TH didn’t borrow the name for his proposed currency — the worgl – from Star Trek. It’s actually the name of a little village in Austria, whose claim to economic fame comes from one most incredible monetary experiments that took place during the height of the Great Depression (yes, the great depression was truly great – it plunged much of the world, not just the US, into misery). What TH has learnt about the Worgl experiment, he unashamedly learned from the web and the links are below.
Here’s the story. Life in 1932 Worgl was terrible. There were 1,500 unemployed in a town of just 4,500 and 200 families were all but destitute. In the midst of the misery, a guy called Michael Unterguggenberger was elected mayor and performed what many believe was nothing short of an economic miracle.
Upon reading Gessell (a contemporary monetarist and philosopher), Mr Unterguggenberger figured that Worgl’s problem was a monetary one. So he printed Worgl’s own currency which was paid out to local government workers in wages and could be used by local residents to pay taxes. But it wasn’t just money (or technically scrip). It was depreciating money. The fact that it lost value over time meant that people had an incentive to get rid of it by spending it and that, it turns out, was the trick.
At the time (post German hyperinflation), this must have been a bold conclusion to reach, because most people likely thought that the supply of money was related to not much else than inflation. But money is important (as we all know) because (in the brilliantly insightful words of Robert Clower) money buys goods and goods buy money, but goods (generally speaking) don’t buy goods. So when for some reason (such as a financial crisis) there is a shortage of cash and people feel the need to hold on to it, the increased demand for cash reduces the demand for each other’s goods and services, If it is severe enough, the result is a recession. Paul Krugman (the master of economic story-telling) explains this well in his famous piece on the baby-sitting coop (hat tip to Ricardo Smith-Keynes), which you can read here .
In short, Mr Unterguggenberger figured that Worgl’s problems were not that its workers were unproductive, but they were hoarding cash rather than spending it. He believed this so passionately that apparently he even had the following printed on the back of the scrip:
“To all whom it may concern ! Sluggishly circulating money has provoked an unprecedented trade depression and plunged millions into utter misery. Economically considered, the destruction of the world has started. – It is time, through determined and intelligent action, to endeavour to arrest the downward plunge of the trade machine and thereby to save mankind from fratricidal wars, chaos, and dissolution. Human beings live by exchanging their services. Sluggish circulation has largely stopped this exchange and thrown millions of willing workers out of employment. – We must therefore revive this exchange of services and by its means bring the unemployed back to the ranks of the producers. Such is the object of the labour certificate issued by the market town of Wörgl : it softens sufferings dread; it offers work and bread.” (quoted here)
Anyway, this is how the worgl scrip worked. The money was denominated in schillings and only became valid after being stamped at the local parish hall. These notes depreciated monthly by 1 % of their nominal value (or about 12% per year). To prevent this devaluation, the owner of the note must affix on the last day of the month a stamp to the value of the extent of the devaluation. These stamps are purchased at the parish hall. Thus the depreciation amounted to 12 % per year, over double the proportion suggested by Gesell. At the close of each year the certificates had to be exchanged for new ones. There was no charge for the transaction, provided that the required number of stamps had been affixed to the certificates. Subject to a deduction of 2 %, the parish would convert the labour notes into ordinary schillings. (See here )
So the Worgl scrip did two main things. First, it sprurred economic activity and second it delivered seignorage revenues directly to the township of Worgl. And it transformed Worgl. A year after its introduction, here is how the once wretched town of Worgl was described:
The roads, once in a scandalous condition, resemble autostrades. The parish hall, cheery and smart looking, is entirely reconditioned and has the appearance of a lovely toy. A new bridge in reinforced concrete proudly bears the legend : “Constructed in 1933, with free money”. One sees everywhere up-to-date lamp standards. (See here)
One can’t help wonder whether this is the sort of miracle that Greece needs today. Today, Greece’s troublesome debt talks were wrapped up. But it may all be for naught. The latest statistics show that industrial output fell 11.3 per cent in December from a year ago and unemployment rose in November to an all-time high of 20.9 per cent. Moreover, politicians from other members of the European Union are openly talking about taking away Greek fiscal sovereignty in return for the next bailout package. Greek workers (unemployed workers, that is) would surely feel that they have no ownership over the tough austerity measures and that Europe was dictating their suffering. Why wouldn’t they get disillusioned with the whole euro thing?
The “worgl” (new currency) that TH proposed in his last post deliberately shares some of the features of Mr Unterguggenberger’s money. It depreciates over time, which, if wages are paid in worgls would both help resolve the competitiveness problem and stimulate aggregate demand (as in Krugman’s babysitting co-op parable). Moreover, Worgl’s money circulated in parallel with the Schilling, just as the proposed worgl would circulate in parallel with the Euro. And TH reckons they would be a hit. You could give them out to tourists as they land in Athens – a hundred of them, good to spend on yiros and wine at restaurants on the Mediterranean.
TH read today “We learn from history that we do not learn from history” a quote from Georg Wilhelm Friedrich Hegel in an excellent commentary on the state of the global economy. TH doesn’t know whether the Worgl experiment would work in Greece or anywhere else in Europe. But the European experiment seems to be going so sadly wrong and the proposed remedies seem so insufficient that he can’t help but think that it is time to discuss alternatives. Perhaps it’s not too late to learn from history.
And just in case you were hoping for a musical tie-in to Star Trek …