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Freiwirtschaft (Free economy)

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Freiwirtschaft

The free economy (in German: Freiwirtschaft) is an economic theory developed by the German economist Silvio Gesell in 1916 in his book The Natural Economic Order (Natürliche Wirtschaftsordnung). His idea was put into practice by any state so far. However, in 1932 a group of Swiss businessmen used his ideas (especially that of Freigeld) to found the WIR bank.

The free economy consists of three main points, usually summarized under the name of the three F:

  • Freigeld (free money), All the money is issued for a limited period at constant value (no inflation or deflation). In addition, long-term economy requires investments in bonds or shares.

  • Freiland (free land): All the land is owned by the public and can only be leased, not purchased (see also Henry George, Auroville).

  • Freihandel (free trade): Free trade has long been a conventional position, but the anti-globalization movement is opposed today largely to it.

The proposed results include:

  • A higher private spending in terms of consumption and investment

  • Consumers invest surplus money in growing companies

  • Full employment: Work for everyone who can work

  • The economic growth rate can be defined by the company

  • Interest rates fall to near zero over the long term

  • Free land prevents real estate prices to be too high

  • The huge social disparities stop

  • Fewer hours of work per week for each over the long term

Loss of the economic and monetary system

According to the free economy, the current monetary systems are imperfect. According to Adam Smith, prices help to transmit information. For example, lower prices means there is less demand and more supply. So buying increases when traders produce something else, by increasing the price in reaction again. Thus, the price built a feedback loop around a stable ideal price. At this stable price, the market is ideal, nobody pays too much or wins too little, and neither party has a tendency to change the prices. The “wobble” around what is called ideal price self-stabilization.

This is not the case of financial markets. Without the continued increase in the quantity of money put into circulation by the central bank, demand takes place continuously, since flow speed decreases. The decline in demand forces companies to lower their prices to make money. When prices begin to fall, potential customers are delaying their purchase as long as possible to get the lowest prices, causing further decline in demand. Feedback loops pull down to a point where the company does not make any money at all. This eventually causes the bankruptcy of the company. Workers from other companies tend to be more cautious in their spending, leading eventually to the collapse of the economy.

The central system error is a bad transmission of information by the price. Money is nothing but the application of the economy of goods and services that accepts currency. In a weak economy, money is worth less than the goods. But instead of inflation, the result is deflation as described above, and the same amount of money can buy more. Market participants do not realize that they are destroying the very economy that should ensure the value of money. This feedback loop is self-destabilizing. According to the theory of the free economy this is the reason of the cyclical crises of the global economy.

Supporters of the free economy

  • Tristan Abromeit (* 1934)
  • Benjes Hermann (1937-2007)
  • Hans Bernoulli (1876-1959)
  • Georg Blumenthal (1876-1929)

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