The Wörgl experiment

Largely forgotten now (or intentionally ignored), this cautionary tale is excerpted from Silvano Barruso’s account of the amazing, audacious Wörgl experiment.  Had it been allowed to continue, the world today might be a radically different (and better) place.  As Børre wrote this morning, “In this age of collective despondency, at least on the part of those of who remember the world before 1979, Wörgl demurrage is encouraging indeed.”

– Monsieur d’Nalgar

The monetary disorder of the past 3 000-odd years, unleashed by King Croesus’ unfortunate decision of monetizing gold, has spawned a mindset of superstitions, e.g.

    • “To be rich” means “to have money;”
    • “Hard money” is money with a mysterious ingredient called “intrinsic value;”
    • “Rich countries” are the only ones where one can pursue “the American dream;”
    • There is no other way of raising public revenue than either taxing or borrowing from banks;
    • To invest, one must have “saved money” first;
    • Credit is money;
    • For a country to develop, it must borrow money from where the money “is.”
    • “Cheap” = costing little money; “Dear” = costing a lot of money

Etcetera. With this mindset it would take many pages to show up the falsity of the above propositions. On grasping the concept of Gesell’s Free Money the same falsity stands out at once, as does the remedy.

To understand, 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 citizens 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.

Silvano Borruso
18th July 2006 or or

Photograph of croesid (gold coin) from

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