Options for Rebuilding the Economy and the Financial System by Shann Turnbull. International Institute for Self-Governance; Sustainable Money Working GroupMay 3, 2009 Abstract: This paper outlines four non-exclusive options for reforming the financial system.
Three options are based on the re-introduction of cost carrying money supported by Gesell (1916), Fisher (1933) and Keynes (1936), but in electronic form. One variant is a government issue redeemable into official money as proposed by the US Bankhead-Pettengill Bill of 1933. A second option is to allow private issues redeemable into official money as occurred during the Great Depression in countries that included Germany, Austria and the US. Number of Pages in PDF File: 25 Keywords: Central Banking, Financial system, Financialization, Free Banking, Free-Money, Neutral money, Seignorage, Stamped Scrip, Supplementary currencies. Bionic mosquito: The Wörgl Experiment. Information from the following sources: The first article, written in 2002, is a summary of the other three – all three written contemporaneously in 1934.
The first and third of the older articles are quite instructive (the third being penned by the Wörgl mayor himself). I will begin by reminding that I am all for competitive currency and money schemes derived in the free market. I can even accept decentralized schemes that come with some form of community backing – I would strongly prefer no state action, but can also accept multiple and competing small state options. So Wörgl presents no significant philosophical hurdle for me.
About 32,000 shillings of notes were printed, but only 12,000 were ever placed in circulation. The demurrage was 1% per month. Bionic mosquito: The Miracle of Wörgl. 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 Background. Bionic mosquito: More on Wörgl: The Velocity of Money. Memehunter raises an important question in the comments of my last post regarding Wörgl.
From memehunter: This is a well-researched effort. I must note, however, that you apparently neglected to address the effect of demurrage on the velocity of the circulation of money. Couldn't the increased velocity be the main reason, or at least an important factor, behind Wörgl's relative prosperity?
And, if that is the case, why wouldn't it be "sustainable"? Memehunter then pointed me to an article on this point, from Anthony Migchels. Bionic mosquito: Summer’s Faith. Summer With his reply, Migchels only proved the point that the experiment was doomed to fail.
Can you figure out why, without asking him? Don’t worry, I will give you the answer at the end of this post; but first let’s address a couple of other points he raised: AM: Well, it was far from impressive, was it not? It's really strange to write two articles on Worgl and not notice that velocity was the key issue. BM: I listed several specific reasons why the experiment was nothing more than a government forced boom and Gresham’s law at work – I wrote over 6000 words and listed almost 20 sources. As to the velocity issue, I addressed it in a subsequent post in reply to memehunter.
AM: But this is a very difficult concept to grasp for those infested with Austrianism, which is only concerned with the sacred rights of those holding money. BM: it is easier to attach labels (especially when one has no understanding of the term) than deal in facts. BM: Get it? BM: There you have it. Bionic mosquito: Anthony Migchels Replies. Anthony Migchels was gracious enough to comment in two of the posts on this subject – here and here.
As I did with memehunter, I will reply via a new post, as the discussion merits this treatment. I'm saying that when all backward payments (most certainly not just taxes) are settled, the money supply (of certificates) needed is smaller and thus certificates can be converted back. This is why I claim the experiment is bound to end – even without the national bank intervention. The Wörgl Experiment: Austria (1932-1933) In 1932, in the midst of the Great Depression, the small town of Wörgl in Austria successfully experimented with its own local currency (in the form of a stamp scrip).
Based on the thinking of Silvio Gesell, an early 20th-century economist, and designed to stimulate the local economy, the new currency helped put the population back to work, and inspired many other communities to want to follow its example, until the experiment was abruptly terminated by Austria’s Central Bank in 1933. The following is the story of the “miracle of Wörgl” as told in The Future of Money (pp. 153-155). One of the best-known applications of the stamp scrip idea was applied in the small town of Wörgl in Austria in 1932 and 1933. When Michael Unterguggenberger (1884-1936) was elected mayor of Wörgl, the city had 500 jobless people and another 1,000 in the immediate vicinity. Furthermore, 200 families were absolutely penniless.
Michael Unterguggenberge … does it sound familiar? The Power of Demurrage: the Wörgl Phenomenon « Real Currencies. (left: Michael Unterguggenberger, the man who ended the Great Depression in Wörgl) The velocity of money is a badly neglected aspect of monetary theory.
It is far more important than people realize and both in past and in the present depression, sluggish circulation played a major and negative role. The most obvious way of increasing the velocity of money is Silvio Gesell’s demurrage, a negative interest rate, in effect a tax on holding money. This is not just theory. There is a famous case in which it was implemented. Wörgl is a small town in the Austrian Tyrol that would be completely inconspicuous, were it not for an amazing event that transpired almost 80 years ago. At the height of the Great Depression some 4500 people lived in the village.
The town owed 1,3 million Schillings to the Innsbruck Savings Trust and had to pay 50,000 per year in interest over that debt. Meanwhile, there were plenty of public works that needed to be done. (One of Unterguggenberger’s certificates. Miscellaneous-sonstiges: Monetary Reform - it will HAVE TO come. Local currency systems can operate within small communities, outside of government systems, and use specially printed notes or tokens called scrips for exchange.
Barter takes this further by swapping goods and services directly; a compromise being the Local Exchange Trading Systems (LETS) scheme: a formalised system of Community-based economics that records members’ mutual credit in a central location. In 1891 Silvio Gesell (1862-1930) a German-born entrepreneur living in Buenos Aires published a short booklet entitled Die Reformation im Münzwesen als Brücke zum sozialen Staat (Currency Reform as a Bridge to the Social State), the first of a series of pamphlets presenting a critical examination of the monetary system. It laid the foundation for an extensive body of writing inquiring into the causes of social problems and suggesting practical reform measures. He attributed this market-dominating power to two fundamental characteristics of conventional money: John Maynard Keynes.