Ruqayyah Snyder
In the early 1930s, the world was suffering from the Great Depression, and the Austrian town of Wörgl was no exception. In 1932, the town's mayor, Michael Unterguggenberger, decided to implement a radical idea: introducing a local currency, known as Wörgl scrip, to run alongside the official Austrian Schilling. This currency was designed to lose value over time, incentivising people to spend it quickly and thus boosting the local economy. Despite its success in reducing unemployment and increasing consumption, the experiment was brought to an end in 1933 by the Austrian National Bank, which claimed that only the central government had the authority to issue currency. The bank's decision remains a puzzle, with some suggesting that Wörgl's local currency threatened the traditional banking system.
| Characteristics | Values |
|---|---|
| Reason for the experiment | To stabilise the Austrian currency, the Schilling |
| Date of the experiment | July 1932 |
| Who ended the experiment | Austrian National Bank AG |
| Reason for ending the experiment | The bank insisted on its monopoly by law to issue money |
| Result of the experiment | The town's economy went back to its earlier state of decline, with high unemployment and lack of growth |
| Location of the experiment | Wörgl, a small town in Austria |
| Leader of the experiment | Michael Unterguggenberger, mayor of Wörgl |
| Type of currency used | "Wörgl scrip", "demurrage money", "stamp scrip" |
| Features of the currency | Designed to lose value if not spent, had to be affixed with stamps to remain active |
| International attention | Yes, including from economists like Irving Fisher and Keynes |
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What You'll Learn
The Austrian National Bank's monopoly on issuing money
The Austrian National Bank, however, held the legal monopoly on issuing currency and viewed the Worgl experiment as a threat to its authority. The bank insisted on its exclusive right to issue money and took the matter to the courts. Despite the success of the Worgl experiment in reducing unemployment and stimulating the local economy, the Austrian courts ruled in favour of the National Bank, declaring the experiment an infringement of the law.
The Worgl experiment challenged the traditional banking system by encouraging spending instead of saving. This was in direct opposition to the principles of the banking world, which relied on the saving of money and the accumulation of interest. The Austrian National Bank, already facing a challenging economic climate due to the Great Depression, saw the Worgl experiment as a potential disruption to monetary policies and took action to protect its monopoly.
The end of the Worgl experiment left a lasting impact, with many questioning why a successful initiative was halted. The experiment demonstrated the potential for alternative economic approaches, particularly in challenging times. Despite its success, the Worgl experiment's brief existence serves as a reminder of the power and influence of central banks and their resistance to innovative monetary ideas that fall outside traditional frameworks.
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The threat to the traditional banking system
The Worgl experiment was a response to the economic crisis of the Great Depression, which hit Austria particularly hard. The country was suffering from high unemployment, falling wages, and a monetary crunch. In 1932, the town of Worgl, led by Mayor Michael Unterguggenberger, introduced a local currency, known as "Worgl scrip," which was designed to lose value over time if it was not spent. This was based on the economic theories of Silvio Gesell, which encouraged spending over saving. The experiment was a success, with Worgl's unemployment rate dropping from over 30% to near zero and the town completing a number of infrastructure projects.
However, the Austrian National Bank and the central government viewed the Worgl experiment as a threat to their authority and control over the monetary system. They claimed that only the central government had the right to issue currency and that the experiment was illegal. The traditional banking system, which was based on the saving of money and the gathering of interest, was threatened by a currency that actively discouraged saving. The success of the Worgl experiment and its potential to change the way people thought about money and the economy may have been seen as a challenge to the established order.
The Worgl experiment gained international attention, with economists like Irving Fisher and Keynes taking note. Despite its success, the experiment was shut down by the Austrian courts at the end of 1933, who ruled in favor of the National Bank. The sudden end to the experiment caused Worgl's economy to quickly return to its previous state, with high unemployment and a lack of growth. The Austrian government and central bank's insistence on stopping the experiment, despite its positive results, remains a puzzle to this day.
The Worgl experiment demonstrated that a local currency that encourages spending can boost economic activity and improve lives. However, the traditional banking system, with its focus on saving and interest, may have seen this as a threat to its power and influence. The experiment's success and its potential to disrupt the established economic order may have been viewed as a danger to the traditional banking system and its control over monetary policies.
In conclusion, the Worgl experiment posed a threat to the traditional banking system by challenging the fundamental principles of saving and interest accumulation. The success of the experiment and its potential to change economic thinking may have been seen as a challenge to the established power dynamics and control over monetary policies. The sudden shutdown of the experiment, despite its positive impact on the local community, remains a mystery and a reminder of the strong forces that shape economic and political decisions.
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The Austrian government's central power
The Austrian government, through its courts, managed to outlaw the Worgl experiment, despite the wealth and community benefits it created. The Austrian Supreme Court ruled in favor of the National Bank, declaring the experiment an infringement of the law, specifically the bank's note privilege. This ruling made it a criminal offence to issue 'emergency currency', and the local government of Kufstein was forced by the State government to prohibit the distribution of value coupons.
The central power of the Austrian government and its alignment with the interests of the banking sector played a significant role in ending the Worgl experiment. The government's decision to stabilise the Austrian currency, the Schilling, by reducing its circulation, contributed to the economic challenges faced by towns like Worgl. This decision likely influenced the Worgl community's decision to create its own currency and the subsequent backlash from the central bank and government.
The Worgl experiment, led by Mayor Michael Unterguggenberger, introduced a local currency called "Worgl scrip" or "stamp scrip" to address the town's economic struggles during the Great Depression. The currency was designed to lose value over time, encouraging spending and consumption, and successfully reduced unemployment and increased economic activity. However, the Austrian government and central bank prioritised their control over currency and the banking system, exercising their central power to end the successful experiment.
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The Austrian courts' ruling
The Austrian National Bank AG was the main indictor of the Wörgl Experiment. The bank insisted on its monopoly by law to issue money and took legal steps to shut down the experiment. The bank claimed that only the central government had the authority to issue currency, and the demurrage system was viewed as a threat to its control over money.
The Austrian courts ruled in favour of the National Bank towards the end of 1933, declaring the experiment an infringement of the law. The people of Wörgl unsuccessfully sued the bank, and later lost in the Austrian Supreme Court. It then became a criminal offence to issue 'emergency currency'.
The end came quickly once the Austrian National Bank heard of the certificates. Despite the wealth it created and the good it brought to the community of Wörgl, the experiment was shut down. The Austrian courts' ruling was a pivotal moment in the story of the Wörgl Experiment, ending a bold economic initiative that had generated significant interest and yielded promising results.
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The Austrian central bank's fear of inflation
The Worgl experiment, led by mayor Michael Unterguggenberger, involved the introduction of a local currency known as "Worgl scrip" or "stamp scrip". This currency was designed to lose value over time, encouraging people to spend it quickly and stimulating economic activity. While the experiment successfully reduced unemployment and increased consumption in Worgl, the Austrian central bank viewed it as a potential source of inflation.
The central bank's primary mandate is to maintain price stability, and they believed that allowing multiple currencies to circulate could lead to uncontrolled money supply and inflation. They argued that only the central government had the authority to issue currency and that the Worgl experiment infringed on their monopoly rights. The bank took legal steps to shut down the experiment, and the Austrian courts ruled in their favor, declaring the local currency illegal.
The fear of inflation was not unfounded, as Austria was facing a monetary crunch during the early 1930s. The contracting banking sector led to a significant decrease in the money supply, and the country was still recovering from the economic fallout of the First World War. However, the success of the Worgl experiment suggested that a local currency could boost economic activity and improve lives, even during a period of economic slump.
Despite the positive outcomes in Worgl, the Austrian central bank prioritized maintaining its control over monetary policy and ensuring price stability. Their decision to end the Worgl experiment reflected their conservative approach to monetary policy and their commitment to preventing inflation, even if it meant sacrificing the economic benefits brought by the local currency.
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Frequently asked questions
The Austrian central bank ended the Wörgl experiment because it claimed that only the central government had the authority to issue currency. The bank insisted on its monopoly by law to issue money and took legal steps to shut down the experiment.
The Wörgl experiment was a local currency introduced in the Austrian town of Wörgl in 1932. The currency was designed to lose value over time to encourage spending and consumption, and to discourage hoarding of money.
The Wörgl experiment was organized by Michael Unterguggenberger, the mayor of the town. He was inspired by the ideas of economist Silvio Gesell.
The Wörgl experiment was considered a success. It eliminated extreme unemployment in the town, boosted economic activity, and improved lives. The concept even gained worldwide attention and interest from notable economists such as Irving Fisher and John Maynard Keynes.
After the experiment was shut down by the Austrian central bank and courts in 1933, Wörgl's economy quickly deteriorated. The town returned to high unemployment and a lack of growth. Social unrest spread across Austria in 1934, and in 1938, Hitler annexed the country.
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