27 July 2007

The Wörgl Experiment

Wörgl is a small town in Austria with 4000 inhabitants that introduced a local scrip during the Great Depression.

By 1932 unemployment in Wörgl had risen to 30%. The local government had amassed debts of 1.3 million Austrian schillings (AS) against cash reserves of AS 40,000. Local construction and civic maintenance had come to a standstill.

The local government printed 32,000 in labor certificates which carried a negative 1% monthly interest rate [I presume to get the currency circulating - you want to offload them. It is effectively inflation; note the relationship between low inflation and economic growth and deflation and economic stagnation - PH] and could be converted into schillings at 98% of face value. An equivalent amount in schillings was deposited in the local bank as cover for the certificates in case of mass redemption and earned interest for the government.

The certificates circulated so rapidly, that only 12,000 were ever actually put into circulation.

According to reports by the mayor and economists of the day who studied the experiment, the scrip was readily accepted by local merchants [Note: Who no doubt were the government and hence the issuers of the currency; one of the advantages of having a council dominated by local bigwigs. Note the benefits of their actions for the proletariat. So much for class warfare... - PH] and the local population. It utilized the scrip to carry out AS 100,000 in public works projects involving construction and repair of roads, bridges, tanks, drainage systems, factories and buildings. The scrip was also accepted as legal tender for payment of local taxes.

In the one year that the currency was in circulation, it circulated 13 times faster than the official shilling and served as a catalyst to the local economy. The heavy arrears in local tax collection declined dramatically. Local government revenue rose from AS 2,400 in 1931 to AS 20,400 in 1932. Unemployment was eliminated, while it remained very high throughout the rest of the country. No increase in prices was observed. Based on the dramatic success of the Wörgl experiment, several other communities introduced similar scrips.

In spite of the tangible benefits of the program, it met with stiff opposition from the regional socialist party [See my note above - the cynical bastards] and from the Austrian central bank [the Priesthood], which opposed the local currency as an infringement on its powers over the currency [in a depression, that's really the central issue, isn't it?]. As a result the program was suspended, unemployment rose and the local economy soon degenerated to the level of other communities in the country.



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