Freiwirtschaft (German for "free economy") is an economic idea founded by Silvio Gesell in 1916. He called it Natürliche Wirtschaftsordnung (natural economic order). In 1932, a group of Swiss businessmen used his ideas to found the WIR Bank (WIR).
Contents
Structure
Freiwirtschaft consists of three central aspects, usually summed up as The Three Fs:
History
The basic economic ideas of Freiwirtschaft were published in 1890 by the Hungarian-Austrian economist Theodor Hertzka in his novel Freiland - ein soziales Zukunftsbild (Freeland - A Social Anticipation).
Flaws of the monetary system
Freiwirtschaft claims that current monetary systems are flawed. In mainstream economics, prices convey information. For example, dropping prices on a product mean that there is less demand or more supply of that product. This leads to a buyer buying more, or a seller/producer starting to sell/produce something else, thereby reducing the supply of that product. As a reaction, assuming constant desirability, the price of the product rises again. So, the price, together with the market participants, builds up a feedback loop around a stable, "ideal" price. At this stable price, the market is ideal, no one pays too much or earns too little, and there are no tendencies from either party to change that price. The "wobbling" around that ideal price is called self-stabilizing.
The key error of the current system, according to Gesell, is the ill-transported information in the price. Money is nothing but claim for goods and services, usable in the economies that accept money in exchange for the former. In a weak economy, money is worth less in goods. But instead of an inflation, the result is a deflation as described above, and less money can now buy the same goods. This feedback loop is self-destabilizing, according to the Freiwirtschaft theory.