Paper by Richard Werner.

I’m reading a paper by Werner entitled “Lessons from the 2008 Financial Crisis…”. I have a few quibbles with the paper, but the following witty passage made me laugh out loud.

In the early 1930s, after the Great Depression had begun, Michael Unterguggenberger, the mayor of the town of Wörgl in Tyrol in the Austrian Alps, lamented the level of unemployment at a time when the town needed to implement significant road and building works. It occurred to him that it did not make sense that people should be unemployed when he would actually like to hire them and put them to work for the benefit of the town and community. So he simply employed them and had bridges, roads, and buildings constructed and maintained by them. In exchange for their labor, he gave the workers “receipts for labor performed” from the town. These certificates were accepted for local tax payments, and were soon also welcomed in local shops and with local firms.

Within a year, the large-scale unemployment that was common elsewhere in Austria and Germany at the time was history in Wörgl and its surroundings. The mayor had conquered the Great Depression. Soon other municipalities in Austria and Germany, but also all over the world, began to copy the mayor’s actions. The most famous monetary economist at the time, Professor Irving Fisher, sent an associate to Wörgl to study events, and Fisher praised the mayor’s actions. Fisher was soon to become an advocate of restoring the right to create the money supply to the people to whom this sovereign prerogative belongs, by introducing regulations that would prevent banks from creating credit and money.

The story does not end there. One can easily imagine the reaction from the Austrian central bank to these events. It had been working hard and in close association with the German Reichsbank, the Bank of England, and the US Federal Reserve during the 1920s and early 1930s to create the Great Depression. Naturally, it was irate that its multiyear efforts to create large-scale unemployment and thousands of corporate bankruptcies should be scuppered in such a simple fashion by a lowly town mayor. So the Austrian central bank called in the police and the public prosecutors. The mayor was duly hauled to court and charged with counterfeiting money and other crimes. The Austrian central bank, the state prosecutor, and the courts threatened him with immediate imprisonment should he refuse to abandon his gross violation of the privileges acquired by the central bank and the commercial banks. The mayor was forced to abandon his currency. Accused of being a criminal, he stopped issuing his work certificates. Unemployment returned. Wörgl and its surroundings sank back into the Great Depression. The Austrian central bank was satisfied and relieved. The people’s challenge to the monetary control imposed by central banks and banks had been averted. Events returned to the plan carefully laid out by the central bankers. The rest is, of course, history.

It is up to the reader to decide who in this historical episode was truly the one engaging in criminal activities.