The Rounds Of Money
Erick S. Hansch
[An unpublished paper written in 1959]
paper, in the place of pearls and gold,
Convenient is, we know how much we hold;
No need for change or barter, each at will
Of love and wine may henceforth drink his fill."
[Mephistopheles in Goethe's "Faust".]
Many of those who have studied Henry George's Science of Political
Economy must have felt that the incompleteness of the chapters on
money is a severe handicap in the promulgation of his scientific
system of economic thought.
This writer is not one to believe, however, that history expressly
waited for him to come forward and fill the gap, and thus bring to
completion the work left undone by a genius. I am no genius, and I am
acutely pained by the fact that so many able man In the field of
economics, much superior in detailed knowledge as well as in
analytical and critical intelligence to my own, have not produced
something of which we could be rightly proud.
An attempt is here made to assemble the elements for a theory of
money, and this is done in the thought conceived in all humility, that
in our time which stands under the aegis of Michael, we can -- and
must -- depend less and less on the leadership of great personalities,
and more and more on the utmost exertion of each individual's thought,
feeling, and will, in order to bring to fruition the goals --
spiritual as well as secular -- set for our generation.
In the following discussion I have drawn on Silvio Gesell's Theory of
Free-Money, Rudolf Steiner's ideas on economics, on a talk by an
English banker, and, of course, on Henry George. It will be, for
the most part, indistinguishable in this expose who said what, but the
reader can easily ascertain the source by referring to the authors
Following the example of a towering, yet largely unrecognized
personality, I should not acknowledge and thank those whose
writings I have used in an attempt to further my own education and
thinking, but rather apologise to those innumerable authors and
thinkers from whom I have not learned.
This then is the barest outline:
Money is a medium of exchange. It became indispensable with the
widespread adoption of the division of labor, since what one man
produces under this system has to be exchanged with the manifold
products of others. Barter trade has too many obvious drawbacks; money
allows to settle a transaction to a definite measure or amount leaving
no doubt as to the strictest fixation of the price. In other words,
$35 are $35, while an ounce of gold leaves doubt as to its exact
weight, the dependability of scales, the purity of its composition,
and its actual price as a commodity in the market according to the law
of supply and demand.
Other commodities if used as money would increase the anomalies by
the more or less heavy cost which includes storage, deterioration,
A closed system which which in our days is in most cases synonymous
with the territory belonging to the same nation or government, will
have its own specific money which will exchange with moneys of other
such closed economic systems at rates which are largely determined by
a comparison of their respective buying powers as well as the general
economic and political situation prevailing in and around the
territories involved, by the degree of control or direction exercised
by the governments in the issue of money in whatever form and in the
granting of bank credits, and possibly also by the backing of such
money and credit by some precious metal or metals.
In fact, it is mainly the money issue -- apart from tariff walls
which exhibit a great deal of a characteristic I would call "economic
osmosis" -- which makes an economic system appear as "closed",
because inherently economic activity strives to transcend national
borders. This tendency, be it remarked in passing, causes not a little
of the vexations and conflicts of conscience in those who for entirely
valid and admirable patriotic reasons deplore the international and
cosmopolitan attitudes of the economic man. Businessmen,
industrialists, and labor leaders, are often suspect of being
unpatriotic for the dollar's sake.
Better than to advocate world government, however, those conflicts
could be solved In a more satisfying manner by instituting the
threefold division of human society into three realms, one being the
realm of law and government of an entirely national character where
the equality of every citizen must be recognized; the second the realm
of economic activity which can acknowledge the fraternal aspirations
of men (brotherhood) without having to deny that every individual is
different and therefore his contribution to society will differ
accordingly; and thirdly the realm of spiritual activity (education,
art, religion) giving the individual the fullest freedom of self
-expression, and thus bring to maturity on a higher plane the only
half-understood precepts of the French revolution: egalite,
Each of these three divisions should be set up autonomous in much the
same manner as the three systems in the human organism; the
sensory-nervous system, the respiratory-rhythmic system, and the
digestive system, are distinct the one from the other, yet work
harmoniously together. (See appendix,)
Within the "closed" economic territory anything is money
which by common consent or disposition in any period of time is
accepted as the common medium of exchange and serves as the common
measure of value.
The use to which money is put is not that of being consumed, but of
being continually exchanged, and the only question anyone asks himself
in taking money in exchange is whether he can, in the same way, pass
it on in exchange. If there is no doubt of that, he will take it; for
the only use he has for money is to pass it on in exchange. If he has
doubt of that he will take it only at a discount proportioned to the
doubt, or not take it at all.
The ultimate purpose of the exchanges of commodities is not only
destructive consumption, but the nature of these commodities is such
that if they are not soon consumed, they will wear out or decay.
It was thought at one time that we should seek for the substance used
in money materials which are least subject to wear and decay. The
precious metals, gold and silver, were held to be the most
satisfactory substances to meet this requirement, and also be in
However, a factor of instability is introduced when the substance
itself, which is chosen for the base of money, becomes subject to
fluctuations in its own market price. This led to government fixing of
the standard for the monetary unit, such as in the U.S.A. at present
of one ounce of fine gold being equal to $35.
This is a somewhat arbitrary figure, and in practical economic life
there are tremendous forces pulling and heaving until the stress
becomes so great that another likewise arbitrary figure but somewhat
closer to the actual or estimated market price of gold has to be set
by government fiat.
The insistence on a backing of money by some commodity such as the
precious metals entails further the obvious disadvantage that the
economy whose entire money and credit system is based on, say, gold or
gold certificates, is seriously jeopardized every time when gold flows
out of the country as the result of an adverse trade balance. An
appraisal of the merits and demerits of the gold standard, also the
wide deviations in all practical cases of currencies from a strict
gold standard can be found in any good encyclopaedia.
Many sensible persons have urged that we dispense entirely with the
backing of our money by a store of gold or other precious metal, and
go to a strictly paper money.
Our money would then become a true common measure of value if we take
value to mean the appraisal of the labor or irksome exertion that a
commodity will save us and which we would have to undergo as the price
for its possession if we could not acquire it by exchange.
Money will then become entirely a credit arrangement, and will come
into existence -- as much of our credit does today -- as a consequence
of our productive activities. It comes into existence at the moment
and point in our economy where new goods and services are continuously
This credit extension is somewhat synonymous with the short term
loans. These are largely established to facilitate the immediate
production processes: pay wages, buy raw materials, meet the general
production and overhead expenses, and are -- generally -- repaid and
thus wiped out when the produce is sold. This is a circular movement,
with perhaps many such circles overlapping until the final one causes
the produce to land in the hands of the ultimate consumer.
The sources of short term loans are usually the commercial banks
which use the customers' deposits and some bank capital as backing or
reserve in a ratio prescribed by the monetary authorities.
Differing in nature from the purpose of most short term loans are
those of long duration. A strict separation is perhaps not possible,
but essentially long tern loans are sought for the acquisition of
production facilities, or: capital assets, and the sources are usually
true savings as represented by the funds of such financial
institutions as sayings banks , mutual and trust funds, life insurance
companies, foundations, etc.
When speaking here of loans and investment, we leave out of
consideration our public debt, which has been dealt with elsewhere.
Savings play a peculiar role in our economy. They are not only the
expression of thrift and the means to provide for unforseen and
unexpected calamities, or simply for the unproductive years of old age
when living expenses still go on, or for the education of our
children, but large savings are indispensable today for the
accumulation of capital assets. The process of capital formation as it
is at present constituted, and, its concomitant anomalies I have
attempted to describe in the paper already referred to above . I
also tried there to assess the role that interest plays in the
process, and how a market rate of interest as the price for -- or
return to -- capital is severely falsified by several factors.
Here I would add only the well-known example of 1 cent laid up at 6%
compound interest in the year 1 A.D. which would represent today such
an astronomical figure that staggers the innocent imagination. Capital
accumulation aids production, it increases labor's productivity, but
not at such an unrealistic figure. There is obviously something wrong
here in this picture which is distorted out of all proportion.
A clue to the answer must be seen in the following consideration:
As money is a medium of exchange it represents commodities. These
commodities, or wealth in the nomenclature of political economy, do
not bear much accumulation (we said this before). They tend back to
their natural state by going through various stages. A constant war is
waged and won by such natural agents -- and some human factors as well
-- as heat, frost, rust, breakage, decomposition, obsolescence, wear
and tear, friction, dampness, rodents, insects, fire, floods,
lightning, accidents, microbes, general and small averages (French:
avaries), explosions, acids, earthquakes, oxidation, destruction by
rebellions, wars, revolutions, in short, quoting the emperor of Siam:
etcetera, etcetera, etcetera.
To make money truly representative of goods (i.e., wealth), it should
have incorporated in it a feature paralleling this depreciation.
Keynes called it carrying cost, others speak of negative interest in
But it is really not the interest that needs correction, rather the
money itself, and this writer would therefore prefer some such term as
limit-money as its designation.
A truth never stands alone. It always can be seen and proven from
A conclusion similar to the one just reached in the realm of
economics, can be arrived at on moral grounds in the social realm. If
we consult our feeling for social justice we would probably have to
admit, depending on the strength of such feeling, that inasmuch as,
let us say, a certain fortune was acquired in our time and is thus
intimately connected with the economic and social activities of our
generation, it does not seem defensible to let it be carried forward
from generation to generation, increasing out of itself by compounded
interest, and make claims on the produce brought forth by the efforts
of future generations. Wealth will not bear much accumulation, and
there is actually very little useful wealth -- money is by definition
in political economy excluded from the meaning of the term wealth --
that is passed on from one generation to the next.
A loan bearing 5% interest will have been repaid five times over in
the course of 100 years. Plainly and in all fairness, there should be
a limit in time as well as in the amount to prevent that stockholders
or other investors receive continuous annual tribute from company,
state, or community. The benefit to the community would arise in a
relief to taxation. In the case of loans to industrial or commercial
enterprises, these would not be under perpetual tribute to private
ownership for worn-out capital assets.
Long term loans carrying a fixed rate of interest should be altered
to an insurance annuuity basis. Perhaps the best would be to make
capital value subject to a small annual decrease, say 1% per year. In
this way, our hugs national debt could be wiped out equitably and
without disturbance to our economy within about 100 years.
It has been said in support of the idea of depreciating money that
the owners of manufactured goods or agricultural produce are under
pressure to sell because goods will decay, lose weight, quality, etc.,
while the opossessors of money are under no such compulsion -- except
perhaps where continuous price inflation may make it advisable not to
delay the use of money possessions in exchange for commodities.
However, in the economy as a whole there is a steady and fairly
predictable stream of goods flowing from producers to consumers, and
the delayed buying by some does not constitute a forceful argument in
favor of our proposition.
The reason that this argument was advanced was the belief that the
withholding of capital funds, especially for investment, is the main
cause for economic recession. Keynes called this phenomenon "liquidity
preference". Those that persist in the indicated belief overlook
that something else must have occurred first in the economy that led
to the adoption of greater caution in parting with savings for
investment purposes. And this something is the speculative advance of
the prices for land (this term to be taken in the wide sense of
political economy) which caused the market to refuse the further
acceptance of the continuously increased prices. Iron and steel,
timber, oil, farmland, are examples. The economy comes to a faltering
pace, and potential investors are put on guard. Of course, by
withholding funds for investment a bad situation is aggravated.
An analogy which we construe as supporting our advocacy of limit-money
is the comparison of money circulating in the body economic with the
blood circulating in a living organism. Our blood carries assimilated
food through our body, and the use of this food is either immediate
for the exertion of muscle or brain (i.e., short term), or for the
building of flesh, bones, the various organs, etc. (i.e., long term).
The body continually creates new blood for the purpose, and withdraws
old blood to prevent congestion. Money circulates to distribute wealth
for consumption, and capital as building material.
Such analogies have a certain value for our understanding of the life
processes involved, but must not be carried too far. However, we might
venture one more application of this analogy: to look for an organ in
the economic organism which could be compared to the heart. Right
here, it becomes apparent that our prevailing
materialistic-mechanistic concepts which designate the heart as a
pump, are entirely insufficient and unproductive, if not grossly
unimaginative. The heart is an organ of feeling, both in the meaning
of being a sense organ that perceives feelings, as well as performing
the function of feeling, namely feeling the blood, its state of
composition, flow, warmth, etc. And in the larger economic organism a
corresponding organ has to be provided and inserted that can in some
manner feel the sufficiency and velocity of money circulation and can
attempt adjustments. She active members of such an organ should a^iin
come only from industry, commerce, agriculture, and be unhampered by
Keynes, after giving an appreciative appraisal of Silvio Gesell's
idea of stamped money, which he said should be extended to all money
by analogous methods, expressed concern that such a measure of
instituting a carrying cost for money would cause a flight of capital
funds into land, since the latter generally has evidenced the
characteristic of rather constant appreciation in value due to its
limited extent and being increasingly in demand with a steadily
augmenting population and ever greater per capita consumption.
However, he disposed of this concern quickly by saying that under
Gesell's arrangement -- i.e., Free-Land -- land would be nationalized
and thus the possibility of capital funds seeking refuge in land would
Keynes has certainly done a great disservice to his own esteem by not
searching further for the correct solution of this dilemma, a solution
that squares with all the cherished precepts as well as with
historical developments in our Western civilization, and especially
with Anglo-Saxon concepts and traditions, and that is: leaving private
property untouched, but collecting the rent-of-land for government
revenue in lieu of taxes. This would at once do away with the
nefarious speculation in land, and bring about a greater stability of
our economy through the removal of the prime cause for the continually
recurring severe cycles of recessions and boom periods.
May I ask the reader now to direct his attention again to the
beginning of this little essay where stands the verse spoken by
Goethe's Mephistopheles. The words are truly mephistophelian. The
reader who is fortunate enough to have retained in this materialistic
age a sense of moral perception will perhaps have felt instinctively
that the path we followed from those words on through to the end is a
picture of a type of moral imagination here used to bring about a
metamorphosis of the concept of money. This writer conceives it as a
human task -- in the Steinerian sense -- to bring the moral element
into the world through his thoughts, feelings and exertions of will.
Who has the courage to travel this path?
- D. L. Dawson, at the time
Sub-Manager of the Chartered Bank of India, Australia and China, "Some
Thoughts of an Amateur Economist," talk before Rotarians in
Hong Kong, 1940.
- Walther Howard, German
musician and philosopher whose unique "Lehre vom Lernen"
(Sophia of Learning) is in my estimation and, to my infinite
regret, untranslatable into English.
- Interest and Capital Formation