This is the 5th in a series of 12 articles on strengthening our economy through the use of targeted investments involving NO increase in government spending, NO austerity measures and NO reductions in tax revenues. We regard these as essentials of sustainable economic policy. To date we have proposed a limited issuance of Greenbacks as used, with no increase of government debt, to finance the Civil War and Reconstruction; a National Economic Development Bank to be initially capitalized by Greenbacks; a re-creation of the original Bank of The United States; and support for the growing state and local public banking movement. Past issues of this free e-newsletter will be gladly sent to those who request them and we welcome, on or off record, comment from or discussion with any of our readers.
The Legacy of the Worgl "Experiment"
How can a punctual scholar spend a few interesting minutes “surfing”… perhaps while waiting for a less punctual colleague? Type “the Worgle Experiment” in the search bar and several brief, interesting articles from credible sources pop up concerning this striking demonstration of economic creativity in the face of the terrible suffering of the Great Depression as experienced in Austria. What if the Mayor of a mid-sized industrial town (Michael Unterguggenberger was his name) came to the realization that the essential cause for the Depression was simply the lack of credit and money in circulation, and decided to print and spend into circulation the town’s own supply of money? What an interesting “experiment” ensued.
Notice we use quotation marks around the word “experiment”, however... for since the dawn of time chiefs and village elders and governors and emperors have issued coin of the realm or monetary certificates in a quantity calculated to meet the needs of their economies as a medium of exchange without either constricting economic activity or causing inflation. A particularly strange twist of history…and a real experiment…occurred when a Dutchman installed as an English King (William III of Orange) found himself running out of money to fight the Nine Years War and came up with the daring idea of ceding to a group of Dutch bankers the power to issue coin of the realm and control over the money supply held by sovereigns since time immemorial in exchange for funding of his war. So we have, between William III with his radical break from orthodoxy and Michael Unterguggenberger with his later return to orthodoxy, not just a tale of two cities but a tale of two rulers each embarked on an experiment still being played out today in the US and around the world.
When the bright Dutchmen who ruled England put their heads together, they had enough PR sense to realize they should not call their new central bank the Bank of Holland or some such thing, but the Bank of England. In 1946, the UK nationalized the Bank of England, just as the US Congress is currently considering a bill (HR 2990) to nationalize the daughter of the Bank of England. (In deference to some of our readers, we’re not even going to mention the name). Our position is not on the bandwagon of such a nationalization nor is it as an advocate of certain other measures that would radically revolutionize our current banking system. We are pragmatists. If a thing works, keep it. But don’t use it to totally frustrate democracy and the free market, to exclude complementary currencies and methods of banking…the necessary selection of choices to which true freedom inevitably leads.
We must be brief in surveying the Wörgl Experiment and other examples of complementary currencies, providing a number of citations for further reading at the end of our article. We especially urge our readers to read the brief but very informative article first cited there, which puts an emphasis on “where the rubber hits the road” amid first world triumphs and a third world crisis situation of an urgent nature today.
Quickly then, about Wörgl: With a population of about 4,500, the town suffered an unemployment
rate in excess of 30% when the mayor-with-the-long-name took office. Some 200 families were virtually penniless. The town itself had but little cash and heavy debts. The Mayor was a follower of the economist Silvio Gesell, then recently deceased, and he ran an effective town meeting in which he explained and got strong buy-in for his pursuit of Gesell’s theories. He deposited 40,000 Austrian Schillings of the town’s money in a local bank to “back” a new scrip to be issued. It could be taken to the bank and exchanged for Austrian Schillings at a 2% discount, but it is apparent that didn’t happen much because contemporaneous records (later cited) showed most of the money was lent out at interest. This behavior paralleled that of the holders of Abraham Lincoln’s Greenbacks - when given the opportunity to exchange them for specie, the Civil War inflation period had ended and Greenbacks served well enough as currency that hardly anyone saw the need to make the trade.
Much has been said about the demurrage or negative interest the Wörgl notes carried. Each month a 1% stamp (like a penny stamp on a dollar bill) had to be affixed to maintain the value of the scrip.
The Mayor and others believed this to be a great incentive for promoting velocity of circulation, even in prompting people to deposit money in the local bank or to pay their taxes early before the end of the month. There are certainly other possible explanations for why the money was spent quickly by impoverished workers or spent within the area as the only place they could be spent. The bottom line is that records show a tremendous velocity of circulation. Workers were paid in part (50% to 75%) with the new script in completing an impressive array of infrastructural improvements throughout the town and prosperity flourished (described in a “Suggested Reading” citations). Within a year 170 Austrian towns were following suit.
That’s when the Austrian Central Bank stepped in to defend its monopoly on the money supply. In cases reaching up to Austria’s supreme court, the townspeople lost. The region around Wörgl fell back into the Great Depression, with Wörgl returning to a 30% unemployment rate. The experiment over, disaster returned. An interesting observation is that it was a disgruntled Austrian seeking to establish a new economic order, by some accounts early named Adolf Schicklegruber, who led a gang into Germany for the Beer Hall Putsch launching his career as Adolf Hitler.
But the experiment did return to the area. Some 30 miles from Wörgl, across the border in the Rosenheim area of modern Germany, the Chiemgauer flourishes among dozens of other privately operated regional currencies in that nation that are part of the Regiogeld Movement. An announced purpose of that movement is to “combat capital scarcity and capital costs”. The Chiemgauer, which is pegged to the Euro as the Wörgle scrip was to the Austrian Schilling, also involves similar demurrage in that it expires every three months, requiring the holder of the note to pay 2% of the nominal value of the note to reactivate it. Its (web site) backers claim, “by diminishing the ‘store of value’ function in this way, its ‘means of exchange’ function is enhanced”; and it is claimed “the Chiemgauer circulates about 2.5 times faster than a Euro, meaning less money (and interest) is required to finance the same economic activity.”
The Wikipedia article on Community Currencies lists some 121 of such currencies in the U.S. Some are state-focused, like the Arizona Dollars. Some are city-focused, like the Atlanta Hours. Our Tulsa, Oklahoma readership may find interest in the Tulsa Hours. Our friends at Brookings (South Dakota) may find interest in the Brookings Bucks. The BerkShares (they have a good web site, like many of the others) are very similar to the Chiemgauer of Germany. Many of these currencies can be shown to have increased trade in US Dollars as well as in the local currency. While there are claims they also increase federal tax revenues, that is a subject that perhaps needs further study, along with the regulatory revues now being made in some of the states regarding potentials for money laundering in “virtual” currencies like Bitcoin. In general, though, we have a certain faith in “pump priming” and would rather see active, growing local economies than those just waiting for times to get better. A variety of motives are being employed to promote these currencies, ranging from pure local economic development to encouragements to serve the community, contribute to charities or help the environment. Strange bedfellows, therefore, find themselves in the same camp.
The US Constitution allows local organizations of all descriptions to issue these forms of printed or electronic scrip, as long as they do not closely enough resemble US Dollars to be confused with them. It does not allow the states, however, to authorize currencies except to make “gold and silver coin a tender in payment of debts.” There are movements in a dozen or more states to follow Utah’s lead in instituting silver and gold coins as a state substitute for the US Dollar. South Carolina legislators have even considered accepting foreign coins like the South African Kuggerand. Why?
Much of the rhetoric has concerned the supposedly fragile state of the US Economy and speculations about collapse of the Federal Reserve System. There are older roots than that, though. Congressman Ron Paul has introduced a bill to allow for a “competition of currencies” between the States and the Federal Government, following the theory of Friedrick Hayek that such competition would leave citizens less vulnerable to federal policies that would de-value the dollar.
People of these schools have revived old arguments about possible inflation-causing policies of the government right in the middle of a deflation-induced recession, and acting as if what the dollar needs is an attack upon its value by the competition of a proliferation of monetary gold…that, somehow, that will give us a more secure national economy. As presidents from both parties - Franklin D. Roosevelt and Richard M. Nixon - knew, a return to the gold standard may strengthen the hand of commodity speculators in gold but would weaken our economy due to an artificial constriction upon the amount of money that our economy can, without problematic inflation, put to good use. (A good reason to support the Fed’s proven inflation-fighting power).
So our argument, let us be clear, is for complementary currency which will keep the US Dollar strong. The successful use of such currencies in Wörgle and in many other times and places as described in the reading below indicates they can serve a significantly helpful role.
Suggested Reading
Current Crisis: For information about complementary currencies worldwide and economists caught in a crisis in Kenya, see: “The Crime of Fighting Poverty: Local Currency’s Success in Kenya Ends in Forgery Charges”, by Ellen Brown of the Public Banking Institute, at the following site: http://truth-out.org/news/item/17297-the-crime-of-alleviating-poverty-a-local-community-currency-battles-the-central-bank-of-Kenya
Regarding William III’s transfer of monetary authority to the Bank of England, see Stephen Zarlenga’s address to the House of Lords (page 12 of that text) on the web site of the American Monetary Institute at http://www.monetary.org
For a list of Community Currencies in the US, see:
http://wikipedia.org/wiki/List_of_community_currencies_in_the_United_States
For contemporaneous accounts of the Wörgle Experiment, see Thomas Greco’s case study at:
http://www.reinventingmoney.com
For discussions on complementary currency innovations, see Articles and Papers of Prof. Paul Lietaer (Berkeley) on the web site of Currency Solutions for a Wiser World at: http://www.lietaer.com
For an evaluation of the Wörgle Experiment by economic scholar Anthony Migchels, see:
“The Power of Demurrage: The Wörgl Phenomenon” by Anthony Migchels on Real Currencies,
July 2, 2012 (see: The Power of Demurrage)
The Legacy of the Worgl "Experiment"
How can a punctual scholar spend a few interesting minutes “surfing”… perhaps while waiting for a less punctual colleague? Type “the Worgle Experiment” in the search bar and several brief, interesting articles from credible sources pop up concerning this striking demonstration of economic creativity in the face of the terrible suffering of the Great Depression as experienced in Austria. What if the Mayor of a mid-sized industrial town (Michael Unterguggenberger was his name) came to the realization that the essential cause for the Depression was simply the lack of credit and money in circulation, and decided to print and spend into circulation the town’s own supply of money? What an interesting “experiment” ensued.
Notice we use quotation marks around the word “experiment”, however... for since the dawn of time chiefs and village elders and governors and emperors have issued coin of the realm or monetary certificates in a quantity calculated to meet the needs of their economies as a medium of exchange without either constricting economic activity or causing inflation. A particularly strange twist of history…and a real experiment…occurred when a Dutchman installed as an English King (William III of Orange) found himself running out of money to fight the Nine Years War and came up with the daring idea of ceding to a group of Dutch bankers the power to issue coin of the realm and control over the money supply held by sovereigns since time immemorial in exchange for funding of his war. So we have, between William III with his radical break from orthodoxy and Michael Unterguggenberger with his later return to orthodoxy, not just a tale of two cities but a tale of two rulers each embarked on an experiment still being played out today in the US and around the world.
When the bright Dutchmen who ruled England put their heads together, they had enough PR sense to realize they should not call their new central bank the Bank of Holland or some such thing, but the Bank of England. In 1946, the UK nationalized the Bank of England, just as the US Congress is currently considering a bill (HR 2990) to nationalize the daughter of the Bank of England. (In deference to some of our readers, we’re not even going to mention the name). Our position is not on the bandwagon of such a nationalization nor is it as an advocate of certain other measures that would radically revolutionize our current banking system. We are pragmatists. If a thing works, keep it. But don’t use it to totally frustrate democracy and the free market, to exclude complementary currencies and methods of banking…the necessary selection of choices to which true freedom inevitably leads.
We must be brief in surveying the Wörgl Experiment and other examples of complementary currencies, providing a number of citations for further reading at the end of our article. We especially urge our readers to read the brief but very informative article first cited there, which puts an emphasis on “where the rubber hits the road” amid first world triumphs and a third world crisis situation of an urgent nature today.
Quickly then, about Wörgl: With a population of about 4,500, the town suffered an unemployment
rate in excess of 30% when the mayor-with-the-long-name took office. Some 200 families were virtually penniless. The town itself had but little cash and heavy debts. The Mayor was a follower of the economist Silvio Gesell, then recently deceased, and he ran an effective town meeting in which he explained and got strong buy-in for his pursuit of Gesell’s theories. He deposited 40,000 Austrian Schillings of the town’s money in a local bank to “back” a new scrip to be issued. It could be taken to the bank and exchanged for Austrian Schillings at a 2% discount, but it is apparent that didn’t happen much because contemporaneous records (later cited) showed most of the money was lent out at interest. This behavior paralleled that of the holders of Abraham Lincoln’s Greenbacks - when given the opportunity to exchange them for specie, the Civil War inflation period had ended and Greenbacks served well enough as currency that hardly anyone saw the need to make the trade.
Much has been said about the demurrage or negative interest the Wörgl notes carried. Each month a 1% stamp (like a penny stamp on a dollar bill) had to be affixed to maintain the value of the scrip.
The Mayor and others believed this to be a great incentive for promoting velocity of circulation, even in prompting people to deposit money in the local bank or to pay their taxes early before the end of the month. There are certainly other possible explanations for why the money was spent quickly by impoverished workers or spent within the area as the only place they could be spent. The bottom line is that records show a tremendous velocity of circulation. Workers were paid in part (50% to 75%) with the new script in completing an impressive array of infrastructural improvements throughout the town and prosperity flourished (described in a “Suggested Reading” citations). Within a year 170 Austrian towns were following suit.
That’s when the Austrian Central Bank stepped in to defend its monopoly on the money supply. In cases reaching up to Austria’s supreme court, the townspeople lost. The region around Wörgl fell back into the Great Depression, with Wörgl returning to a 30% unemployment rate. The experiment over, disaster returned. An interesting observation is that it was a disgruntled Austrian seeking to establish a new economic order, by some accounts early named Adolf Schicklegruber, who led a gang into Germany for the Beer Hall Putsch launching his career as Adolf Hitler.
But the experiment did return to the area. Some 30 miles from Wörgl, across the border in the Rosenheim area of modern Germany, the Chiemgauer flourishes among dozens of other privately operated regional currencies in that nation that are part of the Regiogeld Movement. An announced purpose of that movement is to “combat capital scarcity and capital costs”. The Chiemgauer, which is pegged to the Euro as the Wörgle scrip was to the Austrian Schilling, also involves similar demurrage in that it expires every three months, requiring the holder of the note to pay 2% of the nominal value of the note to reactivate it. Its (web site) backers claim, “by diminishing the ‘store of value’ function in this way, its ‘means of exchange’ function is enhanced”; and it is claimed “the Chiemgauer circulates about 2.5 times faster than a Euro, meaning less money (and interest) is required to finance the same economic activity.”
The Wikipedia article on Community Currencies lists some 121 of such currencies in the U.S. Some are state-focused, like the Arizona Dollars. Some are city-focused, like the Atlanta Hours. Our Tulsa, Oklahoma readership may find interest in the Tulsa Hours. Our friends at Brookings (South Dakota) may find interest in the Brookings Bucks. The BerkShares (they have a good web site, like many of the others) are very similar to the Chiemgauer of Germany. Many of these currencies can be shown to have increased trade in US Dollars as well as in the local currency. While there are claims they also increase federal tax revenues, that is a subject that perhaps needs further study, along with the regulatory revues now being made in some of the states regarding potentials for money laundering in “virtual” currencies like Bitcoin. In general, though, we have a certain faith in “pump priming” and would rather see active, growing local economies than those just waiting for times to get better. A variety of motives are being employed to promote these currencies, ranging from pure local economic development to encouragements to serve the community, contribute to charities or help the environment. Strange bedfellows, therefore, find themselves in the same camp.
The US Constitution allows local organizations of all descriptions to issue these forms of printed or electronic scrip, as long as they do not closely enough resemble US Dollars to be confused with them. It does not allow the states, however, to authorize currencies except to make “gold and silver coin a tender in payment of debts.” There are movements in a dozen or more states to follow Utah’s lead in instituting silver and gold coins as a state substitute for the US Dollar. South Carolina legislators have even considered accepting foreign coins like the South African Kuggerand. Why?
Much of the rhetoric has concerned the supposedly fragile state of the US Economy and speculations about collapse of the Federal Reserve System. There are older roots than that, though. Congressman Ron Paul has introduced a bill to allow for a “competition of currencies” between the States and the Federal Government, following the theory of Friedrick Hayek that such competition would leave citizens less vulnerable to federal policies that would de-value the dollar.
People of these schools have revived old arguments about possible inflation-causing policies of the government right in the middle of a deflation-induced recession, and acting as if what the dollar needs is an attack upon its value by the competition of a proliferation of monetary gold…that, somehow, that will give us a more secure national economy. As presidents from both parties - Franklin D. Roosevelt and Richard M. Nixon - knew, a return to the gold standard may strengthen the hand of commodity speculators in gold but would weaken our economy due to an artificial constriction upon the amount of money that our economy can, without problematic inflation, put to good use. (A good reason to support the Fed’s proven inflation-fighting power).
So our argument, let us be clear, is for complementary currency which will keep the US Dollar strong. The successful use of such currencies in Wörgle and in many other times and places as described in the reading below indicates they can serve a significantly helpful role.
Suggested Reading
Current Crisis: For information about complementary currencies worldwide and economists caught in a crisis in Kenya, see: “The Crime of Fighting Poverty: Local Currency’s Success in Kenya Ends in Forgery Charges”, by Ellen Brown of the Public Banking Institute, at the following site: http://truth-out.org/news/item/17297-the-crime-of-alleviating-poverty-a-local-community-currency-battles-the-central-bank-of-Kenya
Regarding William III’s transfer of monetary authority to the Bank of England, see Stephen Zarlenga’s address to the House of Lords (page 12 of that text) on the web site of the American Monetary Institute at http://www.monetary.org
For a list of Community Currencies in the US, see:
http://wikipedia.org/wiki/List_of_community_currencies_in_the_United_States
For contemporaneous accounts of the Wörgle Experiment, see Thomas Greco’s case study at:
http://www.reinventingmoney.com
For discussions on complementary currency innovations, see Articles and Papers of Prof. Paul Lietaer (Berkeley) on the web site of Currency Solutions for a Wiser World at: http://www.lietaer.com
For an evaluation of the Wörgle Experiment by economic scholar Anthony Migchels, see:
“The Power of Demurrage: The Wörgl Phenomenon” by Anthony Migchels on Real Currencies,
July 2, 2012 (see: The Power of Demurrage)
