Description of the Wörgl Experiment
To understand, let us flash back to the little town of Woergl, 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 Woergl, 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 Woergl (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 Woergl 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.
(source: Free Money replaced “Almighy Dollar” by S. Hasslberger)