Wörgl was the first in town in Austria that effectively managed to eliminate the extreme unemployment caused by the Great Depression. Its local currency experiment was such a success that it gained worldwide attention. That effort became known as the “Miracle of Wörgl .” For the full details, go here. Here is the summary of that story.
On July 5th 1932, in the middle of the Great Depression, the Austrian town of Wörgl made economic history by introducing a remarkable complimentary currency. Wörgl was in trouble, and was prepared to try anything. Of its population of 4,500, a total of 1,500 people were without a job, and 200 families were penniless. The mayor, Michael Unterguggenberger, had a long list of projects he wanted to accomplish, but there was hardly any money with which to carry them out. These included repaving the roads, streetlights, extending water distribution across the whole town, and planting trees along the streets.
Rather than spending the 40,000 Austrian schillings in the town’s coffers to start these projects off, he deposited them in a local savings bank as a guarantee to back the issue of a type of complimentary currency known as ‘stamp scrip’. The Mayor then proceeded to hire people to do infrastructure projects for the town and the community quickly went from an unemployment rate of over 30% to near zero, as that money began to circulate very rapidly.
Of all the business in town, only the railway station and the post office refused to accept the local money. When people ran out of spending ideas, they would pay their taxes early using scrip, resulting in a huge increase in town revenues. Over the 13-month period the project ran, the council not only carried out all the intended works projects, but also built new houses, a reservoir, a ski jump, and a bridge. The people also used scrip to replant forests, in anticipation of the future cash flow they would receive from the trees.
Six neighbouring villages copied the system successfully. The French Prime Minister, Eduoard Dalladier, made a special visit to see the ‘miracle of Wörgl’. In January 1933, the project was replicated in the neighbouring city of Kirchbuhl, and in June 1933, Unterguggenburger addressed a meeting with representatives from 170 different towns and villages. Two hundred Austrian townships were interested in adopting the idea.
At this point, the central bank panicked, and decided to assert its monopoly rights by banning complimentary currencies. The people unsuccessfully sued the bank, and later lost in the Austrian Supreme Court. It then became a criminal offence to issue ’emergency currency’. The town went back to 30% unemployment. In 1934, social unrest exploded across Austria. In 1938, when Hitler annexed Austria, he was welcomed by many people as their economic and political saviour.
Nonetheless, the success of Wörgl attracted the attention of one of the leading economists in the U.S. at the time, Professor Irving Fisher, who informed the FDR administration he thought that idea could be used to end the Great Depression. That story is next.