The experiment of Woergl

Towards the end of the nineteenth century Silvio Gesell, a successful merchant in Germany and Argentina began to observe that when interest rates were low people would buy his goods but if they were high they would not. His explanation was that money, unlike all other goods, can be kept without cost. If one person has a bag of apples and another one the money to buy those apples, the apples will be worthless in six months but the money will be worth about the same. Because money does not attract holding costs and is in addition easily exchangeable for everything else holders of money have a huge advantage over holders of goods because they can wait till the price is right or someone pays them a reward for borrowing their money.

Gesell's central message in his book The Natural Economic Order is that instead of paying interest to those who have more money than they need, people should pay a small fee if they keep money out of circulation. This fee will encourage people to keep money in circulation.

An analogy which helps to explain the difference is to compare money to a container which also helps exchange goods and services in a given region. Nobody would dream of paying a reward (interest) to somebody using a container (money) to entice them to unload the container for others to use (pass on the money for others to use). Instead they pay a daily fee if they don't unload it. And that is all we need to do with money.

Between 1932 and 1933 the small Austrian town of Woergl started one of the first model experiments which has been an inspiration to all who have been concerned with the issue of monetary reform up to this day. Backed by an equivalent amount of ordinary schillings in the bank the town spent 12,600 'Work Certificates' into circulation. This money circulated 463 times in the next 13.5 months thus creating goods and services worth 12,600 x 463 or over 2.5 million schillings. In comparison to the sluggish national currency it circulated eight times as fast.

At a time when most countries in Europe with decreasing numbers of jobs, Woergl reduced its unemployment rate by 60% within a year. Income from taxes rose 35% and investment in public works rose 220%.

The fee collected by the town government which caused the money to change hands so quickly amounted to 12% of 12,600 Schillings or a total of 1,512 Schillings. This small amount was used for public purposes and thus no single individual gained from it, but the community as whole.

When, however, 130 communities in Austria began to be interested in adopting this model the Austrian National Bank saw its own monopoly in danger and prohibited the printing of any local currency.

You can read more of this experiment at the Global Ideas Bank website.

You can read Gesell's book The Natural Economic Order via the SystemFehler website or download a Zip version of the html files for the book from the same web site.