This is included as an appendix in my book about creating sociologically healthy currencies. The images of these paper currencies can be seen in the file under my Academia.edu account. Here's the link: A Forgotten Chapter From Economic History
A Forgotten Chapter out of Economic History,
Schwanenkirchen, Wörgl and other “Freigeld” Experiments
Published in the Zeitschrift für Sozialökonomie, 57/58 issue, vol. 20. May 1983
By Werner Onken
English translation by Rick Lines
- 50 years ago: Self-help Initiatives to Overcome the Great Depression
There were once great hopes, fueled by the philosophies of the Enlightenment, that human life would be lived in freedom as the Middle Ages passed through the Industrial Revolution into Modernity. Modern Capitalism has, however, failed to realize those hopes. A multiplicity of social movements have accompanied the development of capitalism as if they were its very shadow. These movements have either attempted to reform the Capitalist system or to separate themselves from it completely, in order to bring the promises of the Enlightenment to fruition.
These social movements most often imagined changing the economic system as a whole through processes of reform or revolution. Because of the lack of any possibility of achieving systemic reform through Parliament, and also because of consistently disappointing results of political revolutions, there were also always various attempts to conduct social experiments on a smaller scale- to create small experimental communities as models. These were imagined to be the seeds of a better world that might be created from their examples.
Thus, the early socialist Robert Owen attempted to realize his own Utopian ideas in his model community by the name of “New Harmony”. Other initiatives to create common-property colonies were founded in France by Cabet and other early Communists. Without exception, all fell apart. Near the end of the 19th century the liberal socialist Franz Oppenheimer came up with the idea of the settler's fellowship that gave strong impetus to the Israeli Kibbutz movement. And, in the work of the free Socialists and of the culture philosopher Gustav Landauer, all of the previous currents from experimental economic and social forms flowed together to become a sort of amalgam, imagined as a federation of various autonomic economic communities merging with each other and trading with each other in fairness and respect.
During the time of the Great Depression, there was yet another form of such a social reform experiment that was actually a test of a new kind of money. Just as much as the more formulaic self-help initiatives of that period, this experiment was also specifically intended to overcome the Depression. Unlike its numerous predecessors, these new experiments achieved spectacular successes visible to all very shortly after their launches. These successes made a huge sensation in the international press. After running for short durations, however, they were all banned. World War II followed shortly thereafter, and through the war and post-war reconstruction these experiments fell almost completely into obscurity. In order to bring them into memory in the present and to thereby fill an old gap in the literature on economic history, their chronicle will now be recounted here, fifty years later.
- The Intellectual Background
Just as much as the numerous earlier economic experiments, the experiments that are the subject of this paper had their intellectual background as well. This background consisted of the theories of the merchant and economic writer Silvio Gesell. His central objective was also to correct the mal-development of classical liberalism into capitalism. Gesell wanted to overcome the concentration of wealth and means of production in the hands of the few as well as to overcome the susceptibility of markets to inflationary/deflationary crises and their associated unemployment. However, quite unlike the thinkers behind other social movements, he did not advocate the abolition of the market that had in many lands led to unexpected disasters, but rather advocated a non-capitalistic market economy. For the creation of this economy, he advocated a unique land reform idea and a reformed concept of money.
Gesell experienced an economic crisis firsthand while conducting business in Argentina, wherein he witnessed the destruction of the Argentine currency. In that experience he found confirmation of the old quantity theory of money, although the theory was not academically recognized at the time. According to the quantity theory of money there is a direct connection between the total amount of money issued and the average price level, in other words “the buying power” of money. If inflationary and deflationary fluctuations in money's buying power and also unemployment are to be avoided and a crisis-free economy is to be created, the quantity of money in circulation must continually be matched to the ever changing volumes of goods and services for sale.
Gesell refined the quantity theory of money further, in that he also wanted to ensure there would actually be circulation of the money that had been issued. He wanted to prevent the disruption of economic life that came from hoarding money with this scheme: at regular intervals the printed money bills would require fee-bearing stamps to be affixed to them. That meant that storing money over long periods of time would incur certain costs, just like the costs of storing physical goods.
These costs of holding money can be minimized by everyone when they pass the money promptly back into circulation- either in the form of expenditures on consumer goods or by way of depositing the money into a savings account in banks. Gesell expected that people under those circumstances would take care to hold money less than usual and thus refrain from hoarding the medium of exchange for their own market advantage. [Specifically, to gain leverage in negotiating with people producing real goods; normally the costs of storage force people trading real goods to sell their goods quickly while those trading money have the luxury of holding out for better deal, and even of earning interest while they delay to strengthen their bargaining position over those holding market wares -Translator's note] In the “fine” on hoarded money, he saw a kind of assurance or guarantee for a constant and frictionless circulation of the medium of exchange. That, precisely, is the deeper sense of his system of money that he dubbed “Freigeld” (free-money). This purpose, although, might surely be achieved by more technologically elegant methods today than that actually used in the experiments Gesell inspired.
The Tornquist bank reform passed during a severe economic crisis at the end of the 19th century was based partially on Gesell's recommendations, and it contributed to the economic recovery. An opportunity for a practical trial of his theory presented itself after his return to Europe. In Munich on April 7, 1919, the first Bavarian Soviet Republic came into being. At the recommendation of the Republic's president Ernst Niekisch as well as that of Gustav Landauer, Gesell was appointed to the “Office of Those Commissioned by the People” in the financial department. The Swiss doctor and mathematician Theophil Christen and Karl Polenske, Professor of legal rights in Greifswald, became Legal Council and Rights Counsel in the “Office of Those Commissioned by the People”.
After Gesell informed the German Reichsbank in Berlin of his plans, the bank's president Havenstein telegraphed Munich: “I warn you not to conduct experiments”. The confusion of a revolution put an abrupt end to any experimentation at any rate, since just a week after taking office the government of Nieksch was overthrown and dissolved by Levien and Levine. A few years later Havenstein went ahead with his own experiment in hyperinflation that Gesell himself had unsuccessfully warned Havenstein against.
- Chronology of the Practical Freigeld (Free-Money) Experiments
Gesell's monetary policy proposal for overcoming economic crises was hardly acknowledged by the economic academia in his day. Since there was no hope of finding any kind of parliamentary majority to support this recommendation and give it political clout, the followers of Gesell came to the decision to put these ideas directly into action on a small scale. Instead of trying fight for political power with campaign promises and party politics, they wanted to set up a practical example as proof of the correctness of this proposal. They hoped that the example from such a prototype would radiate outward with a strongly attractive charisma of its own. The public would be convinced of the need for a mechanism to assure a constant circulation of money by this prototype- rather than by endless discussions.
3.1) The Wära-Tauschgesellschaft (Wära Exchange Association) and the Local Economic Upswing in Schwanenkirchen.
With this purpose Hans Timm and Helmut Rödiger made preparations for the practical testing of a circulation-assured money in 1926. These preparations led to the founding of the Wära-Exchange Association in Erfurt in 1929- nearly at the same time as the beginning of the Great Depression. According to its articles of association, it understood itself to be a private “Association to combat market stagnation and unemployment. Its goal is the facilitation of trade of goods and services between its members through the issue of trade vouchers.” After two years more than one thousand businesses from all parts of the Weimar Republic belonged to the trade association. Among them were grocery stores, bakeries, dairies, restaurants, health-food stores, slaughter houses, flower shops, hair salons, handicraft shops, furniture dealers, electrical appliance dealers, bicycle shops, various skilled trade businesses, printing shops, book dealers and coal dealers.
All of these businesses displayed the sign, “Wära accepted here”. Wära was the name of the trade vouchers that the field office of the exchange association gave out through local currency exchange centers. It gave out Wära upon request and as needed in exchange for Reichsmark or for foreign currency or, along with receipt, for collateral.
These local currency exchange centers were found in Berlin, Bielefeld, Bonn, Chemnitz, Dortmund, Düsseldorf, Eisenach, Erfurt, Freiburg, Halle/Sud., Hamburg, Köln, Leipzig, and Nürnberg, among others. They gave out these Wära bills- again in exchange for Reichsmarks, foreign currency, or sufficient collateral as security- to businesses and individuals in the requested amounts in denominations of ½, 1, 2, and 5 Wära.
Wära circulated between these businesses and individuals as a medium of exchange in the place of Reichsmarks. The businesses paid (at least partially) wages and salaries in Wära and the individuals bought goods with those same Wära. Thus, a smaller and separate circulation of this replacement medium of exchange gradually developed in the German economy alongside the circulation of Reichsmarks that had been so disrupted by the stagnation of the Depression.
In line with Gesell's proposal, these Wära-notes were equipped with a circulation-impulse device in order to prevent their deflationary hoarding. Indeed, the bills were printed with twelve fields on the reverse side. A stamp had to be placed on one of these fields for each passing month of the year, and each stamp represented (and cost) one percent of the face value of the note. Thus, the members of the exchange association had to buy stamps worth one percent of whatever balance of Wära-bills they had on hand at the end of the month if they wanted to be sure that their means of payment retained its full face value for the next month.
The stamps represented a kind of “fine” levied against non-use of the Wära as a means of payment. This monthly “fine” could be avoided or at least minimized by the members if they spent the Wära to buy wares or if they chose to deposit their Wära as savings at the field office. These savings deposits then became credit to be loaned by the depositors to borrowers. Out of the members' efforts to (as much as possible) avoid paying the fine, all who participated enjoyed the advantageous steady circulation of the Wära.
Note: The individual notes were, within a certain specified grace period, replaced with new ones after the end of the year and all of the twelve fields had been properly stamped.
Front side: 1 WÄRA.
Exchange Association: Headquarters: Erfurt/Hochheim, President: Hans Timm, Erfurt/Hochheim. Branch Office Reinhard Rödiger, Berlin SO 36, Lausitzer Strasse 32. Without printed control seal invalid! Copying and counterfeiting are legally punishable!
Reverse side: Fields are stamped with 1/100 Wära stamps except for November and December. ONE WÄRA 1930.
In commercial circulation among the Office of the Exchange Association and its affiliated member organizations, who shall unfailingly accept this bill until Dec. 31, 1930; One Wära costs one Reichsmark. In order to remain fully valid, the appropriate field must be stamped with a 1/100 stamp by the date shown within it. From Dec. 20 1930 until Jan. 10 1931 this bill will be exchanged for new Wära, deductions for missing 1/100 stamps shall apply.
Exchange Association (Signatures)
Front side of the 1931 Wära note: 1 WÄRA
Exchange association: Headquarters: Erfurt/Hochheim. Director: Hans Timm, Erfurt/Hochheim. Place of business: Reinhard Rödiger, Berlin SO 26, Lausitzer Strasse 32. Without printed control seal not valid! Imitations and counterfeits are legally punishable!
Reverse side of the 1931 Wära note: The twelve fields are again present. Interestingly, the first six are stamped with a rubber stamp, July- October are stamped with paper adhesive 1 cent stamps.
One Wära = 100 Cents which costs one Reichsmark, if the exchange association has not named another price in accordance with its guidelines. Wära is accepted by all members as payment. The branch office and the currency exchange centers charge an exchange fee of 1% when they buy back Wära for Marks or other kinds of money. Because of this fee delivery can be assured. On the days indicated in the fields a loss in value of 1% takes effect if this loss has not been offset by the sticking of appropriate Cent stamps on the applicable fields. From Dec 20, 1931 until Jan 10, 1932 this Wära will be exchanged free of charge for 1932 Wära by the field office and the currency exchange centers, minus the value of any missing Cent stamps. After the 10th of Jan. 1932 this bill will no longer be accepted by the exchange association.
This first practical experiment with “Freigeld” caused an international sensation as the small circulation of the trans-regional Wära concentrated itself into a thick local knot at the end of 1930 in the tiny low-Bavarian village of Schwanenkirchen-by-Deggendorf of only 500 residents. In those days there was a brown coal mine in Schwanenkirchen. The mine had been owned and operated by the city of Deggendorf, and afterward by a joint-stock company. That enterprise (like so many of the German coal mines) suffered from slumping sales and its piles of coal grew ever larger. Meanwhile, English coal enjoyed competitive advantages on the world market. Because it lacked profitability, the mine was shut down in 1927. Since it was far and away the largest employer in the area, its closure caused the abrupt and thorough disruption of the entire local economy.
In autumn of 1930, as the world economy found itself in the middle of a great deflationary crisis, Schwanenkirchen and its neighboring communities of Hengersberg and Schöllnach found a spectacular way out of the crisis. In the time between the mine's closure and the beginning of the Depression, the mining engineer Max Hebecker had bought the Schwanenkirchen mine at auction. At first he lacked the necessary capital to bring the mine back into production, for no bank would extend him credit. After he turned to the Wära-Exchange Association, he was able to receive a loan of 50,000 Wära from them. Hebecker put the mine back into operation again with this money. Right away he employed sixty miners and added more shortly thereafter. The miners took ninety percent of their pay in Wära and the remaining ten percent was paid in Reichsmarks.
At first, the local shopkeepers were skeptical about taking this unusual money and refused to accept it as payment. However, as Hebecker began to take delivery of goods purchased with Wära from middle-German Exchange Association member businesses and to sell them for Wära in the company canteen, the local shops began to recognize that their fears had been costing them sales, and declared themselves ready to accept Wära.
While the masses of unemployed in other areas suffered greatly, the local economy in Schwanenkirchen, Hengersberg and Schöllnach was getting back on its feet. Right away people started to chatter about the “Wära-island in the Bavarian forest” (7), where unemployment had been banned and where the circulation-assured Wära-notes enabled the steady sales of wares.
The expectations of the founders of the Wära- Exchange Association seemed to be fulfilled in Schwanenkirchen. The idea of a circulation-assured money had proved itself to be fundamentally sound in its very first practical test within a small framework. Furthermore, the example of Schwanenkirchen was being watched by the German public.
The success of the Wära had also, however, also aroused the suspicion of the German Reichsbank. The bank must have feared that further spreading of the Wära would displace the official currency- the Reichsmark. Very conveniently for the interests of the Deutsche Reichsbank concerning the reputation of its currency, the Reichs-finance minister H. Dietrich (in the course of Chancellor Brüning's emergency decrees) forbade by decree the production, distribution, and use of any and every emergency money (scrip) in October 1931. Paragraph 1, section 3 of this decree specified that the Wära was henceforth legally defined to be scrip, and therefore also included in this ban.
Despite its promising beginnings, the Freigeld (Free-money) experiment of Schwanenkirchen was cut short at the end of 1931. Hebecker was forced to shut the mine down again and to lay off his workforce. The Wära “island” consisting of the three villages Schwanenkirchen, Hengersberg, and Schöllnach was flooded over with the waves of the Great Depression. It is especially macabre, in light of these effects of that ban by decree, that the decree itself was entitled : “Decree to Secure Business and Finance and to Fight Political Unrest”.
After this promising way out of the economic crisis (that had so proved itself in the small scale) had been blocked and the Brüning government had decreed there should be ever greater distress to business through its infamous emergency decrees, unemployment grew unabated. These decrees drove the desperate masses into the arms of the National Socialists, who could then lead them astray with empty promises.
While the Reich's government could indeed ban the Wära in Germany, they were powerless to quench the radiant influence that the Schwanenkirchen model had already achieved far beyond the Reich's borders. Like a glowing spark, the idea of creating an uninterrupted circulation of money jumped first to nearby Austria and from there to other lands.
3.2 The Distress-Aid Initiative of the Wörgl Community and its International Influence
While the Wära Exchange Association was a privately owned and operated self-help initiative operating as a trans-regional network, the market town of Wörgl in Tirol undertook a public self-help initiative on a public, communal basis. This was under the direction of its Social Democratic mayor, Michael Unterguggenberger. Unterguggenberger knew the theories of Gesell just as well as did Hebecker. He had heard of the Wära “island” in Schwanenkirchen from the press, and initiated correspondence with Max Hebecker.
In the market town of Wörgl of 4200 residents, the international crisis had caused around 400 people to become unemployed by early 1932. In the surrounding area there were a further 1,100 unemployed. Because of sales stagnation, the regional businesses had drastically cut back on production and laid off their employees. For example, a cellulose factory laid off 350 workers, a cement factory in nearby Kirchbichl laid off approximately 50 workers of its own. Similarly, layoffs at a sand-brick factory and at two sawmills had become necessary. And of the approximately 300 employed at the railroad station about 100 were laid off. (Wörgl was a crossing for the large train lines of: Innsbruck – Salzburg – Vienna und Triest – Ljubljana – Villach – Münich.)
Local economic life was thus to a significant extent brought to a standstill. Consequentially, the tax revenues of the community dwindled away rapidly- in the first half of 1932 they were only able to collect a mere 3,000 Shillings in tax!- and their financial situation took on catastrophic dimensions. The town's debt ran up to over 1.3 million Schillings; because of uncollectable taxes, paying the debt off was unthinkable, and they had to take on new debt just to make their interest payments.
In order to fight against the social distress, Mayor Unterguggenberger prepared a communal “distress-assistance program” in agreement with local citizens active in public affairs. The program's content: “Slow circulation of money is the main cause of this current economic laming... Every disruption of cash-flow causes a disruption of goods-flow and thus unemployment... In the community of Wörgl and its surrounding area, the sluggish and slowly-circulating money of the National Bank must be replaced by a circulating medium whose specific design as a medium of exchange shall perform better than the usual money. We shall distribute and put into circulation “Work Affirmation Notes” in three denominations of 1, 5, and 10 Schillings... In order to to revive the economic life of the community, shall also according to a... Plans for public works will be thereby carried out and paid for.”
At the meeting of the local welfare committee on July 5, 1932, Unterguggenberger put this program to a vote. It was supported by all parties and unanimously adopted. The implementation started with the welfare committee printing up a total value of 32,000 Schillings in “Work Affirmation Notes” and selling these to the town's treasury for a corresponding sum of Schillings. The “Work Affirmation Notes” [or “Work Recognition Notes” -translator's note] were printed with the stamp-style circulation-impulse scheme just like the German Wära notes. At the beginning of every month, whosoever should happen to be holding a quantity of these notes had to purchase stamps equaling one percent of their face value and affix them to the appropriate printed fields on the notes. The community treasury was directed to deposit all proceeds from stamp sales into a relief fund for the poor.
On July 31,1932, the town's treasury began its first issue of Work Affirmation Notes by paying the wages and salaries of public workers and staff. Taxes were paid promptly with these notes, which were then used by the town to continue paying wages as well as to pay debts owed by the town to its citizens.
As as the Work Affirmation Notes also came to be used to pay for market wares, there gradually arose in Wörgl an independent circulation of the communal replacement money alongside the Austrian national currency. Not only were the town treasury and the public wage and salary earners integrated into this circulation, but also the local Raiffeisen Savings and Loan as well as the local businessmen and tradespeople. Without exception, they were all willing to accept the Work Affirmation Notes as payment.
The effort to minimize the one percent “hoarding fine” payable every month guaranteed a much more reliable circulation of the Work Affirmation Notes as compared to that of the official national currency; the economy in Wörgl slowly began to recover. The financial situation of the town began to improve as well. Not only were back taxes and current taxes paid, but tax pre-payments were even made.
The mayor could execute the planned work-creation measures earlier than expected. In accordance with the plan of the Distress-Assistance Program, he used this tax income as well as some grants from the welfare fund and an emergency credit from the federal government in the amount of 12,000 Schillings- altogether a balance of over 100,000 Schillings- to carry out wide-reaching street renovations, maintenance work, extension of the canals, the construction of a new ski jump, and a street lighting system. The workers' wages were paid exclusively in Work-Affirmation Notes.
While nationally unemployment in Austria rose about ten percent from August 1932 to August 1933, unemployment in the area around the community of Wörgl fell by 25 percent. After this success within just a few months, it could hardly be avoided that the also practical Freigeld experiment of Wörgl cause both a national and international sensation, and that it make a lasting impression in the mind of the Public.
Wörgl became a regular “Economic Mecca”; political scientists and politicians and their delegations came from multiple lands in order to study this experiment in person and on location. In a speech before a congress of his Radical Socialists' Party in October 1934, the former French Prime Minister and multi-term minister E. Daladier recounted his impressions from his stay in Wörgl in the summer of 1933. The successful practical test of the theories of Gesell served to convince him that they offered a possibility of “economically taking up again the movement of 1789.”
Not only did Wörgl's Freigeld experiment arouse spectacular interest among the mass media, but very quickly also inspired imitation. Only five months after startup in Wörgl, the 3000 resident neighbor community of Kirchbichl issued Work Affirmation Notes into circulation in January 1933. Patterned after the Wörgl model, issuing these notes was achieved by paying the wages of workers hired to build a public swimming pool.
Soon thereafter the Wörgl Experiment made even wider ripples. In Tirol, the communities Hopfengarten, Brixen, and Westendorf with combined populations of 16,000 people joined in and issued their own Work Affirmation Notes. Preparations to issue this replacement money were being made in Liezen (Steiermark), Linz (Upper Austria), St. Pölten (Lower Austria) and Lilienfeld (south of Vienna) as well. Michael Unterguggenberger conducted a presentation before 170 Austrian mayors in June of 1933. They all had the intent to follow Wörgl's “guide to the economic salvation of Austria” and to introduce this Freigeld in their cities and communities.
The Freigeld experiment of Wörgl was thus apparently well on its way to spreading like wildfire. Out of the small Wära-spark from Schwanenkirchen, a veritable prairie fire would have raged in Austria had the Austrian National Bank- just like the Deutsche Reichsbank- not banned the issue of Work Affirmation Notes out of fear of their displacing the official national currency.
Article 122 of the Austrian Emergency Banking Law reserved the right to issue currency tokens exclusively to the Austrian National Bank. According to applicable law, the issue of Work Affirmation Notes constituted a violation against the privilege of the National Bank; such issue was thus in a sense unconstitutional. Paragraph 207 of the Tirol Gemeindeordung (provincial code regulating its towns and communities) mandated that officials at the district (county) level intervene against any towns/communities involved in such violations. On assignment from the office of the Austrian federal chancellor, the Tirol provincial government ordered the district commission of Kufstein to forbid the community of Wörgl from issuing its own money. The ban had already been enacted [before the time Kirchbichl had begun to issue its notes] on January 5, 1933.
Mayor Unterguggenberger immediately filed an appeal of this ban; the appeal was rejected by the Tirol provincial government in February 1933. Subsequently, theWörgl community council decided lodge an official complaint against the Tirol provincial government. This complaint passed through every authority up to the Supreme Administrative Court in Vienna. There, it was just as unsuccessful as the earlier appeal. On September 15, 1933, the Work Affirmation Notes had to be removed back out of circulation; two months later the Supreme Administrative Court in Vienna confirmed the ban against the “distress-assistance” of Wörgl finally, definitely, and conclusively.
The currency monopoly of the National Bank was thus more important to the Austrian government than the obvious success that the small market community of Wörgl had achieved against the Great Depression with its distress-assistance initiative. Naturally, the ban ruined the plans of the many other cities and communities to follow the example of Wörgl. A small but promising dam against the economic crisis was thus razed and the crisis could then continue freely in its course. The ever growing unemployment and the total disintegration of the State's finances plunged Austria into a domestic chaos. After the Christian-Socialist government, under Chancellor Dollfuss and (after his murder) his successor Chancellor Schuschnigg, had made a dubious attempt to unite that economically crumbling land under a nationalist front and to consolidate it via authoritarian politics, Austria fell victim five years later to the terror of National Socialism. Now Hitler could congratulate himself in Austria- an Austria supposedly unable to find its way out of chaos and crisis on its own strength- as the bringer of economic recovery.
Front side: The crest of the community of Wörgl, and then “Mitigates the distress, gives work and bread” (a rhyming couplet)
Distress-Assistance of Wörgl
Affirmed valuation of work
5 Schillings (five schillings)
Relief for the Poor of Market Community of Wörgl
Invalid without embossed stamp
1% in stamps is to be paid on the 1st of each month as distress-contribution fee
(above the 12 months) distress-contribution fee in sticky stamps.
January is stamped with a paper stamp that reads: distress-fee 5 Gröschen (Austrian pennies)
Reverse side: To everyone!
Slowly circulating money has plunged the world into an unheard of economic crisis and millions of productive people into unspeakable distress. -The end of the world (in a purely economic sense) has already found its terrible beginning. -It is time to rescue the downward- rolling economic machine through clear understanding and decisive action, so that humanity not be driven into fratricidal wars, confusion, and dissolution.
Humans live by exchanging their PRODUCTION. Slow circulation of money has, to great degree, inhibited the exchange of products and services and millions of capable persons have thereby already lost their means of living within the economic mechanism. - The exchange of production must therefore be revived and the means of living [literally “living space”] be won back for all those who have already been kicked out [of their “living space”]. The Work Affirmation Note of the Market Community of Wörgl serves the achievement of that end:
It mitigates the distress, gives work and bread!
3.3 ...in Switzerland
The locality of Triesen in the Principality of Liechtenstein formed another link in the chain of practical Freigeld experiments. An alternative currency patterned after the Wära notes in Schwanenkirchen and after Wörgl's Work Affirmation Notes found themselves in circulation here in the year 1932 as well. It was banned just like they had been.
The theories of Gesell also found a relatively large following in Switzerland, where the privately operated Wära-Interest Union (Wära-Interessen-Verband, W.I.V.)- comparable to the Wära Exchange Association- had already been founded by 1929. Its major founders were Fritz Engelhard, Hans Forrer, and Heinrich Nidecker.
The W.I.V. had gathered about 230 small and mid- size businesses in all-together about 50 cities and localities as members. These included legal practices, architectural firms, bakeries, book binderies and book dealers, electrical appliance dealers, bicycle shops, hair salons, graphic artists, grocery stores, photo shops, health-food shops, locksmiths, shoe repair shops, stationary shops and clock shops.
1 and 5 Wära notes were available to be used as tender. The headquarters were located in Zürich; at least one (and in some of these places, multiple) local exchange offices/kiosks were located in the Cantons Aargau, Basel and Baselland, Bern, Graubünden, St. Gallen, Solothurn, Schaffhausen, Thurgau, and Zürich.
Besides these private Wära initiatives in Switzerland, during the year 1932 there were also efforts to follow the model of Wörgl and to carry out publicly operated Freigeld experiments. The city of Biel, the locality of Brienz (north-east of Interlaken), and the retail trade association (chamber of commerce) of the Canton of Luzern were planning to help themselves out of the crisis with circulation-assured money.
Since the Wära had already been banned in Germany and the experiment in Wörgl was almost constantly threatened by a ban during its operation, it had to be reckoned that such self-help initiatives would be banned in Switzerland as well. According to Article 1 of the Central Bank Legislation the Swiss National Bank was granted the exclusive right to issue banknotes. In order to preempt a ban, the city administration of Biel, the community administration of Brienz and the retail trade association (chamber of commerce) of the Canton of Luzern attempted to meet with the official monetary authority in order to coordinate the preparations for their self-help initiative. With this purpose they petitioned the Swiss National Bank and the Swiss Finance Department.
Front side: 1 WÄRA
Reverse side: 1 WÄRA
OF THE WÄRA INTEREST UNION
In commerce with the field office that accepts this bill until the 15th of January 1932, one Wära costs one Swiss Franc. In order to be fully valid, the above fields must be pasted with a 1 cent stamp by the indicated date. From January 1-15 1932 this bill shall be exchanged for new via the Wära Interest Union, P.O. Box Basel 1, or at the local exchange centers who also carry cent stamps. The Wära Commission.
The reply from the Finance Department left itself open to at first be interpreted as a carefully formulated statement of willingness to cooperate: “After a preliminary consultation with the President of the Directorate of the National Bank, it would not be out of the question that our institute would be ready, under certain stipulations, to allow a trial of the planned monies.” However, shortly thereafter the National Bank revised its disposition toward the practical implementation of Freigeld experiments in Switzerland. It summarily dismissed a second petition from Biel, Brienz and Luzern and advised the petitioners curtly that disregarding its exclusive privilege to issue banknotes would be punished by a fine of not less than 5000 Francs or imprisonment. Thereby were the fates of the Wära Interest Union as well as the public Freigeld experiments in Switzerland sealed.
After this message from the Swiss National Bank, the preparations for the issue of the alternative currency were abandoned. And in order to curtail even the prospect of reviving any thought of introducing local Freigeld, the Swiss Office of the Attorney General prevented a lecture tour Mayor Unterguggenberger had planned to conduct through the Cantons of Zürich, Schaffhausen and Thurgau at the beginning of September 1933 by not only ordering him not to speak, but actually prohibiting him from even so much as traveling in Switzerland.
3.4) ...in France
The economic self-help initiative in France already had the benefit of a famous predecessor. Around the middle of the 19th century Pierre Joseph Proudhon had founded an exchange bank. The bank was intended to put workers in a position of independence from concentrated capital and state force and at the same time help them with interest-free credit. After just a few weeks the exchange bank had roughly 20,000 members; it was closed, however, because Proudhon was sentenced to three years in prison for having attacked President Louis Bonaparte in the newspapers.
In the light of the intellectual kinship between the ideas of Gesell and Proudhon, it is not surprising that Gesell's theories could find a foothold in France. Their dissemination was spearheaded by Jean Barral, who produced three magazines in Nizza. They were oriented primarily toward the building of intellectual bridges between Proudhon and Gesell.
Barral was also making preparations to found a private exchange association in France patterned after the German Wära exchange association. These efforts received a substantial boost when the large Parisian magazine “Illustration” made an in-depth report about the experiment in Wörgl in September 1933.
Thereupon, the magazine “L'Action Nouvelle” published a series of articles about the Wörgl distress-help initiative and advocated a practical experiment with circulation-assured money in France as well.
During the same year a private exchange association named “Mutuelle national d'échange” was founded in Paris. It was the umbrella organization of all of its members; since most of them were located in the Seine-Departement as well as in the cities of Cannes, Antibes, Nizza, Menton and in Monte Carlo in the Principality of Monaco, they created organizational subdivisions with names such as “Mutuelle d'échange de Nice et des Alpes-Maritimes” and “Mutuele d'échange de Paris et de la Seine”. According to its by-laws, this exchange association expressed its purpose to be the facilitation of commerce among its membership via its own medium of exchange. This medium of exchange bore the name “Valor”; the individual bills were to be stamped each month with demurrage fee stamps just as the Wära and the Work Affirmation Notes had been, so that whosoever found themselves to be in their possession would be motivated to spend them quickly back into circulation.
front side: National Mutual of Exchange
Front side: This note of exchange gives the right of 10 VALORS in merchandise among the members of the Mutual (Co-Operative).
Signatures. Text at bottom is unfortunately illegible to me in this facsimile.
Reverse side: Vertical text on side mostly illegible to me. I can see that it mentions the stamps (timbres) and dates and that the stamps can be purchased from the Seat (headquarters) of the “Social” and from participating members. Text in center: The members of the Mutual may exchange at all times at the member's Treasury, against francs and foreign currency, in compliance with the internal regulations, every note having its counterpart in francs saved at the Treasury of the Mutual.
Before the whole initiative had much chance to expand to broader circles, it was- quite possibly out of deference to the wishes of the French National Bank- quickly banned on July 31, 1935 by the Minister of the Interior. By his decree were several members of the exchange association brought before the director of the national state police in Nizza and there received the order to cease and desist any and all such initiatives and to withdraw the Valor notes from circulation.
Besides all this, Barral had taken pains to implement a public, communal Freigeld experiment based on the model of Wörgl with support from the president of the chamber of commerce of the Principality of Monaco and from M. Soriano, member of the Consultative Chamber of the Principality and to integrate it into the privately operated “Mutuelle national d'échange”. The planning and preparation discussions with the mayor of Monte Carlo and the agents of Monte Carlo's financial administration terminated in June 1935 after dragging on for over a year and producing no results. On August 27, 1935, the officials of the principality also finally banned the use of Valors to exchange wares between private business people.
3.5 ...in Spain
The radiant attractiveness of the ideas of the practical Freigeld experiments reached even into Spain. They took the form of a communal self-help initiative (based on the Wörgl model) in the coastal city of Puerto de la Selva in the north-east of the country. However, nothing is known about its founders, the course of its run, or how this experiment ended.
3.6 ...and in the United States of America
Last but not least, the successes of Schwanenkirchen and Wörgl also caused a sensation in the USA. Here as well they found recognition through a prestigious academic exponent of the economic sciences. The internationally esteemed monetary theoretician Professor Irving Fisher, whose academic works were entirely dedicated to solving the problems of stabilizing “buying power”, appreciated Gesell's conception of a circulation-assured money as “Brilliant thinking... The plan would serve as a means of breaking the Depression, of ending the hoarding of money and of putting the 'Re-Deflation' into motion.”
Fisher undertook numerous efforts to bring about wider recognition of this “brilliant thinking” in America. In one of several hundred articles published in American newspapers he praised the assurance of the circulation of money as a “measure, that when correctly applied, would likely bring us out of the Depression in just a few weeks.” His efforts promptly produced results. Already on January 20, 1933, Fisher's assistant Hans Cohrssen could report in a broadcast (that was also re-broadcast on February 17, 1933 by multiple German broadcasting stations under the title “Worüber man in Amerika spricht” - What People are Talking About in America -) that numerous American cities and towns had begun issuing the so-called “stamp scrip”.
These cities and towns hired the unemployed for the carrying out of public works and paid the workers with stamp scrip. They ensured that the workers could pay their city taxes with it; the local businessmen and banks also declared their readiness to accept this new money. Cohrssen reported that even more places wanted to be served by this scrip; it also became clear that deliberations were being made to introduce the stamp scrip in larger regions as well.
In America, however, the Freigeld was not implemented correctly. A fatal error was made by setting the hoarding fine much too high. While the Wära and the Work Affirmation Notes of Schwanenkirchen and Wörgl were to be stamped with only one percent of their face value monthly, the American stamp scrip bills had to be stamped with 2% of their face value every week. The hoarding of a balance of, for example, 1,000 dollars for a duration of one-half year was therefore fined with a fee in the absurdly high amount of 520 dollars.
Therewith was the original sense and purpose of this fine lost. The concept was intended to set money on equal footing against real goods. Since the warehousing of goods inevitably incurred costs, Gesell wanted the “warehousing” of money to be burdened with roughly equal costs in order to make the hoarding of money unprofitable and thus through this indirect means avoid money-caused disruptions of commerce.
In the American stamp scrip experiments, the old advantage of money over wares was replaced by a new advantage of wares over money. The circulation-incentive was so great that the bills actually would have had to circulate faster than the wares to be sold could be produced. Since the setting of the hoarding fine shot well beyond the mark, no crisis-resilient scrip-island with steady local market exchange could materialize. The cities and towns involved, rather, received only a supplementary source of income from the sale of stamps, which was not at all in line with Freigeld's intended purpose.
Corresponding to their concept of the stamp scrip as a strictly short-term means to overcome the Depression crisis, the experiments were set up to be terminated at the end of one year. After the year had elapsed, all bills possessing the specified number of stamps (52) were- as planned- turned in to be exchanged for official American dollars.
Because of the flawed management of the stamp scrip the involved cities and communities could achieve no success comparable to that of Schwanenkirchen and Wörgl. As a consequence, the very idea of using such self-help initiatives lost the power to attract people to it. Its run came ultimately to its final end when the American president Roosevelt succeeded in bringing about a tentative economic recovery with extensive state interventions in the economy in the framework of the New Deal. Under these circumstances, even Fisher's troubles taken to introduce a correctly implemented Freigeld no longer had any prospect of succeeding. -
As a second prestigious exponent of the academic economic sciences just a few years after Fisher, the English professor John Maynard Keynes praised the political-monetary propositions of Gesell as a means to overcome the Depression. By his opinion was “the concept behind the stamped money... sound.” Despite its recognition by Keynes this idea was not investigated further in England. No practical Freigeld experiments were undertaken in England as in other lands.
3.7 Late followers in France and Brazil
Under completely different external conditions- in the meantime inflation had taken the place of deflation- the plan for a self-help initiative for the revitalization of a local economy reappeared during the second half of the 1950's. Indeed, it appeared in the French towns of Lignières-en-Berry and Marans as well as in the large Brazilian city of Porto Alegre.
Lignières-en-Berry lies in the vicinity of St. Amand in the Departement of Cher. As a result of the migration of people and economic activity to areas of metropolitan concentration, its population had dwindled by half to around 1,700; the flight from the countryside caused this locality- just like so many other rural areas- to slide into desolation.
In order to encourage local trade, in early 1956 a “Union of the Business People and Tradesmen of Lignières-en-Berry” and then in connection with it a “Free Community of Lignières-en-Berry” were founded by the initiative of the town's Mayor Tournadre and G. Lardeaus. With such “free communities”, French communes could create regions with a certain degree of autonomous sovereignty that were not internally regulated by state (national) laws.
In this way, Lignières-en-Berry enjoyed some breathing space wherein it could determine the form and framework of its local economic life. In order to revive local trade, the “Free Community” gave out purchasing vouchers through the merchants and tradespeople belonging to the “Union” who then distributed them to their customers free of charge. These coupons were financed out of the fees that the “Union” took in from its members. The designation “Francs” was avoided so as to not provoke any conflict with the French National Bank; instead the coupons/vouchers were dubbed 'bon d'achat'.
Since the customers saved the vouchers rather than actually buying anything with them, the entire initiative was a complete flop at the beginning. The turning point came when M. Soriano from Monte Carlo (who had participated in the “Mutuelle national d'èchange” back in the 1930's) heard of the initiative through the press and put himself in contact with Tournadre and Lardeau. He compared non-circulating Francs or bons d'achat with fully loaded railroad freight cars that had been pushed onto a rail spur where their goods then proceed to rot. Just as the railroad might impose a kind of penalty fee on idle rail cars, so must also the idling of money be penalized and thereby create an indirect impulse to induce a circulation of money. That way market wares would be nimbly transported from hand to hand.
Thereupon was the regulation made, by which the bons d'achat had to be stamped by the 10th of each month with stamps to cover 1% of their face values. Whoever therefore used these coupons for the purchase of goods before these fee days, could, to his own advantage, avoid purchasing the stamps. This measure did in fact lead to a certain observable upturn of the local economy. Disturbances in this local money circulation still arose, however, when on the on the 9th of the month people came to the community administration (due to a lack of understanding of the initiative) and preferred to pay a two-percent fee to exchange their bons d'achat for French Francs in order to avoid buying the 1% stamps.
The regulations of the initiative were changed once again in April of 1957, in order to make it more attractive. Wage earners who were willing to exchange their wages paid in French Francs for bons d'achat, and to use them as their medium of exchange, were to receive from that moment onward a 5% premium above the value of their wages at the exchange. This premium was financed by the Free Community out of the proceeds from their monthly sales of stamps. This “salaires + 5% Aktion” of the Free Community of Lignières-en-Berry aroused a considerable sensation throughout France. It inspired other cities to consider following this example.
In April of 1958 – that is to say two years after the start of the experiment in Lignières-en-Berry – a “Union of Businesspeople, Tradespeople and Wage earners of the City of Maran” as well as a “Free Community of Maran” were founded in the small city of Maran. This city lies to the north of Bordeaux not far from the popular bathing spa of La Rochelle and had at that time around 3,500 citizens. More than eighty of the 120 local shopkeepers had already become members of the “Union...” by the time the Free Community of Maran issued the first bons d'achat in August 1958. Out of the “salaires + 5% Aktion” of Lignières-en-Berry became a “salaires + 10% Aktion” in Marans.
The constitution (by-laws) of the “Union of Businesspeople, Tradespeople and Wage earners of the City of Maran” paralleled extensively that of Lignières-en-Berry. Only in one – but actually utterly vital – point did it deviate. Indeed, the Union in Marans differentiated between two classes of its members. In one class belonged the merchants and the tradespeople; they had to pay a one-time membership fee upon entry into the Union and and annual fee thereafter and furthermore were required to stamp the bons d'achat on hand at the 10th of the month with a 1% stamp. To the second class belonged the farmers, workers, hired hands, retirees and welfare recipients. They were required to pay neither the membership fee nor the annual fee, and could get their bons d'achat stamped on the due dates for free from the Free Community.
Thereby was the failure of the experiment of Marans virtually predestined. The circulation impulse of the bons d'achat was by no means sufficient. The merchants and tradespeople must have also felt disadvantaged compared to the wage earners and other members of the Union. They soon began to decline the bons d'achat as a means of payment and gave up their wares only for French francs. After one year the Free Community of Maran discontinued all activity. -
In the meanwhile the self-help initiative of the Free Community of Lignières-en-Berry was still operational. However, after some members there had been already been detained by the police, General de Gaulle issued a legal decree that had essentially the same effect as an outright ban. It threatened that the issue and use of means of payment that either supplemented or replaced legal tender would be punished with jail time from one to five years or alternatively with fines ranging from 200,000 up to 20 million Francs. -
Front side: FREE COMMUNE OF LIGNIÈRES-EN-BERRY
Association of Commerce People and Artisans of LIGNIÈRES
“For the bold heart, nothing is impossible”
100 Bon d'Achat (coupon/voucher for purchase)
in merchandise or services
House of the Members of the Free Commune
the Principal Treasurer, the Mayor of the Free Commune
This coupon cannot circulate unless regularly stamped. The dates on corresponding to the stamps are indicated on the reverse.
Every counterfeiting may be pursued according to law just as falsifying any private or commercial security – Penal code 147, 150, 425
Reverse side: FREE COMMUNE OF LIGNIÈRES-EN-BERRY
(vertical, left end) The Money is too difficult to win (earn) - It needs to not be wasted. (right end) Use the Bons d'achat – save the money of the State (both vertical scripts are rhyming couplets)
Every voucher provided with its twelve stamps is exchanged for another new voucher at Siège social, Grand Rue, à LIGNIÈRES (Cher), within a grace period of 30 days. After the grace period, the voucher is expired.
(In the stamp fields: Savings Stamp of the CLLB 1 franc)
This voucher may be reimbursed on sight at Siège social (social headquarters/seat) for a discount of 2 per cent
Vouchers and stamps are available to the members of the Free Commune, at the Siège social, and at the places of business of the adherents
The benefit of the savings stamp is dedicated for mutual assistance and for the elderly
The French Businessman by the name of Rosier operating in Brazil brought information about the Free Community of Lignières-en-Berry to Porto Alegre in the summer of 1958. Porto Alegre is the capital city of the federal state of Rio Grande do Sul in southern Brazil. The city doubled its population during just the 1950's from 300,000 to 600,000.
In light of the extreme crisis in which the Brazillian economy found itself, Rosier came to the decision to call an economic self-help initiative into being as well. Thus appeared in October the Orecopa (Organizacao Economica Portoalegrense). The plan to issue circulation-assured purchasing coupons- so -called 'cautelas de compra'- found not only the wide-spread support of shopkeepers, but also from politicians, the State Chamber of Commerce and even the Finance Minister of Rio Grande do Sul.
Rosier also made the attempt to convince the State Bank of Rio Grande do Sul to issue the cautelas de compra alongside the official Brazillian Cruzeiros. After three months the State Bank signaled: “We are ready to issue the cautelas de compra... But... we need the permission of the Sumoc, the officials in charge of all questions of money and matters of banking.”
However, the Orecopa never received word from this regulating authority over the Brazillian money and credit institutions. Since advertisements about the planned “salaires + 10% initiative” had already been run in the mass media, Rosier and the rest of the administration of the Orecopa didn't want to further delay the beginning of their program. In November 1959 they began with the issue of the cautelas de compra, after they had succeeded in negotiating a contract with the branch office of Sao Joao of the State Bank of Rio Grande do Sul to work together to facilitate the exchange and redemption of the cautelas de compra.
Since the cautelas de compra in Porto Alegre naturally weren't the single valid means of payment, and since the membership-owned venture of the Orecopa was enmeshed in complex ways with the rest of the economy, it was not possible for an independent and self-contained circulation of the cautelas de compra to arise. Bottlenecks in their circulation materialized, especially in the retail food sector. In order to combat these difficulties, Rosier opened a large supermarket in the north of Porto Alegre in June 1960- wherein all wholesale purchases and sales to customers were to be conducted with cautelas de compra. No further information is available concerning the progress of this experiment, however.
- The Meaning of Economic Experiments for the Present and the Future
In the meantime the array of practical Freigeld experiments -in which Schwanenkirchen and Wörgl were doubtless the high points- ended up nearly completely in obscurity and were forgotten. Veit alone has mentioned them once again and only just in passing in his “Grundriß der Wärungspolitik” (Outline of Currency Politics).
These experiments have, however, not only the kind of value a collector might appreciate in having a complete body of economic historical writing. Remembering them should not merely serve to fill an old gap in recorded economic history. Out of yet other grounds it seems justified to belatedly write down this forgotten chapter of economic history and thereby preserve this knowledge of earlier experimental self-help initiatives for the present and the future. Namely, there is absolutely no guarantee that our present-day already chronic stagflation crisis in the economy won't take on even greater dimensions. At the very latest, during that moment when the social safety net can no longer absorb the negative consequences of the crisis upon people's way of life, the memory of the practical Freigeld experiments of the 1930's could be thoroughly useful in two respects.
First, should people become even harder hit by the current crisis, privately initiated economic self-help initiatives could arise in the ways described here or in other forms. Thus have, for example, the “Self Help Network” in Berlin and the various kinds of self-help groups and self-help initiatives for the unemployed arisen in recent years. Indeed, these have been consolidated into a nation-wide workers' collective with its seat in Gießen, which held a large convention in December of last year in Frankfurt. Secondly, the unavoidable question of which means are truly and actually effective in combating unemployment and constraining wild fluctuations in the spending power of money presents itself to economic politics in such situations, as well as the question of in which manner such means ought to be implemented.
Even when the theoretical proposals of Gesell that were tested in Schwanenkirchen and Wörgl are employed once again in such self-help initiatives, and once again prove themselves useful, it would be utterly inappropriate to extol them to the economic-politicians as a patent recipe as was done by the reporting of the press in its day. The successes achieved in the small scale of the experiments are obviously no adequate proof of the absolute correctness of these proposals and their feasibility in the large framework of an entire national economy.
The experiments conducted on such a small scale also have only limited value as testimony because they only ever permitted a portion of the theories of Gesell to be put into action. Not only did they lack an attempt to include the land reform concept he had promoted, but also an attempt to stabilize the purchasing power of the circulation-assured Wära/Work Affirmation Notes would not have been possible to carry out due to the lack of tracking of any local price statistics and also because of the simultaneous presence of the official currency.
With a pessimistic evaluation of these events, the concern might arise that because of the limited scope of the Freigeld experiments, unintended negative effects resulting from the theories of Gesell lurked hidden from view. On the other hand, with an optimistic assessment, it might be inferred that the successes of those experiments only were only a tiny sample of the stable and fully employed economy that might be brought into existence on a large scale through the implementation of these theories. The readiness of so many cities, towns, and communities to imitate these experiments at the very least speaks for the correctness of their basic principles. If they had been false, they would have very quickly crashed during their first practical trials. A failure would have presumably lead to an abrupt abandonment of the ideas all on its own, without it ever coming to a ban in multiple countries.
It would thus be thoroughly worth considering to once again test the proposals of Gesell in a controlled experiment, in order to prove their effectiveness. That same statement applies to other proposals, for the economic-politicians responsible for them can in no way claim to possess certainty beforehand that a planned political-economic measure will definitely prove itself to be correct after its implementation. Every measure being considered should therefore be tested in a small controlled experiment before its full implementation on the macro scale.
In order to raise the epistemological value of such experimentation, it would doubtless be necessary to choose a rather larger region as a laboratory as compared to Schwanenkirchen or Wörgl. Such a model region would have to at least the boast size of a German administrative district [roughly several American counties put together -translator's note] and after a successful run would have to have expanded even larger. This would be necessary so that – at least in the case of a new Freigeld experiment- not only the institutional requirements for the securing of an uninterrupted circulation of money could be created, but also so that the institutional requirements for the stabilization of the purchasing power of this money might be created as well. For such an experiment in a regional-size test group it would be admittedly unworkable to charge the idle-money fee by means of sticking stamps onto paper money notes. In place of this obsolete method it would be possible to use the more technically elegant method of serial-numbered money. Besides all that, the circulation-assured money to be tested would have to be the single exclusive means of payment in the region for the duration of the controlled experiment. Within the region, the official national currency would have the status of a foreign currency, whose price would be determined by the rules of the conventional free market of currency exchange.
That being said, it cannot be expected that all residents of a prospective model region would muster up the necessary understanding of the new political-economic idea to be tested and – like in Wörgl – give their unanimous agreement to its introduction at a particular given time. Their willingness could be encouraged by public authorities setting aside a certain balance of money as a kind of insurance fund in order to somewhat reimburse the residents in the case of failure of the experiment, or to entice their willingness with a premium to be paid out in case of the experiment's success. This balance could come from the means otherwise employed by the public treasury to pay for state-sponsored make-work programs that thus far have produced dubious results. Such a means to dismantle fears of new ideas and to mitigate risk corresponds well, by the way, with the so-called “venture capital finance” that the public sector already has been practicing now for quite some time.