The Wörgl Experiment: On July 5th 1932, in the middle of the Great Depression, the Austrian town of Wörgl made economic history by introducing a remarkable complimentary currency. Of its population of 4,500, a total of 1,500 people were without a job, and 200 families were penniless – Wörgl was in serious trouble and prepared to try anything.
The mayor, Michael Unterguggenberger, had a long list of projects he wanted to accomplish, but there was hardly any money with which to carry them out. These included repaving the roads, street-lighting, extending water distribution across the whole town, and planting trees along the streets.
Rather than spending the 40,000 Austrian Schillings in the town’s coffers to fund only a few projects, he deposited them in a local savings bank as a guarantee to back the issue of a complimentary currency known as 'Stamp Scrip'. This requires a monthly stamp to be stuck on all the circulating notes for them to remain valid, and in Wörgl, the stamp amounted 1% of each note’s value. The money raised by these stamps was then used to run a soup kitchen that fed 220 families.
Because nobody wanted to pay what was effectively a hoarding fee, everyone receiving the notes would spend them as fast as possible. The 40,000 Schilling deposit allowed anyone to exchange Scrip for 98% of its value in Schillings. However, this offer was rarely taken up. Of all the businesses in Wörgl, only the railway station and the post office refused to accept the local money. When people ran out of spending ideas, they would pay their taxes early using the Stamp Scrip, resulting in a huge increase in town revenues.
Over the 13-month period the project ran, the council not only carried out all the intended works projects, but also built new houses, a reservoir, a ski jump, and a bridge. The people also used Scrip to replant forests, in anticipation of the future cash-flow they were to receive from the trees.
The key to its success was the fast circulation of Scrip within the local economy, 14 times higher than the Schilling! This in turn increased trade, creating extra employment. At the time of the project, Wörgl was the only Austrian town to achieve full employment. Six neighbouring villages copied the system successfully. The French Prime Minister, Edouard Dalladier, made a special visit to see the 'miracle of Wörgl'. In January 1933, the project was replicated in the nearby town of Kirchbühl, and in June 1933, Mayor Unterguggenberger addressed a meeting with representatives from 170 different towns and villages. Two hundred Austrian townships were interested in adopting the idea.
At this point, the Austrian Central Bank panicked, and decided to assert its monopoly rights by banning complimentary currencies. The people successfully sued the Bank, but later lost in the Austrian Supreme Court. It then became a criminal offence to issue 'emergency currency'. The town went back to 30% unemployment. In 1934, social unrest exploded across Austria. In 1938, when Hitler annexed Austria, he was welcomed by many people as their economic and political saviour.
The Mayor got the idea for his new currency from the work of the German economist Silvio Gesell. Central to Gesell's ideas was the use of a hoarding fee of the kind used in Wörgl (technically known as 'demurrage'). The soundness of such an idea was affirmed by John Maynard Keynes in his 1936 work 'General Theory of Employment, Interest and Money' in which he wrote “in future the world will certainly learn more from the spirit of Gesell than from that of Marx”.
Inflation and deflation are also reputed to have been non-existent for the duration of the experiment. However, it was in the United States that the implementation of Stamp Scrip came closest to becoming official public policy.
Professor Irving Fisher of Yale University was considered the most prominent American economist of his time – he had written a classic book on interest rates – and he was convinced that Stamp Scrip was the way out of the Depression. Indeed he went on record as saying – “The Correct application of stamp scrip would solve the Depression crisis in the US in three weeks".
The then Undersecretary of the Treasury, Dean Acheson, was intrigued by what Fisher said and asked Russel Sprague, a well-respected Harvard Professor for his opinion. Sprague said that this approach would indeed succeed in bringing America back to work out of the Depression…but it also had certain political implications which he may want to check with the President.
The mayor, Michael Unterguggenberger, had a long list of projects he wanted to accomplish, but there was hardly any money with which to carry them out. These included repaving the roads, street-lighting, extending water distribution across the whole town, and planting trees along the streets.
Rather than spending the 40,000 Austrian Schillings in the town’s coffers to fund only a few projects, he deposited them in a local savings bank as a guarantee to back the issue of a complimentary currency known as 'Stamp Scrip'. This requires a monthly stamp to be stuck on all the circulating notes for them to remain valid, and in Wörgl, the stamp amounted 1% of each note’s value. The money raised by these stamps was then used to run a soup kitchen that fed 220 families.
Because nobody wanted to pay what was effectively a hoarding fee, everyone receiving the notes would spend them as fast as possible. The 40,000 Schilling deposit allowed anyone to exchange Scrip for 98% of its value in Schillings. However, this offer was rarely taken up. Of all the businesses in Wörgl, only the railway station and the post office refused to accept the local money. When people ran out of spending ideas, they would pay their taxes early using the Stamp Scrip, resulting in a huge increase in town revenues.
Over the 13-month period the project ran, the council not only carried out all the intended works projects, but also built new houses, a reservoir, a ski jump, and a bridge. The people also used Scrip to replant forests, in anticipation of the future cash-flow they were to receive from the trees.
The key to its success was the fast circulation of Scrip within the local economy, 14 times higher than the Schilling! This in turn increased trade, creating extra employment. At the time of the project, Wörgl was the only Austrian town to achieve full employment. Six neighbouring villages copied the system successfully. The French Prime Minister, Edouard Dalladier, made a special visit to see the 'miracle of Wörgl'. In January 1933, the project was replicated in the nearby town of Kirchbühl, and in June 1933, Mayor Unterguggenberger addressed a meeting with representatives from 170 different towns and villages. Two hundred Austrian townships were interested in adopting the idea.
At this point, the Austrian Central Bank panicked, and decided to assert its monopoly rights by banning complimentary currencies. The people successfully sued the Bank, but later lost in the Austrian Supreme Court. It then became a criminal offence to issue 'emergency currency'. The town went back to 30% unemployment. In 1934, social unrest exploded across Austria. In 1938, when Hitler annexed Austria, he was welcomed by many people as their economic and political saviour.
The Mayor got the idea for his new currency from the work of the German economist Silvio Gesell. Central to Gesell's ideas was the use of a hoarding fee of the kind used in Wörgl (technically known as 'demurrage'). The soundness of such an idea was affirmed by John Maynard Keynes in his 1936 work 'General Theory of Employment, Interest and Money' in which he wrote “in future the world will certainly learn more from the spirit of Gesell than from that of Marx”.
Inflation and deflation are also reputed to have been non-existent for the duration of the experiment. However, it was in the United States that the implementation of Stamp Scrip came closest to becoming official public policy.
Professor Irving Fisher of Yale University was considered the most prominent American economist of his time – he had written a classic book on interest rates – and he was convinced that Stamp Scrip was the way out of the Depression. Indeed he went on record as saying – “The Correct application of stamp scrip would solve the Depression crisis in the US in three weeks".
The then Undersecretary of the Treasury, Dean Acheson, was intrigued by what Fisher said and asked Russel Sprague, a well-respected Harvard Professor for his opinion. Sprague said that this approach would indeed succeed in bringing America back to work out of the Depression…but it also had certain political implications which he may want to check with the President.
Shortly afterwards President Roosevelt made a speech announcing a series of impressive centralized new initiatives to counter the crisis – his New Deal – he also announced that by executive decree he would henceforth prohibit all emergency currencies.
Interestingly, today there are grave doubts that the New Deal did much to get the US out of the Great Depression – that was done by shifting the economy to prepare for the Second World War – both in the US and Germany/Austria.
However we are not in 1932 but in 2011– not in the Great Depression but in the Very Great Depression as some would have it – the first Depression of the Globalized Age.
Because the introduction of local Stamp Scrip currencies inevitably leads to a decentralization of power – away from a central authority and towards local communities – central authorities such as central banks and governments have traditionally opposed such initiatives – irrespective of the fact that they may be in the best interests of their people.
Ultimately therefore, any such initiative boils down to an issue of power – a successful introduction of it will return power to the people in a real way – while a failure of such an initiative can only lead to more and more centralized authoritarian power – this time on a global level – raising the spectre of the much-touted and feared New World Order.
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