The year was 1932 ; the world
was gripped by the greatest economic depression (started in 1929) that it had
ever known. One man in a small town decided to try something new to help the
people of his community. In doing so the town made economic history. The town
was Wörgl in the Bavarian province
of Austria
What follows is a republishing
of the document originally published here, enhanced by
views and analyses from other sources, to give you a rough context of the
experiment, and its potential application in this modern era.
This is how the story goes …
As a mayor, Michael
Unterguggenberger had a long list of projects he wanted to accomplish. Projects like
repaving roads, street lighting, extending water distribution across the entire
town and planting trees along the streets. But in the midst of the depression
out of the towns population of 4,500, 1,500 were without a job and 200 families
were penniless.
Michael read and re-read
"The Natural Economic Order" by Silvio Gesell. He talked
with people in the town and convinced the members of the Wörgl Welfare
Committee to hold a session on July 5, 1932. In this session he gave a short
summary and then proposed a "Distress Relief Program". He stated that
slow circulation of money is the principal cause of the faltering economy.
Money as a medium of exchange increasingly vanished out of working people's
hands and accumulates into the hands of the few who collect interest and do not
return it back to the market. He proposed that in Wörgl the slow-circulating
National Bank currency would be replaced by "Certified Compensation
Bills". The council would issue the Bills and the public would accept the
Bills for their full nominal value. Bills would be issued in the denominations
of 1, 5 and 10 shillings. A total issue of 32,000 Wörgl "Money Bills"
was printed and put into circulation.
On July 31, 1932 the town
administrator purchased the first lot of Bills from the Welfare Committee for a
total face value of 1,800 Schillings and used it to pay wages. These first
wages paid out were returned to the community on almost the same day as tax
payments. By the third day it was thought that the Bills had been counterfeited
because the 1000 Schillings issued had already accounted for 5,100 Schillings
in unpaid taxes. Michael Unterguggenberger knew better, the velocity of money
had increased and his Wörgl money was working.
Wörgl money was a stamp
script money. The Wörgl Bills would depreciate 1% of their nominal value
monthly. To prevent this devaluation the owner of the Bill must affix a stamp
the value of which is the devaluation on the last day of the month. Stamps were
purchased at the parish hall. Because nobody wanted to pay a devaluation
(hoarding) fee the Bills were spent as fast as possible.
Over the 13-month period the
Wörgl money was in circulation, the mayor carried out all the intended works
projects. The council 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 would receive from the trees.
Six neighboring villages
copied the system successfully. In January 1933, the project was replicated in
the neighboring city of Kirchbuhl
The "economic miracle of
Wörgl" was known internationally. The later French president Daladier
visited Wörgl and reported in detail to the French parliament. The famous
American money-theorist Irving Fisher sent an assistant to Wörgl. Fisher
thought that the model would be able to overcome the US-recession. He
classified himself as a "modest student of Silvio Gesell." But when
hundreds of Austrian majors wanted to copy the Wörgl-model it was forbidden by
the Austrian Central Bank. The bank classified the "work-confirmation
bills" as money and felt its autonomy threatened. The actual positive and
negative effects of the bills and of their own money were not thought worth
reflecting on, neither for the officials of the Central Bank nor for most of
the economists. As today, the money order was a taboo in these days. [4]
The truth is that the Central
Bank panicked, and decided to assert its monopoly rights by banning
complimentary currencies. The case was brought in front of the Austrian Supreme
Court, which upheld the Central Banks monopoly over issuing currency. It then
became a criminal offence to issue "emergency currency". Wörgl
quickly returned to 30% unemployment. Social unrest spread rapidly across Austria Austria
the Good Stuff
The Wörgl experiment
dramatically illustrates some of the common characteristics and major benefits
of local currencies. According to Bernard Lietaer, in his book “The Future of
Money”, the following benefits are illustrated [1] :
1. increased rate of circulation – greater
economic activity
Local currencies tend to
circulate much more rapidly than national currencies. The same amount of
currency in circulation is employed more times and results in far greater
overall economic activity. It produces greater benefit per unit. The higher
velocity of money is a result of the negative interest rate which encourages
people to spend the money more quickly.
2. higher local resources utilisation –
community booster
Local currencies enable the
community to more fully utilize its existing productive resources, especially
unemployed labor, which has a catalytic effect on the rest of the local economy.
They are based on the premise that the community is not fully utilizing its
productive capacities, because of a lack of local purchasing power. The
alternative currency is utilized to increase demand, resulting in a greater
exploitation of productive resources. So long as the local economy is
functioning at less than full capacity, the introduction of local currency need
not be inflationary, even when it results in a significant increase in total
money supply and total economic activity.
3. consumption of local produce – community
imports minimization
Since local currencies are
only accepted within the community, their usage encourages the purchase of
locally-produced and locally-available goods and services. Thus, for any given
level of economic activity, more of the benefit accrues to the local community
and less drains out to other parts of the country or the world. For instance,
construction work undertaken with local currencies employs local labor and
utilizes as far as possible local materials. The enhanced local effect becomes
an incentive for the local population to accept and utilize the scrips.
Other examples
Some forms of complementary
currency can promote fuller utilization of resources over a much wider
geographic area and help bridge the barriers imposed by distance. The Fureai kippu system in Japan
As Lietaer points out, in
situations like the current economic (debt) crisis everything grinds to a halt
for want of money. But he also explains that there is no reason why this money
should take the form of sterling (or dollars, etc.) or be issued by the banks.
Money consists only of "an agreement within a community to use something
as a medium of exchange". The medium of exchange could be anything, as
long as everyone who uses it trusts that everyone else will recognise its
value. During the Great Depression, businesses in the United States Curitiba in Brazil Curitiba become one of the most
prosperous cities in Brazil
Airline frequent flyer miles
are a form of complementary currency that promotes customer-loyalty in exchange
for free travel. The airlines offer most of the coupons for seats on less
heavily sold flights where some seats normally go empty, thus providing a
benefit to customers at relatively low cost to the airline.
While most of these currencies
are restricted to a small geographic area or a country, through the Internet
electronic forms of complementary currency can be used to stimulate
transactions on a global basis. In China
Give it a thought,
Society utilizes only a small
portion of its resources and opportunities. Almost everyone has underutilized
knowledge, skills and time that can be engaged productively. Most manufacturers
and services have underutilized machinery or capacity. Complementary currencies
are a creative means to enhance this untapped social potential. There has been
a tremendous surge in the use of local currencies over the past two decades.
Today there are over 2,500 different local currency systems operating in
countries throughout the world. [1] Go there, and explore the whole article.
But also think about the
Wörgl case on another level. The question is : Would the Wörgl currency have
been just as effective without the demurrage feature, as with it ? Thomas H.
Greco, Jr, attempts to answer on that in a lengthy article [2], where asserting
that the situation was a bit more complicated than we, today, might have
thought, proceeds by examining multiple sources and reports of that time, to
conclude that : “…this supplemental medium of exchange had a very significant
impact in improving, not only the financial condition of the local government
(parish), but also the local business climate and general prosperity. Still,
there can be no doubt that, being a local currency accepted only within the
local economy, the Wörgl notes must have benefitted the local economy, because,
unlike official currency, they could not be used to pay outsiders”.
Community Barter
In discussing these ideas, it
is also important to understand the difference between community currency and
community barter systems. [3]
A community barter system -
like the LETSystem, which is not community currency - is usually based on
voluntary organisational sharing of information about goods and services
available from individuals in an area. The accounting is usually based either
on time or the nationalised currency (pounds, dollars, etc). Such a system has
three basic weaknesses: (a) It tends to be limited in scope to a handful of
dedicated practitioners, usually in largely rural or semi-rural areas, (b) It
does not cater for transactions outside the community, and (c) It encourages
hoarding, rather than the circulation of wealth and energy, and can only expand
by recruiting new producers - there are no 'built-in' inducements to encourage
the circulation of goods and services.
A community currency, on the
other hand, can be used by anyone in the community as a 'means of payment' for
any commodity or service. The only limit to the expansion of its circulation is
its acceptability, so it encourages all forms of economic activity. If suitable
provision is made for 'convertibility', it can facilitate transactions with
people and organisations outside the community, and indeed encourage community
'import replacement'. Also, of course, communities may agree - as they did in
the Tyrol - to accept each other's currency at
par.
Bibliography :
Silvio Gesell - The Natural Economic
Order, access here.
Bernard Lietaer - The Future
of Money, access here.
Peter North - Local Money,
read a review here.
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