The Natural Economic Order/Part IV/Chapter 3
After Free-Money has been put in circulation and metal money withdrawn, the sole function of the National Currency Office is to observe the ratio at which money and goods are exchanged and by increasing or decreasing the monetary circulation, to stabilise the general level of prices. In doing so the National Currency Office is guided by statistics for the calculation of the average price of all goods, as discussed in Part III of this book. According to the results of this calculation, which show whether the price-level tends to rise or fall, the monetary circulation is reduced or enlarged. (Instead of altering the volume of money the Currency Office might alter its rapidity of circulation by reducing or raising the rate of depreciation of 5.2 %. But the first method proposed is preferable).
To increase the monetary circulation, the Currency Office pays new money into the public treasury which will expend it by means of a proportional reduction of taxation. If the taxes due to be collected amount to 1000 millions, and 100 millions of new money is to be issued, the taxes are reduced 10 %.
That is a simple matter, but the decrease of the monetary circulation is still simpler. For since the amount of Free-Money in circulation decreases 5% annually through depreciation, all that the Currency Office has to do, to decrease the volume of money, is - to do nothing. Any surplus consumes itself automatically. Should this not suffice the volume of the currency could be reduced by increasing taxation and using the resulting surplus to destroy Free-Money notes. The volume of currency could also be regulated by purchase or sale of Government securities by the Currency Office.
By means of Free-Money, therefore, the Currency Office has perfect control over supply of the instrument of exchange. It controls absolutely both the manufacture of money and the supply of money.
The Currency Office does not require a palatial building with hundreds of officials, like the German National Bank. The Currency Office carries on no banking business of any kind. It has no counters, nor even a safe. The money is printed in the national printing press; the issue and the exchange of the money is effected by the public treasuries; the general level of prices is calculated by the bureau of statistics. All that is needed is one man who takes the money from the printing house to the public treasuries, or destroys the money collected by taxation for the purpose of regulating the currency. The whole establishment consists of a printing press and a stove. Simple, cheap, efficient!
With this simple apparatus we can replace the arduous labour of gold-digging, the ingenious machinery of the mint, the working capital of the banks, the strenuous activity of the Bank of Issue, and yet make sure that today, tomorrow, for ever, in good days and in bad, there will never be a penny too much or too little in circulation. And we can do more than merely replace the present organisation. We can establish permanently a model currency system for all the world to imitate.
- This refers to Gesell's original plan, published in 1891, for applying the principle of Free-Money, in which he proposes to let the face-value of the currency notes decrease from 100 at the beginning of the year to 95 at the end — instead of keeping the face-value at 100 by stamping the notes at the holder's expense. See page 245.