Alberta wasn’t always the booming Canadian province that it is today. Long before the oil boom, it was almost crippled by the Great Depression. And, just as Greece looks set to do, Alberta defaulted on its debts; and, like the little Austrian town of Worgl, was forced into issuing a Gessellian scrip currency. Unlike the Worgl experience, Alberta’s experiment with a parallel currency failed.
A bit of background is probably useful. Like Worgl, Alberta’s economy had been devastated by the depression when a new leader came to power. In Alberta’s case, it was William Aberhart who led his (right wing) Social Credit League to power in on August, 1935. Facing a provincial fiscal crisis and extremely high unemployment, Aberhart set about on a tough austerity program. He reduced expenditures and increased sales and income taxes, but it wasn’t enough and by April 1936, Alberta defaulted on its debts.
So it might have been out of desperation that Aberhart, having heard of the success in Worgl, introduced the Alberta Prosperity Certificate in August 1936 to pay jobless persons and farmers to do road work and government salaries (in part). Under the scheme, the bearer of the scrip was required to purchase a stamp equal to 1% of the face value each week, and stick it to the back of the certificate to validate it. This meant that the bearers of the scrip would effectively lose 50% of its face value during the course of a year.
The experiment ended on April 7, 1937, about 8 months after its introduction. Unfortunately for Mr Aberhart, the public just didn’t like the certificates. It is likely that the rate of effective taxation on the scrip was just too high. In reality the effective tax rate probably exceeded 50% because the gum on the validation stamps was of poor quality and they tended to fall off, requiring the bearer to purchase replacements. Nevertheless, the scheme created 10,000 jobs, but it is unclear how long they lasted.
It is interesting to ask what made Alberta different from Worgl. There are a three obvious observations: one, Worgl used the introduction of scrip to money finance expansionary fiscal policy; two, Alberta tried it after austerity failed. And, three, the effective rate of depreciation (or demurrage as it is sometimes called) was much higher in Alberta (50%) than in Worgl (12%).
Insights for Euorpe? There must be some. TH reckons that one lesson is not to leave it too late. A parallel depreciating currency can a) help stimulate demand (see earlier post on the Worgl experiment, b) if used to pay wages, help address the competitiveness problem, c) ultimately extricate a country out of a non-optimal currency area, One other parting thought: sovereign default can happen even in a fiscal union if circumstances are bad enough — a fiscal compact is not enough.
Here are some links:
The Worgl Scrip and the Alberta Prosperity Certificates are not unlike community (or local) currencies, which exist in many cities and countries around the world. Toronto has the Toronto Dollar, Brixton (UK) has the Brixton Pound (or Brick as some like to call it). There is a list on Wikipedia , which even includes some from Greece. Apparently, the Spanish peseta has even been reintroduced in the town of Mugardos (http://www.bbc.co.uk/news/world-europe-12657225 )