Recently, Fed Chairman Bernanke stated that while the Fed will continue with unconventional monetary measures over the near future, it has run out of ammunition for further, newer unconventional monetary measures should a need arise to offer further stimulus to the US economy.
Mr. Bernanke, we believe, really needs to think out of box. More unconventional monetary approaches exist. We will describe here one of them – scrip money which loses its face value at a predetermined rate. Scrip money issued by a local authority, when it co-exists with a nationally issued monopoly money, has been shown to produce excellent economic outcomes.
We describe here one such known experiment, WörglExperiement:
“One of the best-known applications of the stamp scrip idea was applied in the small town of Wörglin 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. The mayor was familiar with German Merchant and Economist, Silvio Gesell„s work and decided to put it to the test.
He had a long list of projects he wanted to accomplish (re-paving the streets, making the water distribution system available for the entire town, planting trees along the streets and other needed repairs.) Many people were willing and able to do all of those things, but he had only 40,000 Austrian schillings in the bank, a pittance compared to what needed to be done.
Instead of spending the 40,000 schillings on starting the first of his long list of projects, he decided to put the money on deposit with a local savings bank as a guarantee for issuing Wörgl's own 40,000 schilling's worth of stamp scrip. He then used the stamp scrip to pay for his first project. Because a stamp needed to be applied each month (at 1% of face value), everybody who was paid with the stamp scrip made sure he or she was spending it quickly, automatically providing work for others. When people had run out of ideas of what to spend their stamp scrip on, they even decided to pay their taxes, early.
Wörgl was the first town in Austria which effectively managed to redress the extreme levels of unemployment. They not only re-paved the streets and rebuilt the water system and all of the other projects on Mayor Unterguggenberger's long list, they even built new houses, a ski jump and a bridge with a plaque proudly reminding us that „This bridge was built with our own Free Money'. Six villages in the neighborhood copied the system, one of which built the municipal swimming pool with the proceeds. Even the French Prime Minister, ÉdouardDalladier, made a special visit to see first hand the “miracle of Wörgl.”
It is essential to understand that the majority of this additional employment was not due directly to the mayor's projects. The bulk of the work was provided by the circulation of the stamp scrip after the first people contracted by the mayor spent it. In fact, every one of the schillings in stamp scrip created between 12 and 14 times more employment than the normal schillings circulating in parallel. The anti-hoarding device proved extremely effective as a spontaneous work-generating device.”1
Prof Dr. Irvin Fisher is rumored to have said: “Free money may turn out to be the best regulator of the velocity of circulation of money, which is the most confusing element in the stabilization of the price level. Applied correctly it could in fact haul us out of the crisis in a few weeks ... I am a humble servant of the merchant Gesell.”
Maybe if the rekindled housing bubble in parts of California fail to prop up the US economy, Mr. Bernanke may well need to become a humble servant of the merchant Gesell.
1Text from Lietaer.com