http://www.sunshinecable.com/~eisehan/woergl.htm
The story of Wörgl
Reference:
Shwarz, Fritz. The Experiment in Worgl. Verlags-Genossenschaft Freies Volk. Bern, Switzerland. 1951.
Translated in part from the German by Heinz Martzak-Goerike and prepared and shortened for the internet by Hans Eisenkolb and published at http://www.sunshinecable.com/~eisehan/woergl.htm
Published in the original German at: http://userpage.fu-berlin.de/~roehrigw/woergl or at www.geldreform.de
Acknowledgement
All of this work is leaning heavily on the work of Fritz Schwarz about Wörgl. Most of it is only translations of his and I hope that he will forgive, wherever he is, the snotty young fellow he met in Wörgl 1951 when he was writing his book, that he cuts it to the bone for the internet. It took him a long time to realize the immense value of it and now he is using it shamelessly.
Without Fritz Schwarz we would not know, what exactly was done in Wörgl and would not be able to learn from it what we must learn when we want so repeat and improve another such experiment. Especially the „Banknotenausweis" which is the used amount of the money of Wörgl which was so ridiculously low shows exactly what is wrong with our age-old money and how much better the money of Wörgl worked.
The highest amount ever in circulation was 7,443 Schillings! Average about 5,500.
The story of Wörgl.
Wörgl is a small town in the Austrian Alps. The monetary experiment took place during the Great Depression of 1932-33. Michael Unterguggenberger, Social Democrat mayor of the town, tried to apply the monetary reform ideas of Silvio Gesell (1862-1930) as well as he knew. There had been a previous such experiment in Germany, but its forced end did not leave much trace behind.
Michael Unterguggenberger, Mayor of Wörgl.
While the German experiment never hit the headlines, Wörgl and its Mayor shared front page with movie stars and the Night of the Long Knives on 30th June 1934. Who was Michael Unterguggenberger? Anyone who met him for the first time could not help noticing the intense, searching look of this rather small man. It was the slightly cynical look of a man who doesn't believe, and therefore accept, what he can't understand or grasp because of obscurities, gaps or contradictions. Alex von Muralt wrote that Michael Unterguggenberger always stressed not being a Marxist. Anyone acquainted with the contradictions of Marxism will understand why. Michael, born into an old Tyrolean peasant family, had lived the life of a poor European without letting his mind be rusted by the heavy blue-collar work. Born on 15th August 1884 in the Tyrol lowlands, he had to leave school at the age of twelve for a full-time job as a sawmill hand in Hopfgarten in the Tyrol, to support the family. However, he had no intention of continuing as a low-paid worker forever. After three years he had achieved his first target by apprenticing himself to a Master Mechanic in Imst, in the upper Inn valley. He had saved up the tuition fee penny by penny, paying the balance with his work as a journeyman mechanic. He did not wait for the lottery jackpot; little by little he built up his life himself. After apprenticeship, Michael became journeyman mechanic. After Imst he was posted to the Bodensee Lake, then as far as Vienna and farther to the borders of Rumania; then over to Galicia and on to Germany. In Liegnitz, Silesia, today South West Poland, he had his first contact with a trade union, an early form of organized labor. He never left the trade union movement for the rest of his life.
At that point in time he debated with himself whether to stick to being a journeyman or to make the effort to start his own workshop. He chose employment in the railway instead, for an ambitious worker found more career opportunities in the railways in those days compared to the present. In 1905, at the age of twenty-one, he had his first post at the Wörgl railway station. Soon his striving for social justice jeopardized his personal advancement. Marxism opposes the entrepreneur to his workers. It snubs a desirable co-operation between employer and employees. Anglo-Saxon teamwork is something Marxists will not accept. In the opinion of a Marxist the boss, entrepreneur or factory manager, exploits the workers by redirecting ground rent and interest at their discretion to high finance. Payment of interest for capital investment and ground rent are the sine qua non for each enterprise. Marxism theoreticians Marx and Engels never entertained the idea that liquid monetary capital is actually what makes or breaks an enterprise. Engels, a member of the Manchester Stock Exchange, mentioned this once, but later forgot it and never returned to it.
As a result of his taking a stand for his fellow workers as a trade union man, Unterguggenberger was not promoted any higher. In 1912 he was elected representative for the union of Innsbruck Rail Engineers in the committee for personnel. For the higher officials of the Austrian Railroad Network he remained the one who represented the concerns of the workers against the interests of the Railroad. So he remained a simple worker, but also an advocate against the exploitation of working interests at all levels by the moneyed interests. With hindsight we should not regret this. It gave us Wörgl. In addition to having done a good job as a rail engineer he did a good job as a trade union official. Membership in Wörgl was growing. When he took over there were 100 members. Under his leadership the figure doubled three times up to 800 members. As most active trade unionists in those days, Michael became a Social Democrat as did thousands and even millions of others by joining the Party. He joined the party as most people do, without knowing much of the theories behind the demand for the "Nationalization of the means of production."
Michael was not satisfied with his daily work in the party. He wanted to know the reason behind things. However, he shared the experience of Swiss labor leader Hermann Greulich, who confessed that after a few pages of Karl Marx he felt dizzy; he had not however followed Scheidemann's (1865-1939) example, who wrote that after studying Marx`s works he had to run away to drink some beer in order to recover. An incipient tuberculosis (the disease of the poor) may have contributed to the Austrian civil servant's and railway engineer's plunging deeper into the essence of the matter than did men of a sturdier nature. Michael Unterguggenberger read in his very little spare-time any writing on the subject of social reform he could lay hands on. The middle class engaged in social relief. That was all their professors of economics and their politicians could think of. Social insurances of all kinds, insurance as a safeguard against unemployment, Federal housing agencies, laws for the protection of tenants (which inevitably led to housing shortages) - that was about all that the middle class could garner on the subject of social reform. The cause of unemployment, as that of housing shortages or of widespread poverty, were not investigated anywhere; everybody was paying attention to and trying to fix effects. The underlying causes were not studied anywhere. No solution could possibly come from the middle class.
Michael Unterguggenberger was searching ceaselessly. He did research, as Otto Maass had in Erfurt and as people were doing in every country. He agreed with the central tenet of socialism: "Freedom of exploitation of men by men," but not with the method, the nationalization of the means of production. He lived through the crisis of 1907-08. During the crisis of 1912-14 he saw how Austria, and with Austria the whole world, was being led into war. During the Great War he lived through inflation, recognizing that Socialist college teachers knew even less than the middle class professors about the whys and wherefores of inflation. After inflation there came deflation. The socialists expected an overall change for the better, but were hit harder than before by inflation. Then came recovery, 1924 up to 1929. Finally, beginning in September 1929, a new deflation set in, followed by a major global economic crisis. And still the socialists were clueless as what to say about it and could not find anything in their "sacred" books as to why purchasing power fluctuated wildly, other than hashing and rehashing the only theory that could not have shed any light in the matter: the Quantity theory. This states that the value of money fluctuates simply and naturally because its circulating amount on the market is at one time too big and at another too small.
Mayor of Wörgl during the global economic crisis.
Wörgl is a small town. Its population had increased from 648 in 1900 to 4427 just after the war. Michael Unterguggenberger was elected town councilor. Soon he became deputy mayor and in 1931 mayor. The stable prices of the late 1920s had made possible the building of the courthouse road, of the secondary school, as well as supplying Wörgl with piped water and electric power. This lasted until 1929. Then came Black Friday, the baneful 24th October 1929: the Great Crash and then night over Europe. Up until now (1951) we are suffering the consequences of that crisis, which expanding the Wörgl experiment could have ended once and for all. One can imagine what that crisis meant for a man like Michael Unterguggenberger in his small town. He had personally experienced semi-poverty, and knew what the crisis meant for one who depends solely on one's income, which guaranteed no more than subsistence even when permanently employed. At the time Wörgl had a population of 4216. Being a railway junction, the railway employed 310 people in 1930, but by 1933 the number had plummeted to 190. Following that, the newly unemployed came one after another to their former colleague, who was now mayor, asking for help. Already in 1929 the service facility for steam locomotives had become obsolete following the transition to electric engines. The nearby cement plant in Kitzbühel employed 45 to 60 workers in 1930, but by 1933 that figure had shrunk to two. The Zipf brewery sacked between 10-14 workers from the previous 33-37. A cellulose factory, which in 1930 still employed 360 to 410 workers, in 1933 had only 4 men guarding idle machines. Farmers, who made up about a third of the working population, could barely sell their products at depressed prices and the remaining two thirds of the work force, consisting of blue collar and white-collar employees plus people running small businesses, considerably suffered from these bleak circumstances. The ranks of the unemployed increased daily. Both they and those with expired insurance benefits turned to their mayor. In 1932 there were some 200 expired benefits cases destined for public charity schemes. In the spring of 1932 Wörgl township counted 350 unemployed. In its immediate surroundings there were 1500. Out in Vienna the federal government and the president of the Central Bank, Dr Kienböck, were watching helplessly without knowing what to do.
Unterguggenberger consulted The Natural Economic Order by Silvio Gesell.
He read and re-read: An economic crisis, that is the falling off in sales and employment with all the attendant symptoms, is a consequence of falling prices. The solution: prices must never be allowed to fall. He started by approaching people to win them over. He went from person to person until he could hold a decisive session of the Wörgl Welfare Committee. After long talks with every single member of the committee he launched the session on 5th July 1932.
The people present were: Mayor Michael Unterguggenberger, retired official of the Austrian State Railway, Deputy Mayor Josef Gollner, merchant, Deputy Mayor Josef Balser, State Railway official, Councilors Jacob Astner jr, farmer; Johann Astl, member of the regional government, electrician; Franz Danek, merchant; Alois Kogler, State Railway Official; Oswald Koller, electrician; Peter Lanzinger, retired railway official; Sebastian Mitterer, baker; Rosalia Nestler, railway official's wife; Georg Opperer, retired; Johann Payer, farmer; Franz Pick, railway official; Martin Pichler, member of the regional parliament and tailor; Thekla Sittenthaler, railway official's wife; Dr.Georg Stava, retired regional government official; Max Steinbacher, ordinary citizen; Johann Straber, farmer; Christian Wascher, carpenter; Fanny Weinmayr, railway official's wife.
The mayor began with a short summary on the current situation as seen from the local government viewpoint: In the town area proper there lived close to 400 unemployed, 200 of whom were expired insurance benefit cases. Adding the nearby villages the unemployed total was 1500. The council owed 1,300,000 Schillings to the Innsbruck Saving Trust. The interest, amounting to 50,000 Schillings in arrears from 1931, could not be paid any longer. Unpaid taxes for the year 1931, amounting to about 118,000 Schillings, were the council's only credit. But in 1932 it was nearly impossible to get any of that. Due to these backlogs the town was also in arrears in respect of the regional government. Both this government and the Trust paid a percentage of the regional and federal taxes back to the town. But they would not disburse anything to the town without taxes coming in, thereby depriving the town even of that source of income. Local taxes for the first half of the year had fetched just 3,000 Schillings. As nobody could pay taxes, the situation of the town was getting worse. The worker was down to his last savings. The local savings bank suffered from a shortage of money. At auctions there were no bidders, because everybody looked forward to prices falling further. All payments had stalled. The number of unemployed rose daily. The situation was bleak indeed! Then the mayor submitted his proposals to the committee. The details were not new, since he had gone over these with them in countless conversations. He read out:
DISTRESS RELIEF PROGRAM. 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 back to the market for the purchasing of goods and services but withhold it for speculation. As money is an indispensable wheel in the machine of production, an accumulation of great sums in a few hands means a gigantic danger for peaceful production. Every time the flow of money is interrupted, so is the exchange of goods and services, with a consequent fall in employment. Uncertainty about the state of the economy makes the owner of money careful, causing him/her to hoard it or to spend it reluctantly. He or she distrusts investment. Money circulation is thus slowed down, the turnover of goods and services shrinks and jobs disappear. Such a situation denies incentives to the population, threatening peace and wealth with destruction. Whole nations and states are under the threat of ruin. Our small place cannot liberate the world, but we want at least to give a sign. In the Wörgl area the sluggish, slow-circulating National Bank currency shall be replaced with a medium of exchange with a better circulating performance than ordinary money. "Certified Compensation Bills" shall be issued in denominations of 1, 5 and 10 Schillings and put into circulation. The council shall issue the Bills and the public shall undertake to accept such Bills at their full nominal value in payment for goods and services. In order to turn around the economy of the township, public works shall be planned and paid for with the same Bills. The issuing of Wörgl "Money" Bills were printed for a total nominal value of 32,000 Schillings. The denominations were 2000 x 1 Schilling, 2000 x 5 Schillings and 2000 x 10 Schillings.
Even before the "Money" reached the hands of the welfare subcommittee, the Austrian National Bank protested, claiming that money was being printed, thereby violating the banknote issuing privilege of the National Bank in Vienna. The mayor answered that the Bills were not money - only certificates of work done. But he smiled as he said that, for he knew that no sooner the term "money" appeared in the argument than all sorts of theoreticians would enter the fray, never coming to an agreement as to what "money" is, and as to whether these Certified Compensation Bills were money or not. But until that was settled the controversial Bills would circulate. And so it happened.
On the 31st of July 1932 the town administration purchased the first lot of Bills from the Welfare Subcommittee for a total face value of 1000 Schillings and used them to pay wages. The 1000 Schilling official money paid to the Welfare for the Bills were deposited at the local "Reiffeisenkasse". The town treasury was thus ready to issue the Bills, which could be exchanged at the local bank at the rate established by the program. The text printed on the Bills. Slow-circulating money has thrown the world into a tremendous economic crisis. Millions of hard-working people suffer dreadfully. It is the terrible beginning of the economic demise of the world. It is time to stop the downward rolling of the economic machine with sound knowledge and determined action, for mankind not to be driven into fratricidal wars, confusion and disintegration. People live by exchanging goods and services. Money of slow circulation has curtailed the exchange of goods and services a great deal and hence millions of citizens, willing to work, have already lost their rightful place in the economic process. The exchange of goods and services needs to be revived and a living space restored to those expelled from it. The small town of Wörgl issues its Certified Compensation Bills towards the single end of ALLEVIATING MISERY AND GIVING WORK AND BREAD.
(Remark BY H.E.: And it did, but only for one short year. Then it was stopped by what one can only call evil forces.)
AN ANECDOTE The first wages paid out, to the amount of 1000 Schillings, returned to the coffers of the community almost on the same day. Taxes were being paid! On the third day somebody came running and shouting, "Mr. Mayor! Our Bills are being counterfeited. We have only issued 1000 Schilling so far, but the amount of overdue taxes paid with them has already reached 5,100 Schillings! Somebody must have counterfeited the Bills!"
The Mayor smiled forgivingly. He knew that bigger men would make the same mistake. Even Professor Dr. Bundsmann, lecturer of macro-economics at the University of Innsbruck and honored with the Austrian title of "Honorary Civil Servant" would call the success of Wörgl with its fast circulating money a hoax, because he could not understand how 5100 Schilling in taxes could be paid from an issue of only 1000 Schillings. That was beyond the expectancy of the Mayor himself. But every Schilling coming as Bill was re-circulated right away to pay an invoice, and was back and out again in short order, because this money attracted a penalty when idle. At that time the National Bank of Austria kept in circulation a constant amount of about 914 million Schillings for a population of some 6 million, or 153 Schillings per person. At the issuing peak, the value of Wörgl Bills was 7443, less than 2 Schillings per person. But these 2 Schillings gave more income and profit to each person than the 153 Schillings of the National Bank. Why? Because they were designed to entice people into using them, which is what money is for: to pay, to do business, to exchange. A. Hornung, who was against this "free money" and the whole experiment, reported grudgingly: "The issue of relief money was back in the coffers of the municipality within days. From there it could be re-used for payments. The total average in circulation was: August 1932 3675 September 3375 October 3525 November 6350 December 5725 January 1933 5450 February 5650 March 5625 April 5750 May 5675 June 5875 July 5800 August 5825 September 5825 Average: 5,294 How ludicrous is the thought of people with no inkling of the importance of money's velocity of circulation for the economy
(Remark by H.E.: "People" includes economists).
These amounts were ridiculously small. But what did these paltry sums make possible? Tax arrears now being paid to the unemployment fund, plus a 12,000 Schillings federal relief loan, made possible to create jobs exceeding the numbers originally planned.
(Remark by H.E.: The above total was about 120,000 Schillings, not including the wages of the city employees, or about 7% of the overall generated trade. The grand total was in the range of 2.5 million, this sum being the guess of Dr. Horning, surely not a friend of the experiment.)
Eye witnesses report One report was written by Claude Bourdet, master engineer from the Zürich Polytechnic. "I visited Wörgl in August 1933, exactly one year after the launch of the experiment. One has to acknowledge that the result borders on the miraculous. The roads, notorious for their dreadful state, match now the Italian Autostrade. The Mayor's office complex has been beautifully restored as a charming chalet with blossoming gladioli. A new concrete bridge carries the proud plaque: "Built with Free Money in the year 1933." (H.E. remark: No longer!) Everywhere one sees new streetlights, as well as one street named after Silvio Gesell. (H.E. remark: Name long changed) The workers at the many building sites (H.E. remark: No more building sites two months later) are all zealous supporters of the Free Money system. I was in the stores: the Bills are being accepted everywhere alongside with the official money. Prices have not gone up. Some people maintained that the system being experimented in Wörgl prevents the formation of equity, acting as a hidden new way of exploiting the taxpayer. There seems to be a little error in that view. Never before one saw taxpayers not protesting at the top of their voices when parting with their money. In Wörgl no one was protesting. On the contrary, taxes are paid in advance; people are enthusiastic about the experiment and complain bitterly at the National Bank's opposing the issuing of new notes. It is impossible to dub it only a "new form of tax" for the general improvement of Wörgl. One cannot but agree with the Mayor that the new money performs its function far better than the old one. I leave it to the experts to establish if there is inflation despite the 100% cover. Incidentally price increases, the first sign of inflation, do not occur. As far as saving is concerned one can say that the new money favors saving properly so-called rather than hoarding money. As money lost value by keeping it at home, one could avoid the depreciation by depositing in the savings bank.
Wörgl has become a kind of pilgrim shrine for macro-economists from a variety of countries. One can recognize them right away by their learned expressions when discussing the beautifully maintained streets of Wörgl while sitting at restaurant tables. Wörgl's population, proud of their fame, welcomes them warmly."
Fritz Pfister, elected councilor of Bern, offers his own insights. Together with a teacher he interviewed various businessmen and other people about the new money, recording their answers. The following summary is from the magazine "Geld und Arbeit" for 1933. How the population sees the money reform. In Wörgl we went from house to house and from shop to shop asking people twelve questions.
1st question: In your opinion was there any option other than this money reform in order to come out of difficulties? A Director: The municipality had no other option to alleviate the crisis. The President of the craftsmen guild: As the municipality had already taken a mortgage on everything that could be mortgaged, there was no other way. Without that money there would be no business. A Police constable: The only thing that could help Wörgl would be to relocate a state agency here. Otherwise there is no future for the municipality. A Clergyman: With the good tax revenue, the crisis-easing measures got a new lease of life. The municipality couldn't do anything else. A School Principal: The municipality was in a bind, with no escape. A Tinsmith: There was no choice. A Tailor: No! The Owner of a department store: There was no alternative. A Pharmacist: No, else we would not have used this means. A Beer wholesaler: No, the municipality was ridden with unemployment virtually overnight. This money eased the situation considerably, creating many jobs. Such projects would not have had a chance otherwise. A Medical Doctor: Actually, no! It was a very good idea. A Cinema Owner: Not really.
2nd question: What was expected of the reform? Director: Possibly the council was expecting more from it, but the fear from repeated injunctions forbidding that course of action prevented a bigger success. Clergyman: The success could have been bigger. Shopkeeper: To overcome scarcity of money, which was achieved.
3rd question: How secure did the people feel with that money? President of the Craftsmen guild: Most people accepted it without question. In my view it is completely safe. I would regret its demise. Police Constable: At first I had doubts. There was one burglary where the thief took official money, but threw away Wörgl money. He must have been a stranger, because a local would have taken it. Clergyman: There was no doubt about security, because one knew it to be fully covered. Tailor: I did not know that such money would be issued, but I accepted it without qualms. Small shopkeeper: Without reservations in view of the good cause. The monthly fee and the 2 per cent exchange loss went to the Welfare fund for the poor. Shoemaker: That way one had money for some maintenance, which would not have been possible on the dole. And one did not lose with that money because the municipality readily changed it back. Pharmacist: All in all without resistance. The business people accepted it in view of competition. Posters in the shop windows said: Relief money accepted here." Beer Wholesaler: A third of our income is in relief money. Money circulates. Deals become possible. That was not the case before. Medical Doctor: Overall it was accepted well. Only business people with a high turnover showed some reluctance.
4th question: Did you use that money for ordinary purchases or did you exchange it for official Austrian money? Pharmacist: 100-200 Schillings of my monthly income were Certified Bills. Relief money does not interfere with business at all. Merchant: I have clearly noticed the upsurge in business. I used more than half of these Bills to buy goods and other expenses. Administrator: If production in our factory starts again we would not hesitate to buy Bills from the municipality to pay our wages. Tinsmith: Some money has actually been exchanged for Austrian Schillings, but otherwise bills and taxes were paid and goods purchased. I bought goods and felt the influence upon the rate of business. The workers on the maintenance projects begun by the municipality needed clothing. They came to me, paid with relief money, and with that I paid for taxes, lighting and water. Owner of department store: Most of it went to purchasing goods. That is the essential advantage! The money stays in the community, without shady deals. Local merchants benefit. The 2 percent fee when vouchers are exchanged for official money can be recovered because with money at hand one can ask for cash discount. Medical Doctor: When I am paid with relief money I give it to my wife for her to buy bread or groceries.
5th question: How did the population accept the money? Tinsmith: They accepted it readily, despite some lack of theoretical understanding. Owner of department store: Without reservations. Beer Wholesaler: It was well accepted, even by the Kundl innkeeper. Cinema Owner: I take it readily. When the project work ended in January 10 percent of my revenue was in Bills. At present it is 24 percent. My income has doubtless risen with the Bills, from people who would not have come otherwise. Merchant: With official money it often happened that people who actually had enough to pay their debts let the merchant wait, just to cash in on the interest from the savings bank.
6th question: Do you believe that an extended circulation or an expansion of the area beyond the limits of the municipality would be desirable? Clergyman: The success would be certain in a larger area. School principal: Account transfers could produce difficulties. Administrator: A larger circulation would succeed well. Director: A larger area would guarantee a good success. President of the Craftsmen guild: There is no doubt about success in a larger area. Police Constable: A larger area certainly would bring success. Tinsmith: Yes, if all participated. Tailor: Without any reservations. Owner of Department store: Very certainly. Pharmacist: Yes. Given the small environment, success was much bigger than I had imagined. Before I was skeptical, but was surprised afterwards at how taxes were paid despite the difficult times.
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