's hands. And producers increase the supply quickly because it can be more profitable. They also can borrow enough money to produce it. People will lend it to them because they want to avoid the regular depreciation of the money. Even In oversupply, the consumer will not stop buying. If you hoard money, you'll have a regular loss. So you will buy something, or you'll lend it to someone else to buy it. In this way, Steady purchasing supports steady production. Gesell's "natural economic order" keeps imbalances between demand and supply constantly offset. Price fluctuations are getting smaller. Therefore, speculation is difficult. And the fact that you cannot hoard the money makes the speculation impossible, too. What is speculation? you have to build up the money, buy the cheapest, sell it for the high price. If the money is depreciated regularly, you cannot hoard money. you cannot postpone the purchase. You can't wait. Therefore speculation is impossible.
For this reason, the liquidity premium, the concept that Keynes used to contradict Gesell, originated from a misguided conventional monetary system. Free-Money reform will break down the foundations of Keynes. Keynes' thought was locked in the prison of the liquidity premium. Unfortunately, Keynes’s imagination was not enough to think of the world outside it. And the contemporaries who worshiped his authority, too. Finally, Keynes' limit was the limit of mankind. Keynes tried to hunt a lion called capitalism, but he was rather eaten.2
- If you want to talk about QE effect, I'm going to tell you that. Even under QE, most money didn't flow.
- Maybe Keynes might not have tried to hunt the lion from the beginning. Maybe Keynes tried to save capitalism, so he used Gesell to stop Marxism, and then protected it by providing symptomatic therapy instead of adopting Gesell's original therapy.
