On "rusting" money: Silvio Gesell's Schwundgeld reconsidered

Günther Rehme

No 233, Darmstadt Discussion Papers in Economics from Darmstadt University of Technology, Department of Law and Economics

Abstract: Silvio Gesell hypothesized that money depreciation is economically and socially beneficial, ideas that have often been contended. Here I analyze that in a Sidrauski model in which households additionally have a "love of wealth"-motive. It is shown Gesell's claims may be valid in a demand-determined, short-run equilibrium and why money depreciation overcomes the zero lower bound on nominal interest rates. However, for a typical long-run equilibrium introducing money depreciation in isolation may be bad. But money depreciation, when coupled with expansionary monetary policy, is a necessary condition for a positive Mundell-Tobin effect on long-run real variables and so creates wealth in the model. It is found that this also holds in the transition to the long-run equilibrium. Hence, the spirit of Gesell's hypotheses can be verified for a plausible, long-run environment.

Keywords: Economic Performance; Depreciating Money; Zero Lower Bound; Demonetization; Love of Wealth (search for similar items in EconPapers)
JEL-codes: E1 E5 O4 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-hpe, nep-mac and nep-mon
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Working Paper: On ‘Rusting’ Money Silvio Gesell’s Schwundgeld Reconsidered (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:darddp:233

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