From Anarchy to Central Bank Policy: Silvio Gesell, Negative Interest Rates and Post-Crisis Monetary Policy

Abstract: The dawn of negative interest rates has drawn much attention to the German economist and libertarian socialist Silvio Gesell (1862-1930) who proposed the measure in the early 20th century. Although the attention has led to countless mentions in economic journal articles and speeches conducted by central bankers, often, no further effort is made of going deeper into his work. This paper intends to do so. It presents his radical analysis of capitalism, which stands opposed to that of Karl Marx and links his remedy of depreciating currency to his theory of interest so perfectly aligned with the one presented by John Maynard Keynes more than 20 years later. Furthermore, it shows how the evolution of banking has transformed the way negative interest rates is applied and how deep negative rates could be implemented to affect deposits of both corporations and households. Finally, assessing the preliminary experience from the application in Denmark, it shows that negative interest rates, which conventional monetary theory had always deemed impossible, are indeed possible, and that some of the economic dynamics desired by Gesell could be within reach.