Main differences to current economic systems:
There seems to be an attempt to realize Freiwirtschaft in a small area in Canada, based on artificial money called Gogo that loses its value after one year.
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2 Criticism 3 External links |
Flaws of the money system
According to the Freiwirtschaft theory, current monetary systems are flawed. Markets according to Adam Smith, prices convey information. For example, dropping prices mean that there is less demand or more offer. This leads to a buyer buying more, or a seller starting to produce something else. As a reaction, the price 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-stablizing.
This is not the case on the finance market. Without the continuous increase of the amount of money in circulation by the central bank, the demand would continuously drop, since the circulation speed decreases. Dropping demand forces companies to lower their prices to make some money at all. When prices start dropping, potential customers wait with their buy as long as possible to get the lowest price, resulting in the demand decreasing even more. The feedback loop spirals down to a point where the company does not make any money at all. That, eventually, results in layoffs and even the bankruptcy of the company. Workers in other companies tend to be even more cautious in spending money, ultimately resulting in the breakdown of the economy.
The key error of the system is the ill-transported information in the price. Money is nothing but claim for goods and services from the economy that accepts the money. 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. The market players do not realize that they are destroying the very economy that should ensure the value of the money. This feedback loop is self-destabilizing. According to Freiwirtschaft theory, this is the reason for the cycle of crisis in world economy.
Criticism
As the whole doctrine is based on Irving Fisher's quantity equation, theoretical discussion is linked with macroeconomic theory. Critics state that circulation speed does not decrease but remains stable. However, numbers show a decreasing circulation speed for the USA and Japan after 2001.
The most common arguments against Freiwirtschaft are: