In the last decade of the 19th century, a hitherto unheard-of German immigrant in Argentina published a book proposing a radical new monetary system. The author, Silvio Gesell, had no training in economics and so his ideas could very easily have been dismissed, but they were not. They caught the attention of economists, governments, and monetary authorities around the world. Silvio Gesell argued in favor of a taxed currency, money which a holder needed to pay taxes on to keep active. This radical idea was intended to stimulate economies by reducing the desire to hold cash. Trying to achieve exactly this, the small Austrian town of Wörgl implemented such a currency. The Wörgl experiment succeeded in creating a local economic recovery, though the project was short-lived.

Silvio Gesell

           Behind one of the 20th century’s most curious monetary experiments was, unsurprisingly, an unorthodox thinker but also one peculiarly lacking in the expected credentials. The German-born Silvio Gesell had no particular training in economics, formal or informal. He was rather an entrepreneur based in Argentina, to which he immigrated in 1887. Gesell was active in the importing and manufacturing industries and witnessed an economic depression that encouraged and shaped his economic ideas.

           Just three years into his life in Argentina, the country was struck by the Financial Panic of 1890, a crisis that brought the Argentine financial sector and economy to a standstill. This was the crisis that nearly brought down the venerable Barings Bank, a British bank heavily invested in the country. More broadly, it caused a hoarding of cash as the country’s banks looked unstable. This further strangled the economy and was the aspect of the crisis that provoked Gesell’s economic formulations, which he was soon to publish. Gesell believed that the ability to hold money in cash was its practical defect; rather, money was meant to be used in commerce. If people did in fact spend their money in commerce, it would turn the economy around .

           Silvio Gesell compiled his thoughts into his first major work, Currency Reform as a Bridge to the Social State, published in 1891. The book, printed in German in Buenos Aires, outlined a novel solution to the currency problem. It proposed a tax on currency to diminish the ability of people to hold it for long periods of time. With such a tax, the hoarding of currency that characterized the Argentine crisis of 1890 would be curtailed as people would be sufficiently incentivized to part with money quickly after obtaining it. Gesell’s ideas became known as ‘free money’, that is, freeing money from hoarding, and they garnered attention in Europe.

           The German entrepreneur’s work was valuable material for other economists studying deflationary crises. John Maynard Keynes interpreted Gesell’s work as providing a solution to the ‘zero money-rate of interest’ problem. That is, by depriving society of the ability to hold currency in physical form at no cost, interest rates could assume a wider range of values. Why couldn’t they even be negative? Keynes did think Gesell’s theory had its flaws though. He noted its focus was limited to currency when there were plenty of currency substitutes that people could horde instead, namely “bank-money, debts at call, foreign money, jewellery and the precious metals” which he lists alongside land. Nonetheless, the book and its author earned the Cambridge economist’s praise

“The purpose of the book as a whole may be described as the establishment of an anti-Marxian socialism, a reaction against laissez-faire built on theoretical foundations totally unlike those of Marx in being based on a repudiation instead of on an acceptance of the classical hypotheses, and on an unfettering of competition instead of its abolition. I believe that the future will learn more from the spirit of Gesell than from that of Marx.” – Keynes comments on Gesell’s Currency Reform as a Bridge to the Social State in his own General Theory of Employment, Money and Interest


           Gesell’s major works, being published in German, naturally found their first audiences in German-speaking Europe, but even there, an application of his ideas would have to wait until after the First World War. The first notable experiment with a taxed currency occurred in Austria amidst the economic slump of the 1930s. The Great Depression deeply damaged the Austrian economy. The slump in Austria began, rather like the panic of 1890 in Argentina, with the near failure of a massive bank. In Austria, the country’s largest bank, Creditanstalt, had to be rescued by the government. The early 1930s then gave way to rising unemployment and falling wages.

           The country was also in the midst of a monetary crunch. The contracting banking sector led to an evaporating money supply, which fell from four billion Austrian shillings in 1928 to just 2.2 billion in 1934, a 45% reduction. The currency was devalued in 1932 but only modestly compared to other countries which were quickly abandoning the gold standard. In Austria, the central bank was more fearful of inflation, it having badly afflicted Austria in the years just after the war. It was also not keen on testing such radical ideas as those of Gesell.

Miracle of Wörgl

           There was one small Austrian town that decided to implement its own currency, in parallel to the official Austrian shilling. It was in the town of Wörgl, along the Inn River in the Austrian state of Tyrol, where Gesell’s ideas were implemented in 1932, two years after his death. Like other towns in Austria, Wörgl was experiencing high unemployment and many of the out-of-work no longer qualified for unemployment allowances as a result of how long they had been jobless. Some 500 people were unemployed in the town of 4,000 and another 1,000 were unemployed in its rural immediate environs.

           There was also pressure on the town’s public finances as many were significantly in arrears in taxes due. The implementation of a local currency along Gesellian lines was organized by Michael Unterguggenberger, mayor of the small town since the prior year and who went on to write a paper reporting results of the experiment to the world.

“Depreciating money is adapted to fulfil the functions of money in every respect just as well as – or, for the purpose of accelerating its circulation, much better than – unvarying legal tender.” -Michael Unterguggenberger

           Under Unterguggenberger, a new currency called labor notes was introduced to Wörgl. Unlike a typical currency, these notes carried an expiration date. In order to prevent expiration, currency-holders had to purchase stamps that they would affix to their money, keeping it active. This charge was set to 1% of the currency’s value per month; thus, to keep one hundred schillings of labor notes active, one would pay twelve schillings a year.

           Nonetheless, the money was still secured by 40,000 official shillings in surplus funds held by the town government in a local bank. The new currency was convertible into Austrian shillings subject to a 2% tax. Sufficient local businesses accepted the money in order to get the concept off the ground. Municipal employees thereafter received half of their pay in the new money while the unemployed hired by the town to work on public projects received 100% of their wages in the labor notes.

           The new currency discouraged holding cash, setting people on the habit of expending money as soon as it was earned. If holding cash were really money’s defect than this should provide an economic benefit. Indeed, this spending encouraged by the currency stimulated further employment and encouraged skeptical businesses to accept the money. The tax on the currency also provided the local government with a new source of revenue. Further, some paid taxes in arrears or prepaid future taxes with the money to quickly part ways with it, providing further revenues to the local government. This sum possibly exceeded that of the tax collected on the currency directly.

           Of course, the labor notes were convertible into official shillings, but the 2% conversion charge was set high enough to encourage holders to spend rather than convert their cash. The convertibility was important in encouraging people to accept the money though. Because the money kept in the bank backing the labor notes far exceeded the face value of the notes in circulation in Wörgl, the taxed currency maintained its value against the official shilling, provided the holder paid the tax on the notes.

           For the local economy, the extra revenue in the hands of the government was no small thing. Not only did it relieve the town’s fiscal issues but the revenue raised by the currency tax was used to fund local infrastructure projects ranging from bridges and roads to a reservoir. In addition to more local investment, this helped reduce unemployment and improved the local economy. For this reason, the Wörgl experiment was judged to be successful and got the attention of other towns and cities in Austria. Fifteen other jurisdictions went about setting up their own taxed currencies. The experiment also got international attention, including from economists like Keynes and Irving Fisher The latter even supported implementing a similar currency in the United States.


           In the end, though Fischer attempted to influence the American presidential candidate Franklin D. Roosevelt to support the idea, such a radical monetary invention was not implemented in America. Even its days in the Austrian Tyrol were numbered. Thanks to its growing fame, the currency caught the unfavorable attention of the Austrian central bank which through the courts managed to have such currencies outlawed. With that, Wörgl’s taxed banknotes were withdrawn from circulation on September 1, 1933. However, the concept did find its way across the Atlantic, if not to the United States. In fact, perhaps the largest scale experiment with a taxed money was a similarly short-lived taxed currency issued by the Canadian province of Alberta in 1936.


            However brief and limited in scope were the experiments with taxed currencies in the first half of the 20th century, they nonetheless illustrate how relevant monetary issues are to an economy. So inadequate was the monetary order of the time that the ideas of an amateur economist like Gesell managed to win the praise of notable ones and the attention of politicians and the people during the Great Depression. The Wörgl experiment may not have lasted in the end but that such a project was even implemented is a forceful revelation of the dire economic conditions of that era and the cures sought.

More from the Tontine Coffee-House

There is more to learn about interesting monetary experiments including the use of playing card money in colonial Quebec and the improvised scrips circulating across Europe during and just after the First World War.

Further Reading

1.      Blanc, Jérôme. “Silvio Gesell’s Theory and Accelerated Money Experiments.” Feb. 1998.

2.      Fisher, Irving. “Chapter 4: The First Experiments Abroad.” Stamp Scrip, 1933.

3.      Handler, Heinz. “Two Centuries of Currency Policy in Austria.” Oesterreichische Nationalbank, Monetary Policy & The Economy, Oct. 2016, pp. 61–76.

4.      Keynes, John Maynard. “Chapter 23: Notes on Mercantilism, The Usury Laws, Stamped Money and Theories of Under-Consumption.” The General Theory of Employment, Interest and Money, Macmillan, 1936.

5.      Lietaer, Bernard. “The Wörgl Experiment: Austria (1932-1933).” Currency Solutions for a Wiser World, 27 Mar. 2010.

6.      Rosalsky, Greg. The ‘Strange, Unduly Neglected Prophet’. NPR, 27 Aug. 2019.

7.      Unterguggenbercer, Michael. “The End Results Of The Woergl Experiment.” Annals of Public and Cooperative Economics, vol. 10, no. 1, 1934, pp. 60–63.

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