In 1932, in the middle of the Great Depression, the Austrian town of Wörgl was in trouble and prepared to try anything. Of its population of 4,500, a total of 1,500 people were without a job and 200 families were penniless. The mayor Michael Unterguggenberger had a long list of projects he wanted to accomplish, but there was hardly any money to carry them out. These projects included paving roads, streetlights, extending water distribution across the whole town, and planting trees along the streets.1 2
Rather than spending the 40,000 Austrian Schilling in the town’s coffers to start these projects off, he deposited them in a local savings bank as a guarantee to back the issue of a currency known as stamp scrip. The Wörgl money required a monthly stamp to be stuck on the circulating notes to keep them valid amounting to 1% of the note’s value.1 2 A businessman named Silvio Gesell came up with this idea in his book The Natural Economic Order.
Nobody wanted to pay for the monthly stamps so everyone receiving the notes would spend them. The 40,000 schilling deposit allowed anyone to exchange scrip for 98 per cent of its value in schillings but this offer was rarely taken up. That was because the scrip could be spent as one schilling after buying a new stamp. The money raised with the stamps was used to run a soup kitchen that fed 220 families.1 2
The council not only carried out all the intended works, but also built new houses, a reservoir, a ski jump and a bridge. The key to its success was the fast circulation of the scrip money within the local economy, 14 times higher than the Schilling. This increased trade and employment. Unemployment in Wörgl dropped while it rose in the rest of Austria. Six neighbouring villages copied the idea successfully. The French Prime Minister, Édouard Daladier, made a special visit to see the ‘miracle of Wörgl’.1 2
In January 1933, the project was copied in the neighbouring city of Kitzbühel. In June 1933 major Unterguggenberger addressed a meeting with representatives from 170 different Austrian towns and villages. Two hundred Austrian townships were interested in the idea. At this point the central bank decided to assert its monopoly rights by banning scrip money.1 2
After World War II thousands of similar local scrip currencies emerged. None of them was as successful as the currency of Wörgl. The most important reasons probably are:
- There was no depression after World War II and the economy could support positive interest rates so introducing scrip money had little effect.
- To have the desired effect, scrip must be legal tender, otherwise people would exchange their scrip for regular currency if they see no use for it.
The success of the Wörgl currency was inflated by the payment of taxes in arrears that generated additional revenues for the town council which could be spent on public projects. But once the taxes were paid, the townspeople would probably have run out of spending options and exchanged their scrip for schillings to avoid paying for the stamps. This never happened because the project was halted prematurely.3
The local currency of Wörgl demonstrates that the economy can do well without more debt if money keeps circulating. It also demonstrates that a negative interest rate can make money circulate without the need for new debts.
Stamps on money like in Wörgl make negative interest rates possible as you avoid paying for stamps by lending out money. For instance, lending out money at a negative interest rate of 2% would be more attractive than paying for the stamps.
It is therefore fair to say that negative interest rates might have prevented the depression or ended it once it had started. So if scrip had been money in the 1920s and 1930s, World War II might never have happened.
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The future of interest rates
In the long run most capital ends up in the hands of the capitalists. Negative interest rates are the logical consequence.
Featured image: Wörgl bank note with stamps. Public Domain.
1. The Future Of Money. Bernard Lietaer (2002). Cornerstone / Cornerstone Ras.
2. A Strategy for a Convertible Currency. Bernard A. Lietaer, ICIS Forum, Vol. 20, No.3, 1990. [link]
3. A Free Money Miracle? Jonathan Goodwin (2013). Mises.org. [link]