THE WÖRGL EXPERIMENT: JULY 1932- SEPTEMBER 1932 INTRODUCTION The Great Depression spread throughout the world in the 193

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THE WÖRGL EXPERIMENT: JULY 1932- SEPTEMBER 1932 INTRODUCTION The
Great Depression spread throughout the world in the 1930’s and
brought with it severe unemployment, a dramatic drop in foreign
trade and crop prices. The town of Wörgl, Austria had been just as
badly hit, with many of its factories closing down. It was a town
of 4,300 inhabitants with 1500 unemployed. And the town was slowly
going bankrupt. The town mayor Michael Unterguggenberger was a keen
follower of Silvio Gesell’s ‘free money theory’. BACKGROUND
Gesell’s theory held that a form of local currency could prevent
economic downturn which he believed was caused by the hoarding of
money. With a percentage of depreciation on this new currency it
would be of no advantage to hoard money as it would end up being
worthless. This promotes the circulation of money which leads to an
increase in general economic confidence. In July 1932
Unterguggenberger proposed a plan to the town authorities where by
they would issue a stamp scrip currency to the value of 32,000
Austrian shillings. These tickets, called ‘Wörgl Certified
Compensation Bills' would then decrease in value by one percent
every month. At the end of the month people would have to buy a
stamp in order to revalue their ticket to the new face value. This
stamp was placed on the back of the ticket and the proceeds went to
the poor relief fund. Money was utilised quickly, within the month,
in order to avoid this devaluation fee. Due to the first world war
and the effects of the Great Depression the town of Wörgl was in
need of repair. The town authorities could not carry these out due
to a massive backlog of unpaid taxes. This along with the
ever-growing problem of unemployment led Unterguggenberger to a
solution. Men who had long been unemployed and idle were hired to
rebuild the streets and tend to the many neglected public works.
They were paid with the local currency and the new notes were being
circulated rapidly, households quickly used them in the shops to
buy food and essential items. In turn the shopkeepers used this
money to pay their taxes to the municipality who then paid their
bills and debts. In the first month the new money had been
circulated twenty times throughout the locality and 100,000
shillings worth of public works had been completed in the first
four months. The stamp scrip was used in conjunction with the
national currency and city workers, the mayor included, received
50% of their wages in the new currency. The currency was accepted
everywhere in the town except the post office and railroad which
were run by the Austrian government. The scrips could be traded for
Austrian currency at a redemption rate of 2%. The increase in
business led to a decrease in unemployment while it tended to rise
throughout the world in the same period due to the deepening
depression. The local currency was a great success and warranted
the attention of many other areas interested in following their
path. The French minister of finance visited Wörgl to view the
local currency in action and economist Irving Fisher suggested
similar schemes in the US. He believed in the power of Gesell’s
scrip theory in avoiding economic downfall. Fisher wrote the book
Stamp Scrip in 1933 outlining the advantages and benefits of stamp
scrips. In June 1933 Unterguggenberger held a meeting with
representatives of 170 other towns throughout Austria. Soon the
idea of local currency was spreading across the country. The
Austrian National bank began to panic over the financial revolution
fearing that local currencies would overtake their monopoly on
printing national money. The National bank took legal action making
it illegal use the Wörgl currency stating “…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." (Silviano 2006) September 1933 saw the
prohibition of Wörgl money, however the town appealed and the case
was taken to the supreme court which denied the appeal and ended
the local currency. Unemployment soon returned to 30% and poverty
again ensued. Much of what the town of Wörgl had accomplished
during its thirteen months of local currency was destroyed during
WWII and the ‘experiment’ was put on the backburner of history.
However, it is without doubt that this thirteen-month period was an
overwhelming success for both the inhabitants of Wörgl and the town
itself.
QUESTIONS 1. What global event was the Austrian city Wörgl
reacting to? [K] (200 Words)