Famously successfull, but curtailed, experiment with Monetary Reform, i.e. the use of local depreciating currencies, in an Austrian town in the 1930's.
The case is discussed in depth here at http://www.globalideasbank.org/site/bank/idea.php?ideaId=904
The official name of the local currency was: Bestätigte Arbeitswerte: Certificates of Work done
In the early 1930s the small town of Worgl in the Austrian Tyrol, suffering like every other town in Europe and America from the Great Depression, took the unlikely step of issuing its own currency.
Its burgomaster, Michael Unterguggenberger, faced an empty treasury, because the unemployed citizens could not pay their taxes; roads and bridges needed repair and parks needed maintenance, for which the town could not pay; and idle men and women earned no wages.
He recognised that all three problems could be solved if he could find the connecting link.
That link was money. The three problems coexisted because no one had any of it, and his simple solution was to create money locally.
He issued numbered 'labour certificates' to the value of 32,000 schillings, in denominations of 1, 5 and 10 schillings, respectively. These became valid only after being stamped at the town hall, and depreciated monthly by 1 per cent of their nominal value.
It was possible for the holders to 'revalue' them by the purchase, before the end of each month, of stamps from the town hall, in the process creating a relief fund." (http://www.globalideasbank.org/site/bank/idea.php?ideaId=904)
"The Wörgl was introduced to the town in 1932, at the height of the Depression, when a third of the town was without work. It is an amazing story.
The town’s then Mayor, the wonderfully named Michael Unterguggenberger, was taken with the idea that the national currency promoted hoarding and disincentivised spending, and proposed instead what he called “Certified Compensation Bills” (not a name to trip off the tongue I grant you). The notes were issued by the Council, who agreed to accept them as currency. The idea of the Wörgl was that it was money that went off, it lost value over time, a process known as ‘demurrage’. The notes needed to be stamped each month, or else they depreciated by a small amount, which incentivised its rapid turnover (a feature of the Stroud Pound). The back of the notes contained the following explanation;
- “To all whom it may concern ! Sluggishly circulating money has provoked an unprecedented trade depression and plunged millions into utter misery. Economically considered, the destruction of the world has started. It is time, through determined and intelligent action, to endeavour to arrest the downward plunge of the trade machine and thereby to save mankind from fratricidal wars, chaos, and dissolution. Human beings live by exchanging their services. Sluggish circulation has largely stopped this exchange and thrown millions of willing workers out of employment. We must therefore revive this exchange of services and by its means bring the unemployed back to the ranks of the producers. Such is the object of the labour certificate issued by the market town of Wörgl : it softens sufferings dread; it offers work and bread.”
The scheme led to a time of extraordinary success for the local economy. Bridges were built, houses, a reservoir, new roads and other infrastructure. Six neighbouring villages followed suit, and before long, over 200 towns were also considering the scheme.
A fascinating eye witness account of the scheme’s success comes from Claude Bourdet, a master engineer from the Zürich Polytechnic who visited the town and described it thus;
- I visited Wörgl in August 1933, exactly one year after the launch of the experiment. One has to acknowledge that the result borders on the miraculous. The roads, notorious for their dreadful state, match now the Italian Autostrade. The Mayor’s office complex has been beautifully restored as a charming chalet with blossoming gladioli. A new concrete bridge carries the proud plaque: “Built with Free Money in the year 1933.” Everywhere one sees new streetlights, as well as one street named after Silvio Gesell. The workers at the many building sites are all zealous supporters of the Free Money system. I was in the stores: the Bills are being accepted everywhere alongside with the official money. Prices have not gone up. Some people maintained that the system being experimented in Wörgl prevents the formation of equity, acting as a hidden new way of exploiting the taxpayer. There seems to be a little error in that view. Never before one saw taxpayers not protesting at the top of their voices when parting with their money. In Wörgl no one was protesting. On the contrary, taxes are paid in advance; people are enthusiastic about the experiment and complain bitterly at the National Bank’s opposing the issuing of new notes. It is impossible to dub it only a “new form of tax” for the general improvement of Wörgl. One cannot but agree with the Mayor that the new money performs its function far better than the old one. I leave it to the experts to establish if there is inflation despite the 100% cover. Incidentally price increases, the first sign of inflation, do not occur. As far as saving is concerned one can say that the new money favors saving properly so-called rather than hoarding money. As money lost value by keeping it at home, one could avoid the depreciation by depositing in the savings bank. Wörgl has become a kind of pilgrim shrine for macro-economists from a variety of countries. One can recognize them right away by their learned expressions when discussing the beautifully maintained streets of Wörgl while sitting at restaurant tables. Wörgl’s population, proud of their fame, welcomes them warmly.”
Then, after a few years, the Central Banks, appalled by the scheme’s success, took a court case which reasserted their right to be the only institution able to issue money. The notes became illegal, and within a short period of time, the town returned to the 30% unemployment rates it had seen just a few years previously. I would have liked to be able to have more of a nose around, as it was my experience of Wörgl was a rather fine piece of pizza for breakfast and then getting back on another train again, but I feel honoured to have set foot in this town which, for all too short a period of time, took control of its future and told a story that still inspires now, more than 70 years later." (http://transitionculture.org/2009/11/22/a-local-currency-pilgrimage-to-worgl/)
By Silvano Borruso (via Sepp Hasslberger):
"let us flash back to the little town of Wörgl, in the Austrian Tyrol.
The time is July 1932, in the thick of the Great Depression. The Austrian National Bank, following the directives of a group of central bankers meeting in Washington in 1927, had engaged into a policy of deflation without informing the public.
Michael Unterguggenberger (1884-1936), the mayor of Wörgl, was no economist, but he had read Gesell during the semi-poverty caused by the crises of 1907-08 and 1912-14, during which he had contracted the TB that would lead him to the grave at 52. He knew the remedy, and set to work.
Money was scarce, industries were closing and unemployment was rampant. The 1 500 unemployed of Wörgl (out of a population of 4 000), were knocking in vain at the mayor's door for help.
After patiently briefing small entrepreneurs, shopkeepers and professionals of the town, on 5th July he declared:
- "Slow circulation of money is the principal cause of the faltering economy. Money as a medium of exchange increasingly vanishes out of working people's hands. It seeps away into channels where interest flows and accumulates in the hands of a few, who do not return it to the market for the purchasing of goods and services, but withhold it for speculation."
These words have lost not an iota of relevance, with the only proviso that what accumulates in the hands of a few today is not a trickle of banknotes, but the gigantic bubble described earlier. The municipality issued its Bestätigte Arbeitswerte (Certificates of Work done) at par with the official Schilling.
In so doing, Unterguggenberger had no idea that he was correctly defining money for the first time in history. "Certificate of work done" is what money should have always been, but was prevented by Croesus' multiple incantations. When it comes to defining money, economics textbooks, manuals, treatises, and learned tomes offer up to four separate definitions of money's functions, blissfully unaware that four definitions are no definition, in other words that money is endowed with functions that it should have never been endowed with.
Every certificate (the object representing the monetary unit) expired after a month unless a stamp worth 1% its nominal value was affixed to it to keep it circulating. The stamps could be purchased at City Hall, which in turn accepted the certificates in payment of taxes.
Let us take stock. This feat could be painlessly repeated by any municipality in the world right now, without having to wait for the bubble to burst. What would its most difficult step be? Without doubt, the briefing: convincing people that the only function of a lubricant is to lubricate and therefore to circulate, not to stagnate in one's pockets, under mattresses, or in banks.
No one was obliged to accept the certificates.
The alternatives were:
• Deposit them in the municipal bank at 0% interest. The bank, in order not to pay the demurrage charge, got rid of the certificates at once, either by lending them or by paying for salaries and invoices for public works.
• Exchange them with official Schillings at a discount of 5% on the nominal value.
The municipality printed 32 000 units of certificates, but in practice issued less than a quarter of them. Circulation averaged 5 300 units, i.e. a derisory two Schillings or less per person, which however gave work and prosperity to Wörgl and environs far more than the 150 Schillings/person issued by the National Bank of Austria. As Gesell had predicted, velocity of circulation was what mattered: changing hands some 500 times in 14 months, against the 6 to 8 times of official money, 5 300 units of certificates moved goods and services for 2.5 million. City Hall, by emptying its coffers as fast as citizens' taxes filled them, built a bridge on the Inn, tarmacked four streets, repaired sewerage and electric installations, and even constructed a ski-jump. To have an idea of purchasing power, the mayor's monthly salary was 1 800 Schillings.
At the beginning some smiled, others cried foul or suspected counterfeiting. But prices were not going up, prosperity was increasing all round, taxes were being paid promptly when not in advance, and immediately re-invested in public works and services or paid out in salaries and municipal purchases.
Sneers soon turned into jaw-dropping, and jests into desires to imitate. Early in 1933, the 300 000 citizen of the Tyrol and Kufstein were about to extend the experiment to the whole province.
Meanwhile Wörgl had become a centre of pilgrimage for European and American macro-economists. All were eager to see the "miracle" of local prosperity defying global unemployment and stagnation. Did they go to learn? It is doubtful, given the most complete silence about Gesell in the faculties of economics.
Mammon did not sleep. Unterguggenberger had wisely refrained from calling his certificates "money," for he knew that by doing so he would have incurred the ire of the National Bank.
On 19th August 1932 Dr Rintelen, on behalf of the Austrian government, received a delegation of 170 mayors headed by Unterguggenberger. He had to admit that the National Bank had deliberately reduced the emission of official money from an average of 1,028 million Schillings in 1928 to one of 872 million in 1933. He also had to admit that the certificates made sense and that there was no valid reason to interrupt the experiment.
But Mammon had his own "scientists" at the National Bank, intent on "proving" that the experiment had to be verboten. Here are their "scientific" reasons:
- "Although the issue of relief money appeared fully covered by an equal amount of official Austrian notes, the supervising authorities, starting with the area administration in Kufstein and following with the government office of Tyrol, must not allow themselves to be satisfied.(emphasis added) As a matter of record the borough of Wörgl has exceeded its powers, since the right to issue money in Austria is a privilege of the National Bank. This is stated in Art. 122 of the bylaws of the Austrian National Bank. Wörgl broke that law."
The last statement is false. Wörgl did not break the law. What its certificates, fully backed by official money, had done, was what the Sorcerer's Apprentice had done with his broom: multiply the number of units so as to match their circulation to the needs of the real economy. Conventional money is designed to prevent that, not to favour it.
The prohibition went into force on 15th September 1933. Wörgl appealed. The case reached the Supreme Court, which faithful to Mammon quashed the appeal and ended the experiment.
Unemployment, poverty and hunger returned. An obscure Austrian immigrant had begun to attract attention in the Bavarian Bierhalls: Adolf Hitler. It is impossible to affirm, or to deny, that the Second World War could have been avoided by listening to Gesell. It is a fact that Hitler rose to power with the votes of the unemployed.
Analysing the Wörgl experiment permits us to break the spell of the incantations:
• Free Money makes it impossible to live off the work of others. Its exclusive function (medium of exchange) makes "rich" not him who has money, but him who has (non-financial) skills. Parasites either get the ravens to bring them food or starve.
• Money loses all adjectives: "hard", "soft," "strong," "weak," cease to have meaning; money is just money; the "intrinsic value" of the Wörgl Certificates was nil.
• The American Dream can be pursued anywhere, the closer to home the better;
• "Raising public revenue" meant that the citizens deposited their surpluses into the public coffers at 0% interest, and the public authority spent them into whatever it saw fit; for capital public expenditure, i.e. infrastructures that created new wealth, Wörgl was not given time to introduce new money to match the growth of the economy. Had it continued, this step would have become necessary. Put it another way, taxing and borrowing (directly from the public, not from the banks) were unified into one single operation. The municipal bank doubled up as revenue collection centre. Were Free Money to be introduced at State level to kick-start a new monetary system, the fourth function of Government would stand out: issue new money when prices flag and withhold it when they rise.
• To invest, i.e. to dispose of large sums of money in one instalment, one borrows it. Free Money makes it more attractive to lend at 0% than to hoard at -6%. One asks for one's money back if and when needed.
• Credit becomes redundant. Credit was spawned into existence by the chronic dearth of medium of exchange. With this as abundant as work done by definition, credit ceases to be of use. Credit is deliberately confused with money precisely by the forces that control it.
• For a country to develop, it has to issue as much Free Money as to satisfy the equation FM x velocity of circulation = labour x materials.
• "Cheap" = done with little labour; "Dear" = done with a lot of labour." (http://blog.hasslberger.com/2006/09/free_money_replaced_almighty_d.html)
- The full article is really worth reading, see at http://www.globalideasbank.org/site/bank/idea.php?ideaId=904
- Thomas Greco has assembled a wealth of material, including reviews from 1934: http://www.reinventingmoney.com/documents/worgl.html
- Greco's Comment on the Wörgl Experiment with Community Currency and Demurrage
- Bernard Lietaer: http://www.lietaer.com/2010/03/the-worgl-experiment/