by imtringued | 2025-11-18 13:02:17+00:00
Here is the basic theory:

Classical and neoclassical economics tells us that people always spend their entire paycheck on consumer goods (consumption) or claims to future consumer goods (savings). There is no money left over at the end of the month. Producers are notified in advance what to produce. If a worker happens to have $5 left at the end of the month and he wants to buy a car, he will use those $5 towards a non-refundable deposit, even if the car costs tens of thousands of dollars, and contractually obligate himself to spend the remaining money. No money is ever carried over from one period to another, since money is neutral and just a veil.

Meanwhile the observation in the real world is that people often hold onto enough money to make the full purchase. From a theoretical perspective it means they have found a third option: delay making decisions, which is neither saving nor consumption. This means producers are not notified of what to produce until the very moment of the purchase, which means producers have to engage in speculative production ahead of time with no guarantee of a sale. They have to hold inventories and possibly throw away unsold inventories (because no seller wants them). This holding of inventories can manifest itself in the form of idle capital and unemployment as well.

What Silvio Gesell discovered on his farming venture that this delayed decision making is incredibly wasteful, because most products (especially produce) are perishable/non-durable at long time scales, this means that waiting produces waste per unit of time on part of the speculative producers and give the seller of perishables a weaker negotiation position compared to the buyer, who is an implicit seller of money, a non-perishable good. This means buyers or generally people with money are structurally advantaged compared to those who don't. This leads to the conclusion that either money should perish as well, or a more modern interpretation: negative interest is a reflection of rising entropy.

I've seen neoclassicals reject this theory with pretty flismy reasoning, mostly based around the idea that people don't hold cash or positive balances on their account.

Now this theory isn't perfect by any means, but it is pretty interesting and the more you dig, the more it feels like it is pointing towards the correct direction. Meanwhile Keynes proposed a different theory, which is based on the liquidity of assets rather than its durability. Money is more liquid, because everyone wants money. This means you can take money and walk to any seller and buy their goods. Meanwhile as a seller, you must have the particular good that the buyer wants. This is a more general theory since it isn't biased exclusively towards money, because there is sort of a hierarchy of liquidity. Bank account deposits are as liquid or perhaps even more liquid than cash. This means bank account balances can be used for payment instead of cash. Bonds are essentially money with a duration that binds their use, which makes their market value and their nominal value diverge. Stocks are on the extreme end of liquid assets, with wild fluctuations. Meanwhile things like apples are on the lower end of illiquid assets. There is a limit to how many apples a person accepts as "payment" for parting with money.