Mises Daily

A Free Money Miracle?

If it is a Miracle, any sort of evidence will answer, but if it is a Fact, proof is necessary. —Mark Twain
Miracles do not, in fact, break the laws of nature. —C.S. Lewis


The “Miracle of Wörgl,” refers to the story of currency demurrage and the impact it had on the economy of Wörgl, a small town in Austria. For a bill of such currency to retain its face value, the currency holder must pay a regular, periodic payment (a tax) for a stamp or other marking. Wörgl is regularly touted by advocates of demurrage as a successful implementation of such a currency, one designed to encourage velocity due to the incentive to spend it in order to avoid the periodic tax.

The experiment at Wörgl was implemented by the town’s mayor, Michael Unterguggenberger in the midst of the Great Depression. Wörgl, like many towns throughout the world at the time, was suffering from high unemployment and low economic activity. The experiment began on the 31st of July 1932, with the issuing of “Certified Compensation Bills,” a form of currency commonly known as Stamp Scrip, or Freigeld. It resulted in a boom in government projects, and a corresponding increase in employment and economic activity not just in the government sector, but throughout the town.

Despite its apparent success, and despite attracting the attention of luminaries such as French Premier Edouard Daladier and the economist Irving Fisher, the “experiment” was terminated by the Austrian National Bank on September 1, 1933.1


The theory behind the experiment of Wörgl comes from Silvio Gesell (1862–1930), specifically his idea of Freigeld (German for free money), representing one part of his overall idea of Freiwirtschaft (free economy). As you will see below, Gesell does not mean “free” as in the free market, so much as “free” as in the air.

From Wikipedia 2

Freiwirtschaft (German for free economy) consists of three central aspects, usually summed up as The Three Fs:

Freigeld (free money)
All money is issued for a limited period by constant value (neither inflation, nor deflation).
Long-term saving requires investment in bonds or stocks.

Freiland (free land) All land is owned by public institutions and can only be rented, not purchased (see also Henry George).

Freihandel (free trade)

The (proposed) results and benefits include:

  • More private spending for consumption and investment

  • Consumers invest surplus money in expanding companies

  • Full employment: Work for everyone who can work

  • Rate of economic growth can be set by the society

  • Interest rates drop to almost zero percent in the long run

  • Freiland prevents high real estate prices

  • Tremendous social disparities will cease

  • Less working hours per week for everyone in the long run

So under Gesell’s theory, scarcity, if not eliminated, at least will no longer cause inconvenience to man. Suffice it to say, it is a theory that seems to fly in the face of the laws of nature, praxeology (the science of human action), and economic theory.

Bernard Lietaer is one of the leading proponents of these theories today, specifically regarding the issue of free moneyand demurrage (stamp scrip). Lietaer sees such a “stamp scrip” currency working in conjunction with a currency convertible to a basket of commodities. From his paper “A Strategy for a Convertible Currency”:3

Stamp scrip is a medium of exchange characterized by a small monthly “user fee,” or “negative interest” charge. This user fee gives an incentive to the bearer not to hoard this currency. Its practical and demonstrated economic effects include a strong positive impact on employment creation and on inflation control. It also provides structural support for ecologically sound economic growth. While the concept of “negative interest rates” may appear unusual at first sight, it has solid theoretical backing behind it. Even more importantly, it has been tested and used with remarkable success in a variety of cultures and historical settings, including as recently as the 1930’s in Western Europe.

The stamp scrip concept actively promotes internal economic stability and employment growth, while the basket of commodity concept ensures immediate convertibility to the national currency and the international stability of its purchasing value. These two concepts fit together by equating the negative interest rate of the Stamp Scrip with the costs of storing, insuring and delivering to their respective international markets the underlying commodities of the basket.

The Economic Environment of Wörgl

“The Story of Wörgl,” based on the book The Experiment in Wörgl, by Fritz Shwarz 4 describes the suffering economy of Wörgl during the depression of the early 1930s:

At the time Wörgl had a population of 4,216. Being a railway junction, the railway employed 310 people in 1930, but by 1933 the number had plummeted to 190…. Already in 1929 the service facility for steam locomotives had become obsolete following the transition to electric engines. The nearby cement plant in Kitzbühel employed 45 to 60 workers in 1930, but by 1933 that figure had shrunk to 2.

The Zipf brewery sacked between 10–14 workers from the previous 33–37. A cellulose factory, which in 1930 still employed 360 to 410 workers, in 1933 had only 4 men guarding idle machines. Farmers, who made up about a third of the working population, could barely sell their products at depressed prices and the remaining two thirds of the work force, consisting of blue-collar and white-collar employees, plus people running small businesses, suffered considerably from these bleak circumstances.

The ranks of the unemployed increased daily. Both the umeployed and those with expired insurance benefits turned to their mayor. In 1932 there were some 200 expired benefits cases destined for public charity schemes. In the spring of 1932 Wörgl township counted 350 unemployed. In its immediate surroundings there were 1,500.

The mayor of Wörgl, Michael Unterguggenberger, having previously read an article by Silvio Gesell in an obscure periodical named Der Physiokrat, came to embrace the idea of a currency subject to demurrage.5 The mayor concluded that such a currency would solve what he believed to be the two critical issues facing his township: falling prices and the slow circulation of money.4

The Mayor Applies the Theory

The mayor went from person to person in the township, explaining the concept of demurrage and its benefits if such a currency was implemented in Wörgl. Once he felt he had gained sufficient support, he held a session of the Wörgl Welfare Committee on July 5, 1932.

With the approval of the committee, the experiment began with the first printing of 1,000 schillings worth of notes on July 31, 1932. These were used by the town to pay government wages.4

In total, 32,000 schillings worth of notes were printed. 12,000 were released, but only 8,000 actually circulated. 4,000 shillings worth of notes were hoarded—despite the demurrage—as collectibles, etc.6 A more precise number of notes that ultimately made it into circulation is 7,443 schillings 4 , although there are estimates in other sources in the range of 5,000–6,000.

Relevant Factors Regarding the Currency and Its Impact

(Adapted from The Wörgl Experiment With Depreciating Money 6 except as noted)

The demurrage was set at 1% per month, with a stamp affixed to the bill in order to demonstrate proof of payment.

Each of the issued Wörgl notes was backed by the equivalent amount of official central-bank issued notes. These notes were deposited at the local Raiffeisen Bank, earning 6% interest, to be paid to the parish (Wörgl) treasury.

Estimates differ as to the amount of national schillings held as backing (12,000 in one case, 40,000 7 in another).

The Wörgl notes could be converted to official currency at a charge of 2%. The notes entered circulation via payment to the parish employees, first at 50% of their wages, later 75%.

Apparently there was no noticeable price inflation. The notes were accepted by non-Wörgl businessmen, reluctantly at times due to the demurrage, because this was seen as a means of increasing trade.

Projects involving approximately 100,000 schillings of spending were implemented in Wörgl during the time of the experiment. Some of the major completed projects included: improvement of the drainage system in the main streets; streets were repaired and many were asphalted; the Railway Street was lighted in a modern fashion; a ski-jumping platform was constructed; and the parish mill received extensive modernization and improvements.

The experiment was brought to a forced end by the Austrian central bank and Austrian courts on 1 September 1933.8

The Results

The schillings paid to the workers were returned almost immediately as payment of overdue taxes.

The experiment seemingly produced miracles, receiving enthusiastic support of the townspeople. Interviews were conducted with the local businessmen and town leaders and almost unanimously they praised the new money.4

The “miracle” gained notoriety, and other towns wanted to copy the experiment hoping for similar success. Nearby villages even arranged to accept each other’s scrip. “In June 1933 Mayor Unterguggenberger held a briefing in Vienna for 170 Mayors—after reviewing accounts and reports from Wörgl. All the attendants were of the opinion that it was desirable to introduce that “magic money” also in their communities.”4

Financial Gains to the Parish

Besides the boom in projects, there were financial gains to the parish, though relatively minor6

  • From the 1% demurrage: 50 schillings per month (600 annualized)
  • From the 2% exchange fee: 690 schillings in 9 months (920 annualized)
  • 6% interest earned on the 12,000 schillings deposited at the local Raiffeisen Bank (720 annualized)

Total: 2,240 schillings annualized

For comparison, the mayor’s salary was 1,800 schillings.

The indirect gains, however, were significant.

At the beginning of the experiment, according to two different sources, the township was owed taxes in arrears of either 118,000 schillings6 or 83,000 schillings8 Both sources, however, substantially agree on the amount subsequently collected by the township: approximately 78,000 schillings. This amount covered most of the delinquent taxes owed and was a finite and already virtually exhausted source of funding for the township.

“When, towards the end of the month, an inhabitant of Wörgl does not know what to do with his money which is about to lose 1% of its value, he bethinks himself of paying therewith his taxes.  This alternative has not only led to the payment of the heavy tax arrears which had accumulated for years, but, what is unprecedented, to the payment of taxes in advance!”9

“The fact that the local populace were, as a whole, substantially in arrears on their tax dues to the parish would certainly assure a high level of acceptance (locally) and a continuing demand for the local currency, at least until such time as those tax arrears had been paid.”10

By the time the experiment was forcibly ended, after the first year, most of the taxes in arrears had indeed been paid. Many taxes were also paid in advance. Thus, demand for the scrip from this source would have no longer been significant.

The second indirect benefit was the increase in normal, current tax payments to the parish. During the time of the experiment, local tax payments increased by 37,500 schillings8 (presumably due to the increased economic activity, driven by the velocity increase and the massive government spending on projects).

There were other factors at play having nothing to do with the new scrip.6 For one, a 12,000-schilling-relief credit was granted by the Tyrol government. Also, there was a partial default on parish debt owed to the Innsbruck Savings Bank. The Innsbruck Savings Bank reduced interest owed in arrears by 50,000 schillings. Various diverse claims were presented by the mayor to the bank, totaling 70,000 schillings (including interest). A parish deposit book, valued at 37,000 schillings, was presented to the Innsbruck bank. Presumably, the bank had frozen the asset for lack of payment of parish debts. The default, or forgiveness, totaled over 150,000 schillings; while certainly not all would have been payable immediately, no doubt of some benefit to the annual parish budget.

The Roots of the “Miracle”

It seems that the entire experiment was a Keynesian one, with incentives provided by Gresham’s Law. The increased spending on public works were financed by:

  • A significant amount of taxes in arrears (approximately 78,000 schillings representing either 67% or 93% of the total past due, depending on which estimate is used) being collected due to the threat of demurrage.
  • Taxes paid in advance, of an indeterminate amount.
  • An increase in annual tax receipts (of 37,500 schillings) due to the artificially stimulated economy,
  • A credit by the provincial government of 12,000 schillings,
  • Defaulting on debt owed to the Innsbruck Bank of over 150,000 schillings, some portion of which would have been of benefit to the annual budget.
  • An annualized amount of 2,240 schillings due to parish earnings on demurrage, exchange, and interest.

Not including the indeterminate amounts for taxes paid in advance, or the benefit due to the partial default, the documented gains to the parish come to almost 130,000 schillings and more than enough to pay for the projects.

Whether by accident or by design, the Mayor collected almost all taxes that were in arrears, in one year’s time. If the experiment had not been terminated, all remaining outstanding taxes would have been paid in short order. The demurrage motivated taxpayers to pay the taxes before the end of the month, while they could still receive 100% value for the scrip.

Increasing normal tax receipts via an artificially stimulated economy is nothing new—this method has been deployed often and widely. Easy credit encourages this.

The mayor used these one-time windfalls, some of which are not at all attributable to the new scrip, to pay for 100,000 schillings worth of projects.

Could the Miracle Have Been Sustained?

The Austrian central bank and Austrian court brought an end to the experiment after just over one year. Supporters of demurrage point to this and suggest that (a) this represents the fear of the bankers of the people finding their own, decentralized, solutions, and (b) the miracle would have continued indefinitely or at least long enough to get the local economy back on its own legs.

I agree with the critique of the central banks; any threat to centralized control is a threat to the money power. But would the miracle have continued indefinitely, or at least long enough, to have primed the pump had the central government not intervened? This seems highly unlikely.

The activity would not have been sustainable. Once the taxes in arrears were completely paid and when people had paid enough taxes in advance to feel safe and comfortable (at some point they would stop paying forward), the scrip would lose a key part of its attractiveness.

One way a government can ensure the demand for its currency is to mandate that taxes be paid in the government-issued currency. The other way is through monopoly legal tender laws. Wörgl could not legislate or enforce monopoly legal tender, so the demand for the scrip is partially attributable to the need to pay taxes.

The demand for the scrip could not be attributed to the demurrage, because the national schilling was available, paying interest, and at a one-for-one exchange (setting aside the conversion fee). All things equal, a currency without demurrage and earning interest would be favorable to one with demurrage and not earning interest, especially when the exchange rate between the two is fixed artificially.

Once this need to pay taxes in arrears was satisfied, what would happen to the desirability of a depreciating-value scrip vs. currency that did not come with a 1% monthly penalty? The depreciating scrip would begin trading at a discount (but not exceeding the 2% conversion fee), and sooner or later would be returned to the bank for the national currency, even with the 2% loss. Two percent might be too big a loss when one owes taxes and can satisfy these taxes with the depreciating scrip at full face value. However, when there is no benefit to holding a depreciating currency to the national one, it is highly likely that many would prefer to suffer the one-time 2% charge to avoid paying the recurring monthly 1% charge.

Instead of the scrip circulating, it would be taken to the local bank for exchange. This would quickly have turned into a bank run. The town did not have an unlimited amount of national Schillings for the exchange, holding 40,000 (or 12,000 by another estimate6 ) national schillings as backing for the scrip.7

According to Anthony Migchels, another proponent of demurrage and the Wörgl experiment, 2.5 million Schillings of trade was financed during the one year.11 This amounts to approximately 7,000 Schillings of trade per day. Instead of being held, or circulating, the scrip would have been exchanged for national currency. In a matter of days the national scrip held as backing in the bank would have been exhausted.

In my opinion, this is exactly the situation that would have transpired in Wörgl had the national government not put an end to the experiment. Depending on which estimate of taxes in arrears is used (given the discrepancy as pointed out above), within one month, but not more than six, all taxes in arrears would have been paid. At that point, I suspect demand for the scrip would have fallen, resulting in exchange for national currency, and resulting in a bank run.

Now, what if the experiment was allowed to continue until the local economy got its own legs, the pump being primed, if you will? I will suggest the time was up. The primary source of the miracle—collection of taxes in arrears—was dried up. If the pump wasn’t primed by the time the experiment was forcibly brought to an end, then it wasn’t going to happen (even if one grants that “pump-priming” is a valid economic concept). There were virtually no more taxes in arrears to collect.


When it comes to the market, and certainly the market for money, credit, and currency, I favor free-market and competing solutions, and am favorably disposed to decentralized solutions of almost any type. Through decentralization and competition, the best solutions are developed and selected, and individuals retain more control over their economic lives. For this reason, I have no criticisms of the localized actions taken at Wörgl.

However, the experiment is deserving of scrutiny and study. Wörgl was not a miracle, but an example of Keynesian spending given incentive by Gresham’s Law. It is certain that the miracle could not have continued much longer even if the national government did not shut it down. Virtually all of the money used to fund the parish’s projects came from one-time events, some not in any way attributable to the new scrip. Some factors at play were:

  • Taxes paid in arrears cannot be again paid in arrears. The outstanding balance owed to the parish was almost completely paid up in the first year.
  • Taxes paid in advance certainly have a natural life, but how many years will taxpayers continue to pay two years’ worth of future taxes? For how many years can they afford to do this?
  • The annual increase in normal tax receipts to an artificial boom cannot be sustained, witness the fiscal impacts of the dot-com bubble bursting or the subsequent real-estate bubble bursting.
  • The Tyrol government credit was a factor fully outside of any local “experiment.”
  • Defaulting on a portion of the loan certainly freed up resources, but is also not a sustainable method of financing.
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