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Monetary History Revisted....


Every so often, i find myself reading through history for answers and insight that could serve purpose in a modern world. I believe many may not be familiar with the following:

Freigeld (German for free money) or Schwundgeld (depreciative money) is a monetary (or exchange) unit, which follows the economic concept of Freiwirtschft (free economy). The concept was invented by Silvio Gesell.

The name results from the idea that there is no incentive to store the money, as it will automatically lose its value after some time (depreciate). It is claimed that as a result, interest rates will drop to almost zero, preventing any form of Inflation.

Gesell argued that saved money will keep its value, while goods - which are not consumed - will loose value by getting old, rot or deteriorate. To keep the value of the money and goods synchronised, the issued money should loose value in regular intervals. Therefore the holder of the money has an incentive to spend the money before it depreciates, which will foster consumption and economic growth.

During the Great depression in 1929 Austria and Germany was hit by a deflation, preventing economic growth and prosperity. The effects were also felt in Wörgl - a place of 4600 people, out of which more than 400 were unemployed. Since no help seemed to be available from the central bank the local council decided to try and tackle the problem themselves.

As the money was flowing again the businesses began to prosper, the town got tax income, which it used to employ more people and repair and improve streets and communal property and equipment. This lead to further economic activity.

The experiment was so successful that neighbouring villages started to accept and use the new money as well. The unemployment increased during 1932 and early 1933 by 10%, while in Wörgl it dropped by 25%. The "Miracle of Wörgl" was widely publicised in the press and many delegates came to the area to see it work. Many other regions were interested in adopting the system.

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