Wörgl was a small town of 4,500 inhabitants in Austria where an innovative economic experiment was conducted in 1932. Europe had already been hit by the crash of 1929, and in 1931 when Michael Untergüggenberger was elected Mayor, the recession with 30% unemployment, and 10% destitute.
The new Mayor came from a poor farming family, he himself managed to educate himself and become a railway engineer.
Although not a Marxist himself, he was a trade unionist and championed the interests of workers against wealthy railroad investors, which he paid for with his impersonal rise to the top ranks of railroad officials.
He was an open-minded, practical, hard-working, active man who won the hearts of his fellow citizens, who trusted him in the position of Mayor, knowing that he would not betray them.
The new mayor had a long list of projects he wanted to carry out. Essential projects such as city water supply, road paving, street lighting and tree planting along the roads.
But the municipal coffers were almost empty, and the citizens were already in dire financial straits, many of them facing a problem of survival.
The Mayor understood that an increase in their taxes, in order to finance municipal projects, would lead to further poverty and depression.
But the Mayor had studied the book “The Natural Order” by the economist Silvio Gesell. Who believed that the slow circulation of money is the main reason for the faltering economy.
Money as a medium of exchange is increasingly disappearing from the hands of the workers-producers and gathering in the hands of the few who accumulate it, exploit the interest, and do not return it back to the market.
In other words, according to him, the more money they had, the more people who constantly circulate it, then the Society will have healthy growth and prosperity.
The Mayor, putting the above theory into practice, began his program of Municipal works, giving work to many workers and contractors, but making it clear that their payment would be made in shillings (the currency of Austria) not printed by its National Bank, but from the Municipality of Wörgl.
Indeed, 32,000 shillings were printed and put into circulation as “Work Certificate Notes”, something like free money, because they had no gold counterpart, they simply recognized the provision of work to the Community. Banknotes were struck in denominations of 1, 5 and 10 shillings.
Wörgl’s money
On 31st July 1932 the first 1,800 Shillings were given to pay the wages of the workmen, and the value of the materials used in the first month on the municipal works.
People who got these new shillings could pay their council taxes and also buy bread. The baker taking these shillings could buy flour from the miller.
The miller bought wheat from the farmer. The farmer bought tools from the blacksmith. The blacksmith bought shoes from the cobbler.
The shoemaker paid the teacher who taught his children. The teacher was buying bread from the baker.
And the circulation of the money was repeated continuously and daily, to such an extent that already on the third day, the turnover of the entire city was more than 10 times the 1,800 shillings put into circulation to the point that some suspected that some shillings had been counterfeited .
But the Mayor had implemented an additional method to make money constantly change hands at great speed:
Wörgl’s money lost 1% of its face value every month. To avoid this depreciation the owner of the note spent it as quickly as possible.
Otherwise, on the first day of the following month, he had to buy a stamp-like coupon, worth 1% of the face value, and stick it on the banknote. In other words, there was a function opposite to interest, which allowed money to circulate continuously.
The Mayor, of course, could not hire all the city’s unemployed for municipal projects.
However, with the increase in the city’s turnover, the baker, for example, did not have time to make the breads that were requested by himself, so he was forced to hire an assistant, whom he paid with the Municipality’s shillings.
The rest of the professionals did the same. The hired helpers, however, expanded the purchasing power of the city, and thus professionals had to face a further increase in demand, to the point where no resident of the city was unemployed, but on the contrary, there were everywhere job advertisements.
Thus the system begins to take on a dynamic form, and the unemployed from the surrounding villages come to work in Wörgl, also the producers from the surrounding villages who had their products unsold (because until now no one had money to buy them). they finally found buyers in Wörgl, but with the new visitors the purchasing power is expanded even further, while at the same time the production activity increases.
The foreign workers taking Wörgl’s shillings also strengthened their own local economies, expanding the development of the surrounding villages, but Wörgl itself was unscathed by this outflow of money.
The Mayor had a strategic advantage: He was the one who printed the money. He was not a private banker with dark sovereign interests behind him, but a man at the service of the citizens.
The back of each letter contained the following moving statement verbatim, some words that seem as if they were written today, but were written in 1932:
“To all concerned: The slow rate at which money circulates has caused an unprecedented depression of trade and has plunged millions of people into utter destitution.
From an economic point of view, the destruction of the world has begun! -It’s time, with determination
and intelligent action, to try to arrest the downward plunge of commerce, and thus save mankind from fratricidal wars, chaos, and dissolution. People live by exchanging their services.
Sluggish traffic has largely halted this exchange, throwing millions of people who want to work out of work.
We must therefore revive this exchange of services so that the unemployed can return to the productive class. This is the aim of the work certificate issued by the Wörgl city market: To reduce suffering and fear, to provide work and bread.’
Wörgl’s success
In a period of 13 months, the Mayor executed all the projects he had planned: Water supply, roads, lighting. New public buildings, a water reservoir, a ski slope, and a bridge were also constructed.
Reforestation was also done, because the people of that time, who lived closer to Nature, realized the future profit from the existence of the Forests.
The system was successfully extended to six neighboring villages. The French Prime Minister, Eduard Dalladier, made a special visit to see the “miracle of Wörgl”. In January 1933, the new economic system was extended to the neighboring city of Kirchbühl, and in June 1933, the Mayor of Wörgl met with representatives from 170 different Austrian cities interested in the generalized implementation of the system in their cities as well.
The following report was compiled by Claude Bourdet, an eyewitness Professor at the University of Technology in Zurich: “I visited Wörgl in August 1933, exactly one year after the start of the experiment.
We must admit that the results reach the miracle. The roads, notorious for their poor condition, now rival Italy’s Autostrade (Italian National Highway).
The Town Hall Complex has been beautifully restored as a charming chalet with blooming gladiolas. A new concrete bridge proudly bears the plaque: “Built with free money in the year 1933”.
Everywhere one sees new lampposts on the streets, as well as a street named after Silvio Gesell. The workers at the many construction sites are all staunch supporters of the free money system. In shops bills are accepted everywhere, alongside official money.
Prices have not increased. Some have argued that the system experimented in Wörgl hinders tax equality because it acts as a form of exploitation of the taxpayer. There seems to be a slight flaw in this way of thinking.
Never before have taxpayers not protested vehemently when their money was taken away. No one in Wörgl was complaining.
Instead, the taxes (in the form of bills) are paid in advance to the Municipality. The people are excited about the experiment and complain to their National Bank which opposes the issuance of these new notes (the local notes).
It is impossible to attribute the general improvement of Wörgl to the “new form of taxation” alone. One can only agree with the Mayor that the new currency performs its function much better than the old one.
I leave it to the experts to determine whether there is inflation despite 100% coverage of consumer staples. By the way, price increases, the first sign of inflation, do not appear.
In terms of the economy, we can say that the new currency favors saving literally rather than hoarding money. Since money loses value by keeping it at home, one can avoid this depreciation by investing it in a deposit bank. Wörgl has become a kind of pilgrimage for macro-economists from different countries.
Everyone can recognize them immediately, from their expressions, while talking in the beautiful streets of Wörgl, or while sitting at the restaurant tables. The population of Wörgl gladly, proud of their reputation, warmly welcomes them.”
The End
The Central Bank of Austria panicked at the prospect of Wörgl’s experiment spreading throughout Austria and decided to assert its monopoly rights by banning free coins.
The case reached the Austrian Supreme Court, which upheld the Central Bank’s monopoly right to issue currency.
And it became a criminal offense to issue “emergency currency”. Wörgl quickly returned to 30% unemployment.
Social unrest quickly spread throughout Austria, because ordinary people did not understand why their Government and Judiciary, which were supposed to serve the interests of the citizens, would not let them practice the tried and tested solution they had found in dealing with the depression, but instead imposed on them her own proven measures as before plunged them back into poverty and destitution.
In 1938 Hitler proceeded to annex Austria (without meeting the slightest resistance) with one of the reasons for this being that many people saw him as their economic and political savior. War followed, and Wörgl’s experiment went down in history.
