In the middle of the Great Depression, when economies around the world were collapsing into unemployment and despair, one small Austrian town, part of what became known as the Wörgl experiment, appeared to perform a miracle. This innovative monetary reform, often referred to as the Wörgl experiment, showcased effective solutions during a crisis.

The town was Wörgl.

The year was 1932.

Factories were idle. Businesses were failing. Across Europe, workers were desperate for jobs, and communities were desperate for repairs — yet almost no money circulated. It was one of the great paradoxes of economic collapse: plenty of real wealth and real labour existed, but the financial system had seized up.

Then Wörgl tried something radically different. Instead of waiting for more national currency to arrive, the town created its own money. And for a brief 14-month period, it worked astonishingly well.

The Depression Nobody Could Solve

Understanding the Wörgl experiment is crucial for anyone studying economic history.

The Wörgl experiment demonstrated how local currency could revitalize an economy in times of crisis, showcasing innovative solutions during a period of widespread economic distress.

Austria in the early 1930s was in deep crisis. Banks had failed, credit had dried up, and unemployment was soaring. Like many governments at the time, authorities responded with austerity — cutting public spending precisely when ordinary people needed work most.

Wörgl was typical of the crisis. Out of 4,300 inhabitants, around 350 were unemployed, with a further 1,500 in the surrounding areas also out of work. Tax collection had stalled. Roads were crumbling. The town carried significant debt and could not fund even basic infrastructure, such as asphalt on its main street.

Its mayor, Michael Unterguggenberger, believed the problem was not a lack of skills or resources. The problem was a shortage of circulating money.

So he turned to the ideas of the German-Argentine economist Silvio Gesell, who argued that ordinary money behaves badly because people hoard it. If everyone saves simultaneously, businesses fail, workers lose jobs, and the economy spirals downward. Gesell proposed a radical fix: money should lose value if people held onto it too long — a charge for hoarding.

Most economists considered the idea eccentric. But Irving Fisher praised it, and John Maynard Keynes called Gesell a "strange, unduly neglected prophet," stating the future would learn more from Gesell than from Marx.

Wörgl decided to test it.

"Only money that goes out of date like a newspaper, rots like potatoes, rusts like iron, evaporates like ether, is capable of standing the test as an instrument for the exchange of potatoes, newspapers, iron and ether."

— Silvio Gesell, The Natural Economic Order

What Is Demurrage? Understanding the Key Concept

Before examining the experiment itself, it helps to understand what "demurrage" actually means in this context. It is a holding cost — a fee applied to money simply for keeping it rather than spending or lending it.

Different thinkers have preferred different ways of framing the concept:

Margrit Kennedy preferred the term circulation incentive rather than "penalty for hoarding" — emphasising what the system encourages rather than what it discourages.

Charles Eisenstein, in his book Sacred Economics, preferred decaying money, arguing that we should reclaim the word "decay" as a natural process. Because money is used to buy goods that decay, it should decay too.

The Birth of the Wörgl Schilling

In July 1932, the town issued what became known as the Wörgl Schilling — technically called "labour certificates." The notes were backed by 20,000 ordinary Austrian schillings deposited in a local bank, so they were not completely detached from the national currency.

Workers were paid half their wages in the form of Work Certificates. Notes were issued in 1-, 5-, and 10-schilling denominations, each with 12 spaces on the back.

The notes contained one revolutionary feature: every month, the holder had to buy a stamp equal to 1 per cent of the note's value and stick it on the back to keep it valid. In effect, the money carried a holding cost.

This demurrage charge transformed behaviour almost immediately. Nobody wanted to sit on the notes for long. People spent them quickly. Shopkeepers paid suppliers. Suppliers paid workers. Citizens paid taxes early. The currency circulated rapidly through the local economy — and because it moved so quickly, each note generated far more economic activity than ordinary money sitting idle in bank accounts.

The velocity was so high that inflation briefly appeared. In response, the town recalled some Work Certificates, managing successfully with just 12,000 in circulation.

A Town Comes Back to Life: The Results

The effects were dramatic. The mayor estimated total expenditure at around 100,000 schillings. Public works completed with that funding included:

Newspapers began calling it "The Miracle of Wörgl." The mayor remarked that the town was beginning to look prosperous while much of Austria remained trapped in depression.

Whether it was truly a miracle is still debated. Some economists argue that the recovery was exaggerated. Others note it was small and short-lived. But even critics generally acknowledge one thing: the local currency significantly increased the velocity of circulation. Money moved. And when money moves, economies move.

Why Central Banks Became Nervous

The experiment's success also created alarm. More than 200 Austrian communities reportedly expressed interest in copying the model. Suddenly, central authorities faced the possibility that municipalities might begin issuing their own functioning currencies.

For the Austrian National Bank, this was intolerable. Modern states guard monetary sovereignty fiercely — the power to issue currency is one of the foundations of political authority.

If local governments could create effective alternative currencies during recessions, what did that imply about the national banking system?

In 1933, the Austrian courts sided with the central bank and banned the Wörgl currency. The experiment ended. Shortly afterwards, unemployment in the town rose again.

Modern Descendants: The Chiemgauer and Beyond

Nearly a century later, Wörgl still fascinates monetary reformers, localists, and critics of modern finance.

Modern local currencies such as the Chiemgauer in Germany were directly inspired by Wörgl and Gesell's ideas. The Chiemgauer includes a demurrage-style feature and has been operating since 2003, circulating among thousands of businesses and households in Bavaria.

None has matched the dramatic political impact of the original experiment. But all share a common design principle: money should serve the community, not pool in financial centres.

The economy doesn't merely depend on how much money exists. It depends on how quickly money moves — and on how money is designed.

Why This Matters Today: The Chatham Islands Connection

I am posting this story now because of a very immediate crisis on our doorstep. Rising diesel prices have driven electricity costs on the Chatham Islands to three times the mainland average. They are in real trouble, and no end is currently in sight.

As I argued in a previous post, isolated communities facing energy shocks are precisely the situations in which complementary currencies could provide relief — allowing local exchange to continue even when the national currency is scarce or expensive to earn.

The design of the Chiemgauer currency offers one practical model worth examining. More on that next time.