Lessons from Wörgl: Key considerations for the continuation of an economic “miracle”

The “Miracle” of Wörgl

The Wörgl Experiment that took place in the Austrian town of Wörgl during the Great Depression has long been celebrated as an economic success story that was hailed as a “Miracle” and “Economic Mecca” (Bourdet, 1934: p. 58), as well as a “shrine for macroeconomists” (Schwarz, 1951) by contemporary observers. Irving Fisher’s book “Stamp Scrip” (Fisher and Cohrssen, 1933) pays homage to the effectiveness of the Wörgl Experiment and his economic recommendations to then presidential candidate Franklin Roosevelt were strongly influenced by its results (Blanc, 1998: p. 476; Fuders, 2023: p. 312). The Wörgl Experiment has also inspired admiration in modern-day popular culture and media. Environmental activist George Monbiot referred to it in hyperbolic terms as a “thrilling, transformative system that almost saved Europe from fascism” (Monbiot, 2015) and in 2018 a film titled “Das Wunder von Wörgl,” based on the real events of the Wörgl Experiment, was released and is available to stream on Amazon Prime (IMDb, 2018).

Among community currency (CC) advocates, the Wörgl Experiment exemplifies the socio-economic impact CCs can achieve at the local level (Lietaer, 2001). CCs are a subcategory of complementary currencies, which operate alongside legal tender to address issues conventional money cannot (NEF, 2015: p. 32). The primary distinction being that CCs operate at a local or regional level. The town of Wörgl, beset by debt and unemployment during the Great Depression, experienced a significant revival thanks to a distress relief program implemented by the mayor in the form of a CC (Lietaer et al., 2012; Onken, 1983). CC researchers have described the the Wörgl Experiment as one of the best-known applications application of the stamp scrip idea (Lietaer, 2001: p. 173) and a “brief glimmer of hope” before Austria’s fascist dictatorship (Gelleri, 2023: p. 153). The experiment has also served as a reference point for modern CCs long after its termination (Blanc, 1998: p. 480), introducing a blueprint for successful CCs like the WIR system (Studer, 1998), The Chiemgauer (Tóth, 2011), and the Sardex (Sartori and Dini, 2016). Lastly, Barinaga (2020) made use of the Wörgl Experiment as a case study at Harvard Business Publishing to provide students with insight into monetary innovations. It is therefore no understatement to say that the Wörgl Experiment represents a pivotal episode in CC history as well as a significant demonstration of the utility of CCs.

The experiment was indeed quite successful at reviving the economic fortunes of the town of Wörgl. Before it’s implementation, the town faced dire economic circumstances. Out of 4300 inhabitants, about 350 (with 200 receiving no unemployment benefits) were unemployed, and the surrounding areas accounted for another 1500 unemployed individuals (von Muralt, 1934, p. 48; Hornhung, 1934, p. 15). Due to the economic crisis tax collection had stalled and the town was unable to implement much needed infrastructure repair such as the asphalting of the main street which was in a dreadful condition (von Muralt, 1934, p. 53). Following the implementation of the emergency money program, tax revenues rose by 34.4%, tax arrears decreased by 53.8%, and municipal investment expenditure increased by 219.7% (Broer, 2007: p. 127). This investment expenditure was due to an impressive public works program almost completely funded by the emergency money that included rebuilding and asphalting 4 miles of road, improving 12 roads, planting trees, sewerage repairs, building canals, a new concrete bridge, new streetlights, a ski jump and many other infrastructure projects that totaled around 100,000 Schillings in cost (Fisher and Cohrssen, 1933; Hornhung, 1934, p. 16; Unterguggenberger, 1957: p. 45). As a result of these numerous infrastructure projects unemployment dropped by 25% (Schwarz, 1951). To put this drop in unemployment into perspective, during the same period unemployment in Austria had increased by 19% (Ottacher, 2002: p. 61), revealing the stark differences between Wörgl’s fortunes and the rest of Austria caused by the implementation of the emergency campaign in the midst of the Great Depression.

Research purpose

Despite its success, the Wörgl Experiment was short lived, running for about a year and 2 months, and thus questions regarding its unfulfilled long-term potential or viability remain unanswered. The fact that it was forcibly shut down by the Austrian central bank (Unterguggenberger, 1934) and did not collapse by itself is a mitigating factor. Certainly, proponents of the experiment feel that it ended “not because of intrinsic faults in the money used,” but due to the intervention of “hostile forces” (Schwarz, 1951). According to Blanc (1998. pp. 477–478) when writing about Gesell-inspired currencies like the Wörgl Experiment, “The experiments with Gesellian theory in this century do not provide any evidence as to how an accelerated money system would work over two or 3 years.” He further adds that, “the Gesellian theory of freeing money from interest and accelerating monetary circulation generate some questions concerning its viability and the proper way to set up such a system.” Consequently, this paper intends to examine all available literature on the Wörgl Experiment to ascertain what would have been the key considerations to maintain the Wörgl Experiment’s success over a longer time period.

This touches on an important aspect of CC management as it is a common observation that CC organizations throughout the world are created with a lot of enthusiasm and ambitious objectives, but that many face a difficult route from there (Boonstra et al., 2013, p. 25). This trend of CC organizations to discontinue after a few short years has been witnessed around the world including France (Blanc and Fare, 2018, p. 63), Poland (Sobiecki, 2018, p. 111), and Japan (Izumi and Nakazoto, 2017: p. 47). Redes De Trueque, one of the world’s largest CC networks, thrived during Argentina’s 2001–2002 economic crisis but collapsed shortly after (Gomez, 2011). Consequently, maintaining socio-economic economic impact over the long term is an important consideration for CCs in general. In the case of Wörgl with its immense impact, the question of how such an effective intervention could have continued to function as part of local government monetary policy is certainly pertinent and will have (Cohrssen, 1933) implications for the CC field in general. The purpose of this paper therefore is to answer the following 2 questions:

(1) What would have been the key considerations for the continued success of the Wörgl Experiment?

The methodology is outlined next, followed by a summary of the CC movement and the economic philosophy behind the Wörgl Experiment, which provides context for the research questions. Following this, there is a detailed description of the experiment itself, the facts of which are then discussed in terms of broader CC theory and literature and finally conclusions are drawn.

Methodology

Data on the experiment was primarily taken from eight separate contemporary documents and reports, detailing the experiment from a variety of perspectives. To the author’s best knowledge, these comprise all existing contemporary reports on the experiment. Two reports were authored by Wörgl’s mayor, Michael Unterguggenberger (1934), and his son, Silvio Unterguggenberger (1957). Silvio’s dissertation written at the University of World Trade contains a lot more detail than his father’s report but is usually only cited in German books and articles. Given their close ties to the Experiment, potential bias from the Unterguggenberger family must be acknowledged. In this context, Hornhung (1934) serves as a useful counterpoint, being the most skeptical reporter whose own dissertation was reportedly written to retroactively justify the ban on the experiment (Broer, 2007: p. 85). Additional perspectives are offered by Fisher and Cohrssen (1934) and Cohrssen (1933), which present a contemporary economist’s viewpoint, while Schwarz (1951), von Muralt (1934), and Bourdet (1934) were direct observers of the experiment. Schwarz (1951), as a managing director of the Swiss Free Economy Federation, shared an economic philosophy aligned with the Wörgl Experiment, which may have influenced his impartiality. Despite the potential biases of the Unterguggenberger men or Schwarz, the core facts of the Experiment are corroborated across all of the above-mentioned sources. In fact, the central thrust of Hornung’s (1934, p. 49) dissertation was not a refutation of the experiment’s economic impact, but that it could not be considered to be a true example the Free Money doctrine.

Once the relevant details of the experiment were established, they were analyzed to determine the key considerations for a hypothetical continuation of the experiment. This analysis was reinforced by many secondary sources, including Onken (1983), Ottacher (2002), Lietaer (2001), and Broer (2007), the latter being especially significant due to his collaboration with the Unterguggenberger Institute and archives in constructing his thorough account. The key considerations were then assessed against the relevant CC literature to address the research questions.

There are two caveats regarding the gathering and analysis of the data. Firstly, the author lacked the resources to access the Unterguggenberger archives in Austria, where primary documentation is housed. However, the author managed to acquire the Unterguggenberger’s (1957) and Hornhung’s (1934) reports via email correspondence with the institute. Secondly, the author is not a German speaker, necessitating the use of translation software and professional translators to verify details from the original German reports.

Historical relevance

Having several currencies circulating within the same country or region is often seen to indicate that something has gone wrong socio-economically (Blanc et al., 2018, p. 18) due to extreme circumstances such as war or hyperinflation and consequently such development proposals are quickly disregarded without sufficient discussion of their potential merits (Gomez, 2018a, p. 275). However, throughout history, monetary plurality has constituted the prevailing economic reality (Amato and Fantacci, 2020: p. 501; Gomez, 2018a, p. 275), contrasting with the dominant paradigm of monetary singularity adopted over the past century A single device or currency often struggles to facilitate diverse exchanges, thereby making a “multiplicity of money” functional rather than accidental (Kuroda, 2020: p. 11). This was especially true at the regional level where local actors very often “did not hesitate to generate local payment devices by themselves” (Kuroda, 2018: p. 114). In fact, “The most significant and pervasive distinction within premodern monetary systems is between internal and external money: one currency for the domestic economy and a different one for foreign trade” (Amato and Fantacci, 2020: p. 503).

Modern relevance

Despite the historical importance of monetary plurality, the launch of the Euro in 2002 raised expectations for a forthcoming single global currency (Nishibe, 2020: p. 3). However, the question of whether monetary plurality is still relevant is far from settled (Gomez, 2018b, p. 1). Even excluding the rapid rise of cryptocurrencies, alternative currencies—including CCs, corporate barter, and mutual credit systems—have been proliferating for decades (Amato and Fantacci, 2020: p. 501; Larue, 2022: p. 75). While this increase has included CCs, many have seen mixed or poor outcomes. For example, in Japan, many anticipated that CCs would rejuvenate local economies, but most merely operated similarly to gift certificates (Izumi and Nakazoto, 2017: p. 40). In the UK the LETS movement “promised to re-localize money as a medium of exchange, so people could obtain commonplace things they needed, alongside hard to access goods and services.” However, by 2010, the spark that ignited the LETS movement appeared to have died out, even as small pockets remained (Cooper 2013: p. 32). Nevertheless, in summarizing the case for CCs, September and Kobayashi (2022, p. 366) state that “the creditable case for beneficial social outcomes, the growth in CC numbers and technological development as well as the evolving nature of CC systems, all strongly indicate that CCs still have a role to play in regional development.” Consequently, this paper aims to contribute to the exploration of CCs through a focused analysis of one of history’s most notable CCs.

Silvio Gesell

The philosophical basis of the Wörgl Experiment stems from the work of German businessman turned economist Silvio Gesell (1862–1930), who garnered a substantial following numbering in the hundreds of thousands around the turn of the 20th century (Studer, 1998: p. 8). Gesell sought to challenge rentier capitalism and replace it with an interest-free society (Dillard, 1942). Despite being deemed a “crank” and “untrained” by many of his contemporaries, economists Maynard Keynes and Irving Fisher acknowledged his contributions (Fisher and Cohrssen, 1933; Keynes, 1936). Keynes described Gesell as an “unduly neglected prophet” whose writings contained “flashes of deep insight” (Keynes, 1936), while Fisher, although cautious about Gesell’s theory of interest, recognized the potential of his Stamp Scrip idea amid the Great Depression (Fisher and Cohrssen, 1933).

Gesell’s transformation from businessman to economist occurred after relocating to Argentina at 24 to engage in trade and manufacturing and experiencing Argentina’s severe economic depression of the 1890s (Blanc, 1998; Dillard, 1942; Keynes, 1936). This experience fueled a series of books, culminating in “The Natural Economic Order” (Gesell, 1958), first published in 1911 and then repeatedly reprinted and translated (Blanc, 1998; Dillard, 1942). In his theories Gesell identifies wealth stockpiling as an obstacle to revenue flow, advocating for measures against sluggish monetary circulation (Blanc, 1998). Gesell boldly proposed two formulae for “Free-land” and “Free-Money” to overcome these issues (Gesell, 1958). The terms “Free-land” and “Free-Money” were ostensibly meant to indicate their freedom from interest as Gesell strongly believed that, “The elimination of interest is the natural result of the natural order of things when undisturbed by artificial interference” (Gesell, 1958: p. 190). Of these two concepts it was the latter one that was experimented with in Wörgl.

Gesell’s free money

Gesell firmly believed that the sole purpose of money was as an exchange instrument, asserting that effective money should facilitate the exchange of goods (Gesell, 1958). He criticized gold as a currency, claiming it stifled rapid and affordable goods turnover. His prescription for “good money” was that, “Only money that goes out of date like a newspaper, rots like potatoes, rusts like iron, evaporates like ether, is capable of standing the test as an instrument for the exchange of potatoes, newspapers, iron and ether.” For this reason, he proposed a depreciating currency that would lose “one-thousandth of its face value weekly” (around 5% annually) (Gesell, 1958). In order to maintain the face value of the currency, holders would have to attach stamps, the cost of which was equal to the “depreciation tax” put on the currency, hence the name Stamp Scrip arose. Consequently, money would be stimulated to circulate as people were incentivized to spend it before the depreciation or hoarding tax built up.

Gesell envisioned his “Free Money” on a national scale, but it was only ever implemented regionally. Nonetheless, his ideas influenced significant CC initiatives during the Great Depression across various countries, including Germany, Austria, Switzerland, Liechtenstein, France, Spain, the Czech Republic, USA, and Canada (Fuders, 2023; Godschalk, 2012). Most projects applied the stamp scrip concept. However, many initiatives simplified Gesell’s vision, prioritizing monetary circulation acceleration while neglecting other facets of his socialist theory (Blanc, 1998). Amongst the Gesell-inspired CC initiatives, 3 stand out examples of success were the WIR Currency in Switzerland (Studer, 1998: p. 10), The Wara Currency in Germany, and the Wörgl Experiment in Austria, which was partially inspired by the Wara (Fisher and Cohrssen, 1933). Both Wörgl and Wara were eventually shut down by their national governments due to inflationary fears and encroachments on central bank privileges (Fisher and Cohrssen, 1933). Meanwhile, the WIR Currency, initially launched during the Great Depression, continues to thrive, expanding to 68,000 member businesses and managing turnover equivalent to 1.6 billion Swiss Francs by 2009 (Ryan-Collins, 2010: p. 63). Although rooted in Gesellian theory, the WIR Bank formally renounced the “Free Money” doctrine in 1952 (Studer, 1998: p. 13).

Origins

The Wörgl currency was established in July 1932 amid the Great Depression, which had severely affected the town. The local council faced about 1.3 million Schillings in unpaid debt to the Innsbruck savings bank, with interest rates that had increased from 7% to 10% in July 1931 (von Muralt, 1934, p. 48). This meant that the debt’s annual interest surpassed half the town’s annual total income (Unterguggenberger, 1957: p. 16). Economic conditions also worsened tax collection, leading to an accumulation of unpaid taxes totaling 118,000 Schillings—more than double the average municipal tax income from the prior 4 years (Unterguggenberger, 1957: p. 36). Additionally, pressing needs such as road repairs could not be postponed (von Muralt, 1934, p. 48). In response to the crisis, Mayor Michael Unterguggenberger convened the Wörgl welfare committee on July 5, 1932, proposing a relief program that was unanimously supported (Onken, 1983, chap. 3). The proposed distress relief program was modeled on the ideas of Silvio Gesell whereby the town would print its own paper notes entitled “labor certificates” (von Muralt, 1934, p. 49) which would be subject to a depreciation tax or hoarding fee to increase its circulation velocity.

Acceptance by the townspeople

Several factors influenced the acceptance of these labor certificates among the townspeople. In addition to the grave economic situation, Unterguggenberger (1957, p. 26) highlights the mayor’s effectiveness at engaging leading citizens, including the local priest and commander of the Heinwehr (Home Guard), to rally support. Local councilors also educated the public about the initiative verbally and in writing. Before the decisive meeting on July 5th, the mayor held extensive discussions with each welfare committee member (Schwarz, 1951). Despite these efforts, initial acceptance of the labor certificates was slow; only four businesses were willing to accept them at the start (Broer, 2007: p. 85). However, these businesses quickly experienced increased sales, which pressured more merchants to accept the certificates. By the end of 1932, virtually all local businesses, except for the post office and train station, had adopted them (Broer, 2007: p. 89). Bourdet (1934, p. 58), who observed the experiment in August 1933, stated that they were accepted everywhere in stores.

To guarantee the value of the labor certificates and back their redemption in the national currency, an amount of Austrian Schillings equivalent to the issuance amount of the certificates (originally 32,000 Schillings) was intended to be deposited in the local bank (The Raiffeisen Bank) by the trustees of the distress relief program (von Muralt, 1934, p. 49; Unterguggenberger, 1957: p. 26). This amount was adjusted to 12,000 Schillings as the rapid circulation reduced the actual necessary amount (von Muralt, 1934, p. 50). When the certificates were printed, the trustees exchanged them with the municipal treasury for an equivalent amount of Austrian Schillings, which were then deposited into a special account at the Raiffeisen Bank and reportedly lent out at interest (Schwarz, 2006; Unterguggenberger, 1957: p. 26). This measure was most likely very effective at gaining the public’s trust.

The nature of Wörgl labor certificates

In early July 1932, 32,000 Schillings in labor certificates were printed in denominations of 1, 5, and 10 Schillings, each subject to a monthly depreciation tax of 1% (or 12% annual) (von Muralt, 1934, p. 49; Fisher and Cohrssen, 1933). To avoid devaluation, stickers had to be purchased at the Parish Hall and affixed to the notes as proof of payment, with sticker costs aligning with the monthly relief tax. Certificates were valid for 1 year and could be exchanged for new ones if all stickers were duly attached. Alternatively, they could be redeemed for Austrian Schillings at a 2% fee, with the proceeds of the monthly 1% devaluation directed to a poor fund and the 2% fee financing community projects (Unterguggenberger, 1957: p. 27). Figure 1 displays the front and back of the 1, 5, and 10 Schilling labor certificates.

OPEN IN VIEWER

Figure 1.

Front and back of the Wörgl labor certificates, (Kultur Wörgl, 2024).

Circulation and use

On July 31st, 1932, the first 1800 Schillings in labor certificates were paid to the town’s workers. Fisher and Cohrsson (1933) report that town employees, including the mayor, were to receive 50% of their salaries in labor certificates, and the new emergency workmen were to be paid 100% in that form. Taxes, rents, and utility fees were likewise payable in labor certificates (von Muralt, 1934, p. 50; Schwarz, 1951; Unterguggenberger, 1957: p. 29). Given the backlog in unpaid taxes this undoubtedly further influenced the townspeople’s willingness to buy and sell with these notes. Unterguggenberger (1957, p. 30) reports that almost on the first day on which the first labor payments had been made, the full amount returned to the municipal treasury in the form of tax payments, thus enabling the municipal administration to pay out the same certificates again without the need for new ones to be issued. The quick repayment of taxes with the emergency money resulted in a significantly sped up circulation cycle. Schwarz (1951) recounted how the certificates' rapid circulation led to the perception of counterfeit notes among townspeople. The highest amount in circulation at any one time reached only 7443 Schillings (Schwarz, 1951; Unterguggenberger, 1957: p. 29; Hornhung, 1934, p. 10). The town took full advantage of the high velocity circulation. In March 1933, the mayor announced a new wave of public construction projects, citing the benefits of increased circulation (Unterguggenberger, 1934). During this period, several of the above-mentioned building projects were completed. The total cost of the public works, roughly 100 000 Schillings, includes an amount of 12,000 Schillings of emergency credit granted by the government while the remainder was paid for with labor certificates.

Consequently, according to all the above-mentioned reports, the labor certificates revitalized Wörgl’s economy. Tax arrears dropped by approximately 79,000 Schillings, and unemployment declined by 25% (Schwarz, 1951). Notably, the high velocity of currency circulation did not trigger inflation (Unterguggenberger, 1957: p. 52; von Muralt, 1934, p. 57; Hornhung, 1934, p. 53). Infrastructure improvements benefited many, with the population broadly supporting the experiment, as evidenced by the certificates being accepted “everywhere” as if they were legal tender (Bourdet, 1934: p. 58). However, von Muralt (1934, p. 52) cautioned that while tax revenues did rise, the accuracy of the mayor’s reported figures could only be confirmed through “an exhaustive examination of the parish accounts by an impartial accountant.” He also noted that the town’s debt to the Innsbruck Bank remained largely unchanged due to the mayor’s resistance to paying the 10% interest, viewing it as a “form of slavery” (von Muralt, 1934, p. 54). The reports indicate that the Innsbruck Bank played no active role in the experiment, only accepting Austrian Schillings for debt settlement.

The end of the experiment

The success of the Wörgl experiment gained significant attention, prompting interest from other Austrian towns. In June 1933, the mayor gave a presentation on the initiative to around 170 Austrian mayors who were all inclined to reproduce similar experiments in their own towns (Schwarz, 1951). However, the Austrian central bank, fearing that its exclusive right to issue currency was being challenged, prohibited the Wörgl currency under Article 122 of the Austrian Emergency Banking Law. This article reserved currency issuance solely for the Austrian National Bank (Onken, 1983, chap. 3). Wörgl’s mayor filed an appeal, which was pursued up to the Supreme Court in Vienna, where the ban was ultimately upheld. In his report, the mayor stated that on September 1, 1933, following persistent orders from supervisory authorities, the depreciating currency was withdrawn from circulation (Unterguggenberger, 1934).

Two key discussion points

When analyzing the Wörgl Experiment, two key areas of discussion emerge regarding its potential for continued success. The first is the ability to redeem the labor certificates for Austrian Schillings. Fisher and Cohrssen (1933) were of the opinion that, due to the 2% redemption fee, redemption was unlikely to hurt the circulation of the labor certificates. However, a closer look at the redemption data reveals a potential inconsistency between the amount of labor certificates redeemed for Austrian Schillings and the amount of Schillings meant to guarantee the labor certificates' value.

The second key point for discussion is the acceptability of the labor certificates for tax payments. This characteristic not only enhanced the legitimacy of the labor certificates but also served as a substantial incentive for their rapid circulation (Schwarz, 1951; Unterguggenberger, 1957: p. 29). This high velocity of circulation facilitated numerous construction projects, despite the relatively small amount of labor certificates in circulation. Consequently, it is important to consider the role that this key feature of the emergency money would have played over the long run.

Key point 1: Redemption inconsistency

Information about how Austrian Schillings interacted with labor certificates is sparse, likely due to the events of World War II (Unterguggenberger, 1957: p. 31). Nevertheless, the available data points to an inconsistency between the amount of labor certificates redeemed for Austrian Schillings and the amount designated for their value guarantee.

As previously noted, the issuance of labor certificates was backed by an equivalent value of Austrian Schillings deposited in the Raiffeisen Bank (Lietaer, 2001: p. 173; Unterguggenberger, 1957). von Muralt (1934, p. 50) states that, “only 12,000 normal Schillings had to be deposited at the Raiffeisen Bank.” However, on the very next page he then writes that over a period of 9 months, 34,500 Schillings worth of labor certificates were redeemed for Austrian Schillings (von Muralt, 1934, p. 51). His conversion fee calculation confirms that this amount of labor certificates was redeemed for national currency, indicating that the bank paid out 33,810 Austrian Schillings (the total amount minus the 2% fee) to labor certificate holders during that time. Von Muralt specifies that this 9-month period spans from the experiment’s onset in July to the end of March (Von Muralt, 1989).

Two other reports on the redemption of labor certificates come from Broer (2007, p. 133) and Hornhung (1934, p. 34) who both report that 1326 Schillings had been raised from the 2% conversion fee. Broer (2007) cites the minutes of a local council meeting and reports that by December 1932 (only 5 months after the start of the experiment) 1326 Schillings had been raised from the 2% conversion fee. Hornhung (1934, p. 34) claims that the 1326 Schillings were the total revenue of the 2% from the entire period of the Experiment. Regardless of the time period difference, both reports indicate that contrary to von Muralt’s report, 66,300 Schillings worth of labor certificates had been redeemed for Austrian Schillings. That this figure comes from 2 sources, one of those being minutes of a council meeting, perhaps makes it the more likely figure.

Broer provides some context as to why these redemptions could have been taking place. He writes that at that stage of the experiment (5 months into it), when the emergency work was slowing down due to winter, the work certificates were falling out of favor. He quotes a municipal secretary who stated that upon receiving their labor certificate salaries, they immediately took them downstairs to the Raiffeisen Bank to exchange it for Austrian Schillings, thus opting to convert to national currency in spite of the 2% conversion fee (Broer, 2007: p. 132). The author attempted to access the primary document that Broer references by attempting to make contact with both Dr Broer and the Unterguggenberger Institute, which houses an archive of documents related to the Wörgl Experiment. However, in both cases he was unsuccessful.

Thus, we have three reports that, despite their differing data, indicate that the amount of labor certificates redeemed for Austrian Schillings were far higher than the amount reportedly put aside to guarantee the value of the labor certificates in circulation (12,000 Schillings). In fact, the smaller figure of 34,500 Schillings represents 62% of Wörgl’s municipal tax revenue in 1931 (55,111 Schillings) (Unterguggenberger, 1957: p. 36), and the larger figure exceeds that. Therefore, this is a potentially significant inconsistency given the lack of municipal funds leading up to the experiment. It also raises several other questions such as, given the reportedly small amount of labor certificates in circulation (a maximum of about 7443 Schillings at a time), what happened to the labor certificates that were redeemed? Were they simply retired? Both Schwarz (1951) and Fisher and Cohrssen (1933) write that the bank and the town were to re-issue labor certificates that had been redeemed. If so, this likely meant more Austrian Schilling deposits into the relevant Raiffeisen bank account to cover the re-issues. How would these additional deposits have influenced the town’s finances and the overall circulation of the emergency money? Unterguggenberger’s (1957, p. 30) documentation on these deposits covers only the first 2 months of the experiment, totaling 9006 Schillings. In contrast, his circulation data spans all 14 months. He writes that many municipal records were lost during World War II, resulting in gaps in the documentation.

To gain further clarity, the author reached out to the Unterguggenberger Institute, hoping to find documents related to the exchanges between the emergency money and Austrian Schillings. On this matter he did receive a response. They reported that, unfortunately, the relevant papers documenting the daily exchanges had been destroyed in the 1960s. Thus, it is unlikely that the full extent of the exchanges between the emergency money and the Austrian Schilling will ever be known. Nevertheless, we can analyze the implications of the redemption data that we do have.

Redemption data implications

The redemption data raises several questions about how the two currencies interacted and what that would have meant for the experiment’s continued success. The view as expressed by Martin (2024, p. 106), and depicted in Figure 2, is that Wörgl’s emergency money had achieved a complete and effective circulation. This is certainly true as evidenced by the financing of an impressive public works program and the economic upturn the labor certificates encouraged. However, given the large amount of emergency money that was redeemed for Austrian Schillings, a more accurate way to depict the monetary arrangement would be to include the flow of Austrian Schillings in the redemption process as shown in Figure 3.

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Figure 2.

Wörgl’s Municipal Monetary Arrangement. Martin (2024, p. 100).

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Figure 3.

Wörgl’s municipal monetary arrangement including redemption process. Created by the author.

Commenting on the relationship between currencies, Blanc (2017, p. 247) writes that “The ability to change or convert one form of money into another…. gives rise to a degree of substitutability that is all the greater as the spheres coincide.” He further adds that, “The substitutability of two monies puts them in a competitive relationship. Competition can be observed even when substitutability is incomplete—but exists anyway.” Finally, he adds that given the spatial limitations of CCs, they are naturally far “more substitutable with the national currencies than the reverse.” Thus, the implication of the monetary arrangement in Figure 3 is that a relationship of substitutability and competition existed between the labor certificates and the Austrian Schilling. The long-term implications of such a relationship are discussed next with regards to a CC that shares much in common with the Wörgl emergency money.

The Bocade

The Bocade was a non-legal tender tax anticipation CC that circulated in the Argentinian province of Tucuman between 1985 and 2003 (Theret, 2018). Naturally, it is not a perfect comparison to the Wörgl Experiment but it did resemble Wörgl labor certificates in the following important ways:

(1.) It was implemented by the local government to avert a crisis; public employees had not been paid in months, leading to political and social conflicts.

Key differences between the two currencies were that there was no depreciation tax on the currency and the Bocade functioned at a much larger scale, servicing a province that has a current population of about 1.7 million people. Also, unlike Wörgl there was no 2% redemption fee when converting the Bocade; however, the period of redemption was limited to the between the 18th and 28th of each month. This was to give the provincial treasury time to gather sufficient liquidity during the period of closure. In the month following the launch of the Bocade, about 85% of the issued Bocade was redeemed for national currency. In the months and redemption periods following this, the amount of Bocade being redeemed evened out to about 70% of total issuance (Theret, 2018, p. 160–161). This continued until the start of 1988 when due to over-issuance and a lack of liquidity in national currency, the redemption of the Bocade was suspended resulting in a lack of confidence in the CC and a market discount rate of about 20%. The CC survived due to two innovations, one of which was a new convertibility framework. In the new convertibility framework Bocade holders could redeem the CC at any time but had to wait 5 days before the treasury redeemed their notes at 5% per working day until the full amount was reached (Theret, 2018, p. 164–165). This was evidently a different way to buy more time to gather sufficient liquidity. This remained the convertibility framework until 2003.

The key point regarding the Bocade, is that it was always in competition with the national currency as citizens were constantly waiting to substitute it with the national currency. And, when convertibility was suspended, confidence in the Bocade dropped. Overall, this was not really an issue as the Bocade was a successful institution that lasted 18 years and delivered what it promised: Allowing the province to deliver public services while reducing the public debt and stimulating the local economy, under specific conditions, without being inherently inflationist (Theret, 2018, p. 184). However, in this it was more of an instrument of short-term credit, with the government “borrowing” temporarily from the people (Theret, 2018, p. 160), than a circulating currency. And this role was only realizable through an adjustment of redemption procedures that bought time for the provisional treasury to gather sufficient liquidity to “pay back” the loan. Returning to the issue of the substitutability of the Wörgl emergency money, it is quite plausible that the labor certificates, within the limitations of substitutability and competition with the Austrian Schilling, could have developed into a similarly effective short-term credit instrument for the Wörgl municipality. The key challenge then would have been to maintain sufficient liquidity to fund redemption and maintain trust. This, however, could have become an issue given how cash-strapped the municipality was.

Complementarity versus substitutability

As a disciple of Silvio Gesell, it is unlikely that Wörgl’s mayor would have been content with simply creating an instrument of short-term of credit. To this end of Blanc (1998, p. 478) writes that a Gesellian accelerated money system is likely to succeed (over the long term) under the following two conditions:

(1.) The system has to have strict regulations forbidding the use of substitutes to the depreciating means of payment. The lack of control over such substitutes would lead to the destruction of the accelerated money system by the behavior of agents looking for stable means of payment.

Thus, according to Blanc’s (1998) reasoning, the labor certificates would have had to have been strictly separated into their own monetary circuit, parallel but not convertible to Austrian Schillings (or any other kind of substitute) in order to have a better chance at continued success. Within the framework of substitutability versus complementarity Amato and Fantacci (2020, p. 519) write that, “Complementarity is an effective way to deal with monetary plurality when it deploys itself as a plurality of non-superposing monetary circuits.” They do not define non-superposing circuits as a strict separation like Blanc (1998) but as “a qualitative differentiation of monies, differing either by purpose or by locality,” indicating a continuum of difference between a high level of complementarity and a high level of substitutability that gives rise to a tension between the two that “is the main criterion to assess the soundness of a complementary architecture” Amato and Fantacci (2020, p. 520). We cannot be certain where the labor certificates sat within this combination of complementarity and substitutability. On the one hand, it is clear that the labor certificates did achieve a level of complementarity due to the difference of their design and purpose when compared to Austrian Schillings. On the other hand, the high value of redemptions (whether 34,500 or 66,300 Schillings) and the fact that Wörgl’s citizens’ trust in the labor certificates was based on its convertibility (Schwarz, 1951), indicate a not insignificant level of substitutability. Furthermore, the Bocade example shows that a CC’s substitutability with the national currency can persist for many years in spite of being issued by a centralized state actor and being underwritten by tax receipts. Therefore, taking all of the above into consideration, had the experiment continued, one of the following three broad scenarios could have unfolded:

Scenario 1: Substitutability and competition with Austrian Schilling (based on the convertibility) continued as before but the municipality maintained sufficient liquidity for redemptions. This would likely result in the labor certificates becoming a sort of short term credit instrument for the local government.

Scenario 2: Substitutability and competition with Austrian Schilling (based on the convertibility) continued as before, however in this scenario the municipality fails to maintain sufficient liquidity for redemptions. This would result in loss of trust in the labor certificates and likely the end of the accelerated money system due to citizens looking for a more stable means of payment as stated by Blanc (1998).

Scenario 3: In spite of initial substitutability and competition with the national currency, the labor certificates achieve an improved complementarity with the Austrian Schilling as a separate monetary circuit adequate to the incentives or needs of its own circulation and without reliance on convertibility for its value. The literature (Blanc, 1998, 2017) indicates that removal of the convertibility feature would be a requirement to attain this ideal scenario. However, this approach would have been a hard sell to the population of Wörgl and faced significant challenges. The only CCs that have achieved this ideal level of complementarity (which disallows convertibility) while maintaining economic value, are business to business CCs such as the Sardex (Bazzani, 2020) and the WIR Bank (Studer, 1998), neither of whom resemble the Wörgl emergency money in design or implementation strategy. However, given the historically unique achievements of the Wörgl CC, we cannot discount that this third scenario could have played out.

Key point 2: Acceptability of labor certificates for tax payments

As mentioned above, there was a clear link between acceptability of the labor certificates for tax payments and their remarkably fast circulation. In fact, according to the Wörgl Experiment’s most prominent critic, Dr. Alfred Hornung, the favorable results of the Wörgl Experiment were only possible because the tax arrears formed a very important, perhaps the only, support for the labor certificate circulation (Hornhung, 1934, p. 34).

The best insight regarding this key point can be gained from the tax anticipation scrip that was used during the Great Depression in America (Gatch, 2012). Issued by almost one hundred municipal governments (Gatch, 2012: p. 23), this form of scrip shared the following characteristics with the Wörgl scrip:

1. It was issued to overcome the desperate circumstances of the Great Depression.

Where it differed from Wörgl scrip was that it was backed by the local municipality’s future tax revenue and was interest bearing rather than depreciating (Gatch, 2012: p. 25). Gatch summarizes 4 points “for a local tax-based currency to function in noncrisis conditions as a normal feature of local government finance.” Of the four points, the one that is most pertinent for this section is that: “Tax obligations must be sufficiently large to create a demand for scrip for use in tax payments to local governments” (Gatch, 2012: p. 32). This point seems to add weight to Dr Alfred Hornung’s criticism of the dependence on tax arrears for circulation support, and raises the question of how the total repayment of all the tax arrears would have affected the demand for the labor certificates. If we take the mayor’s figure of 66% (78,000 of 118,000) of the tax arrears being repaid within 1 year of launching the emergency money as accurate, it is highly likely that those arrears would have disappeared by the 2nd year of the experiment. Thus, with the tax arrears drying up, the municipality would have had to find another way to continue to encourage demand for the labor certificates. This would not have been a simple matter as according to Unterguggenberger (1957, p. 39) the labor certificates were already accepted for the numerous public fees and taxes including:

1. Entertainment tax

Consequently, given that it was already accepted for so many public fees and taxes, additional demand would probably need to be found outside of local government channels. Indeed, the Mayor and the Welfare Committee had made serious plans to buy the closed cellulose factory as an extension of the emergency campaign, as this would have provided permanent unemployment for 350 people in the surrounding area (Broer, 2007: p. 213). Therefore, finding additional dedicated spending channels (outside of public fees and taxes) would certainly have been an important consideration for the emergency campaign.

Limitations

The primary limitation of this paper is the fact that the author is not a German speaker and many of the source documents were originally written in German. For this reason, the author utilized translation software, hired professional translators to confirm key data points and briefly consulted with a German speaking researcher familiar with CCs to minimize any potential linguistic misunderstandings. Despite these efforts, the possibility of there being misinterpretations or misunderstandings, however small, does exist. A secondary limitation was a lack of resources that made it impossible for the author to directly visit the archive at the Unterguggenberger Institute to try to access more primary or contemporary documents. It is possible that time spent looking over primary documents (with a translator’s assistance) at the archive could have shed more light on unclarified aspects of the experiment, particularly the extent of the redemptions of the labor certificates. A visit to the archive to dig deeper into that aspect of the experiment is strongly recommended as it was such an essential component of the experiment and documents might exist that indirectly clarify the redemption data and provide greater insight.