Freigeld: FreeMoney for reacting to the Great Depression

According to Prof. Thomas Greco, during the years imediately after the Great Crash in 1929, “besides learning how to ‘make do, or do without’, people began to establish mutual support structures, like workers’ cooperatives, many of which would recycle and repair donated or broken items. People learned to share what they had, and to by-pass the market and financial systems” (Greco, 1994). One of the problems afflicting Europe in those years was the hoard of conventional currency and none of the stimulus packages was as effective as forecasted by central authorities managing monetary policy.

The solution came from outsiders of the banking system such as German businessman Silvio Gesell (1862 – 1930): the issuance of a provisional certificate of money subscribed to a company entitling the holder to a formal certificate, namely ‘scrip’ (Gesell, 1934). The most common denominations were certificates of indebtedness, tax anticipation notes, payroll warrants, trade scrip, clearing house certificates, credit vouchers, moratorium certificates, and merchandise bonds.

In his book The Natural Economic Order, Gesell elicited his views on the nature of money and its functioning in the economy. Gesell further delineated a detailed account of how to reform money through the issuance of “stamp scrip“.

In fact, the nuisance of money hoarding at a systemic level was opposed by a strong and widespread desire of free circulation of money among economic agents. Such idea had been developed in German speaking countries and Scandinavia. It was indeed based on the concept of Freigeld. According to Swiss Prof. Tobias Studer (1998), Freemoney theory can be reduced essentially to three axioms:

1)  To stabilize sales of goods of all kinds, money in circulation must be precisely adjusted to the supply of goods.
2)  In order for money to function solely as means of payment for the free flow of commerce, it must have the character of an interest-free clearing certificate.
3) The adoption of a demurrage-charged currency to complement positive interest characterizing conventional money.

On the other side of the ocean, Greco shows that these three principles were represented in the main features of Gesell’s “stamp scrip”: “it was designed to have 52 spaces on the reverse side, one for each week of the year, and the scrip was to have the value of its stated denomination only for one week. In order for the scrip to maintain its face value, a stamp, costing two percent of the face value of the note, had to be affixed on the back, in the space allocated to that week” (Greco, 1994).

Since the Reichsmark was overly hoarded as a side effect of a three-year period of deflation, the stamp was purposely a device introduced in order to discourage scrip hoarding and, thereby, to increase its velocity of circulation within the community adopting it as a means of payment. The result was that people tried “to spend it prior to the day the stamp had to be affixed and thus avoid the cost of the stamp” (Greco, 1994). In 1932, Gesell’s friend Hans Timm decided to set up an association for deploying the stamp scrip idea.

Scrips were named Wära, “a name derived by combining two words – ‘Ware’, the German word for goods, and ‘Wahrung’, the German word for currency” (Greco, 1994).