Double-entry bookkeeping not existing until like 1300 is so funny

The international gold standard Marcello de Cecco

Market for Lemons

Akerlof's theory of the "Market for Lemons" paper applies to markets with information asymmetry, focusing on the used car market. Information asymmetry within the market relates to the seller having more information about the quality of the car as opposed to the buyer, creating adverse selection. Adverse selection is a phenomenon where, buyers result in buying lower quality goods due to sellers not willing to sell high quality goods at the lower prices buyers are willing to pay. This can lead to a market collapse due to the lower equilibrium price and quantity of goods traded in the market than a market with perfect information.

Suppose buyers cannot distinguish between a high-quality car (a "peach") and a "lemon". Then they are only willing to pay a fixed price for a car that averages the value of a "peach" and "lemon" together (pavg). But sellers know whether they hold a peach or a lemon. Given the fixed price at which buyers will buy, sellers will sell only when they hold "lemons" (since plemon < pavg) and they will leave the market when they hold "peaches" (since ppeach > pavg). Eventually, as enough sellers of "peaches" leave the market, the average willingness-to-pay of buyers will decrease (since the average quality of cars on the market decreased), leading to even more sellers of high-quality cars to leave the market through a positive feedback loop. Thus the uninformed buyer's price creates an adverse selection problem that drives the high-quality cars from the market. Adverse selection is a market mechanism that can lead to a market collapse.

Does Georgism Work?

https://astralcodexten.substack.com/p/does-georgism-work-is-land-really




Georgism is a school of political economy that is really upset about, among other things, the Rent Being Too Damn High. It seeks to liberate labor and capital alike from those who gatekeep access to scarce "non-produced assets," such as land and natural resources, while still affirming the virtues of hard work and free enterprise. George uses the term "Land" to mean not just regular land, but everything that is external to human beings and the things they produce–nature itself, really.

Georgism's chief insight is to move economic thinking from a two-factor model (Labor and Capital) to a three-factor model (Land, Labor, and Capital). It's chief (but not only) policy prescription is the Land Value Tax (LVT), which taxes real estate at as close to 100% of its "land rent" as possible (the amount of rent due to the land alone apart from "improvements" such as buildings). In actual practice, most Georgists seem to think 85% is a reasonable figure to target.

Let's carefully unpack what those terms means. "Land value" refers to the full market value of a property, excluding all of its improvements, such as buildings. This is the portion of a property's value arising solely from its location and natural attributes (agricultural fertility, endowment of stuff like water, minerals, etc.). "Land rent" (AKA "ground rent") refers to the recurring rental income a property is capable of generating from the market because of its land value.

It is Land Rent which Land Value Tax is intended to capture. You can think of it as a Location or Site Value Tax if that's more helpful. It's not a tax on the full market purchase price of a property, nor is it a fixed amount of tax per acre of land, but rather a tax proportional to the market value of the land alone (or better yet, the land rent). When assessed correctly, as LVT approaches 100% the market selling price of the land itself will approach zero.

Don't let the "100%" confuse you, either. If a piece of land costs $10,000 to buy, and is leased for $500/year, then an LVT that captures 100% of the land rent is $500/year, which works out to a 5% annual tax of the land value.

LVT should not be confused with a property tax. Property taxes consider land plus improvements (typically buildings). An LVT considers land value alone.

Georgists assert that if we sufficiently tax land in this manner, we'll not only end the housing crisis but also fix a bunch of misaligned incentives that cause poverty to persist alongside economic progress, while raising a bunch of revenue that can lower or even eliminate other less efficient taxes, such as sales and income taxes.

This is because virtually all economists agree that LVT has zero "deadweight loss"–a fancy word for a drag on the economy that makes certain activities no longer profitable. Other taxes with no deadweight loss include Pigouvian taxes on bad things, like congestion and pollution.

But won't landlords just raise the rent to make up for the LVT, passing the burden of the tax on to the tenants? Georgists say no, because land is special in that it is scarce and nobody can make any more of it. Indeed, LVT is a rare form of taxation that actually boosts the economy, because it discourages rent-seeking and speculation. Some Georgists even go so far as to say that LVT can raise enough revenue to replace all other less efficient taxes, becoming the so-called "Single Tax," but this is not a universally held position among modern Georgists. To be clear, proponents of the "Single Tax" believe that LVT is sufficient for all public purposes and that no other taxes (such as income tax, capital taxes, and tariffs) are necessary for revenue generation, although they still might support carbon taxes or "sin taxes" on things they want to discourage.

Georgism doesn't begin and end with the LVT, however, and the movement isn't solely concerned with real estate and tax revenue. Henry George was an early proponent of what we now call "Universal Basic Income," or as he called it, the "Citizen's Dividend" (funded by LVT, naturally). But even if you threw every penny of LVT revenue into the sea, the anti-sprawl effects of the policy are appealing enough by themselves to earn the endorsement of YIMBY's and urbanists like Strong Towns.

If you take Georgism to its natural conclusions, you might start to question government-enforced monopolies over other kinds of "Land," such as electromagnetic spectrum, water and mineral rights, and orbital real estate for satellites, not to mention the deadweight loss created by intellectual property gatekeepers over, say, research papers.

And if you have my day job as an analyst for the video games industry, one day you'll find yourself applying the observed 30-year history of housing crises in MMO's to virtual real estate sales in leading blockchain games.

Some people come to Georgism because of their aversion to income and capital taxes, some want to use LVT to fund generous social programs, some are motivated by the beneficial environmental effects, and some just think the Rent is Too Damn High. No matter where you come from on the political compass, there's probably a way to mix up a club soda and Georgism that's right for you.

Henry George - Progress and Poverty

https://www.henrygeorge.org/pcontents.htm




THE NINETEENTH CENTURY saw an enormous increase in the ability to produce wealth. Steam and electricity, mechanization, specialization, and new business methods greatly increased the power of labor.

Who could have foreseen the steamship, the railroad, the tractor? Or factories weaving cloth faster than hundreds of weavers? Who could have heard the throb of engines more powerful than all the beasts of burden combined? Or envisioned the immense effort saved by improvements in transportation, communication, and commerce?

Surely, these new powers would elevate society from its foundations, lifting the poorest above worry for the material needs of life. Imagine these new machines relieving human toil, muscles of iron making the poorest worker's life a holiday, giving our nobler impulses room to grow. Given such bountiful material conditions, surely we could anticipate the golden age long dreamed of. How could there be greed when everyone had enough? How could things that arise from poverty — crime, ignorance, brutality — exist when poverty had vanished? Such were the dreams born of this wonderful century of progress.

True, there were disappointments. Discovery upon discovery, invention after invention still did not lessen the toil of those who most need relief or bring plenty to the poor. But it seemed there were so many things that could be blamed for this failure that our faith has hardly weakened. Surely we would overcome these difficulties in time.

Yet we must now face facts we cannot mistake. All over the world, we hear complaints of industrial depression: labor condemned to involuntary idleness; capital going to waste; fear and hardship haunting workers. All this dull, deadening pain, this keen, maddening anguish, is summed up in the familiar phrase "hard times."

This situation can hardly be accounted for by local causes. It is common to communities with widely differing circumstances, political institutions, financial systems, population densities, and social organization. There is economic distress under tyrannies, but also where power is in the hands of the people. Distress where protective tariffs hamper trade, but also where trade is nearly free. Distress in countries with paper money, and in countries with gold and silver currencies.

Beneath all this, we can infer a common cause. It is either what we call material progress, or something closely connected with it. What we call an industrial depression is merely an intensification of phenomena that always accompany material progress. They show themselves more clearly and more strongly as progress goes on.

Where do we find the deepest poverty, the hardest struggle for existence, the greatest enforced idleness? Why, wherever material progress is most advanced. That is to say, where population is densest, wealth greatest, and production and exchange most highly developed. In older countries, destitution is found amid the greatest abundance.

Conversely, workers emigrate to newer countries seeking higher wages. Capital also flows there seeking higher interest. They go where material progress is still in earlier stages. The older countries, where material progress has reached its later stages, is where poverty occurs.

Go to a new community where the race of progress is just beginning, where production and exchange are still rude and inefficient. The best house may be only a log cabin; the richest person must work every day. There is not enough wealth to enable any class to live in ease and luxury. No one makes an easy living, or even a very good one — yet everyone can make a living. While you won't find wealth and all its effects, neither will you find beggars. No one willing and able to work lives in fear of want. Though there is no luxury, there is no poverty.

But just when they start to achieve the conditions civilized communities strive for, poverty takes a darker turn. This occurs as savings in production and exchange are made possible by denser settlement, closer connection with the rest of the world, and labor-saving machinery. It occurs just as wealth consequently increases. (And wealth increases not only in the aggregate, but in proportion to population.)

Now, some will find living better and easier — but others will find it hard to get a living at all. Beggars and prisons are the mark of progress as surely as elegant mansions, bulging warehouses, and magnificent churches.

Unpleasant as it may be to admit, it is at last becoming evident that progress has no tendency to reduce poverty. The great fact is, poverty, with all its ills, appears whenever progress reaches a certain stage. Poverty is, in some way, produced by progress itself.

Progress simply widens the gulf between rich and poor. It makes the struggle for existence more intense. Wherever these forces are at work, large classes are maintained on charity.

Yes, in certain ways, the poorest now enjoy what the richest could not a century ago. But this does not demonstrate an improvement — not so long as the ability to obtain the necessities of life has not increased. A beggar in the city may enjoy many things that a backwoods farmer cannot. But the condition of the beggar is not better than that of an independent farmer. What we call progress does not improve the condition of the lowest class in the essentials of healthy, happy human life. In fact, it tends to depress their condition even more.

These new forces do not act on society from underneath. Rather, it is as though an immense wedge is being driven through the middle. Those above it are elevated, but those below are crushed.

Where the poor have long existed, this effect is no longer obvious. When the lowest class can barely live, it is impossible to get any lower: the next step is out of existence altogether. This has been the case for a long time in many parts of Europe. But where new settlements advance to the condition of older ones, we see that material progress not only fails to relieve poverty, it actually produces it.

In the United States, it is obvious that squalor and misery increase as villages grow into cities. Poverty is most apparent in older and richer regions. If poverty is less deep in San Francisco than New York, is it not because it lags behind? Who can doubt that when it reaches the point where New York is now, there will also be ragged children in the streets?

So long as the increased wealth that progress brings goes to building great fortunes and increasing luxury, progress is not real. When the contrast between the haves and have-nots grows ever sharper, progress cannot be permanent. To educate people condemned to poverty only makes them restless. To base a state with glaring social inequalities on political institutions where people are supposed to be equal is to stand a pyramid on its head. Eventually, it will fall.

This relation of poverty to progress is the great question of our time. It is the riddle that the Sphinx* of Fate puts to us. If we do not answer correctly, we will be destroyed.

As important as this question is, we have no answer that accounts for the facts or provides a cure.

Experts break into an anarchy of opinion, and people accept misguided ideas. They are led to believe that there is a necessary conflict between capital and labor; that machinery is an evil; that competition must be restrained; or that it is the duty of government to provide capital or furnish work. Such ideas are fraught with danger, for they allow charlatans and demagogues to control the masses.

But these ideas cannot be successfully challenged until political economy gives some answer to the great question.

Political economy is not a set of dogmas. It is the explanation of a certain set of facts and their mutual relationships. Its deductions follow from premises we all recognize. In fact, we base the reasoning and actions of everyday life on them. These premises can be reduced to an expression as simple and basic as the physical law that says: motion follows the line of least resistance.

Political economy proceeds from the following simple axiom:


People seek to satisfy their desires with the least exertion.

The process then consists simply of identification and separation. In this sense it is as exact a science as geometry. Its conclusions, when valid, should be just as apparent.

Now, in political economy we cannot test theories by artificially producing combinations or conditions, as other sciences can. Yet we can apply tests that are no less conclusive. This can be done by comparing societies in which different conditions exist. Or, we can test various theories in our imagination — by separating, combining, adding, or eliminating forces or factors of known direction.

Properly done, such an investigation should yield a conclusion that will correlate with every other truth. Every effect has a cause; every fact implies a preceding fact.

In the following pages, I will use these methods to discover what law connects poverty with progress. I believe this law will also explain the recurring cycles of industrial and commercial depression, which now seem so unexplainable.

Current political economy cannot explain why poverty persists in the midst of increasing wealth. It teaches only unrelated and disjointed theories. It seems to me, this is not due to any inability of the science. Rather, there must be some false step in its premises, or some overlooked factor in its estimates.

Such mistakes are generally concealed by respect paid to authority. Therefore, I will take nothing for granted. Accepted theories will be tested; established facts will be freshly questioned. I will not shrink from any conclusion, but promise to follow the truth wherever it may lead.



What the outcome proves to be is not our affair. If the conclusions we reach run counter to our prejudices, let us not flinch. If they challenge institutions that have long been regarded as wise and natural, let us not turn back.

The "Miracle of Wörgl,"

Background

The "Miracle of Wörgl," refers to the story of currency demurrage and the impact it had on the economy of Wörgl, a small town in Austria. For a bill of such currency to retain its face value, the currency holder must pay a regular, periodic payment (a tax) for a stamp or other marking. Wörgl is regularly touted by advocates of demurrage as a successful implementation of such a currency, one designed to encourage velocity due to the incentive to spend it in order to avoid the periodic tax.

The experiment at Wörgl was implemented by the town’s mayor, Michael Unterguggenberger in the midst of the Great Depression. Wörgl, like many towns throughout the world at the time, was suffering from high unemployment and low economic activity. The experiment began on the 31st of July 1932, with the issuing of "Certified Compensation Bills," a form of currency commonly known as Stamp Scrip, or Freigeld. It resulted in a boom in government projects, and a corresponding increase in employment and economic activity not just in the government sector, but throughout the town.

Despite its apparent success, and despite attracting the attention of luminaries such as French Premier Edouard Daladier and the economist Irving Fisher, the "experiment" was terminated by the Austrian National Bank on September 1, 1933.1
Theory

The theory behind the experiment of Wörgl comes from Silvio Gesell (1862–1930), specifically his idea of Freigeld (German for free money), representing one part of his overall idea of Freiwirtschaft (free economy). As you will see below, Gesell does not mean "free" as in the free market, so much as "free" as in the air.

From Wikipedia 

Freiwirtschaft (German for free economy) consists of three central aspects, usually summed up as The Three Fs:

Freigeld (free money)

All money is issued for a limited period by constant value (neither inflation, nor deflation).
Long-term saving requires investment in bonds or stocks.

Freiland (free land) All land is owned by public institutions and can only be rented, not purchased (see also Henry George).

Freihandel (free trade)

The (proposed) results and benefits include:


More private spending for consumption and investment


Consumers invest surplus money in expanding companies


Full employment: Work for everyone who can work


Rate of economic growth can be set by the society


Interest rates drop to almost zero percent in the long run


Freiland prevents high real estate prices


Tremendous social disparities will cease

Less working hours per week for everyone in the long run

So under Gesell’s theory, scarcity, if not eliminated, at least will no longer cause inconvenience to man. Suffice it to say, it is a theory that seems to fly in the face of the laws of nature, praxeology (the science of human action), and economic theory.

Bernard Lietaer is one of the leading proponents of these theories today, specifically regarding the issue of free moneyand demurrage (stamp scrip). Lietaer sees such a "stamp scrip" currency working in conjunction with a currency convertible to a basket of commodities. From his paper "A Strategy for a Convertible Currency":


Stamp scrip is a medium of exchange characterized by a small monthly "user fee," or "negative interest" charge. This user fee gives an incentive to the bearer not to hoard this currency. Its practical and demonstrated economic effects include a strong positive impact on employment creation and on inflation control. It also provides structural support for ecologically sound economic growth. While the concept of "negative interest rates" may appear unusual at first sight, it has solid theoretical backing behind it. Even more importantly, it has been tested and used with remarkable success in a variety of cultures and historical settings, including as recently as the 1930's in Western Europe.

The stamp scrip concept actively promotes internal economic stability and employment growth, while the basket of commodity concept ensures immediate convertibility to the national currency and the international stability of its purchasing value. These two concepts fit together by equating the negative interest rate of the Stamp Scrip with the costs of storing, insuring and delivering to their respective international markets the underlying commodities of the basket.
The Economic Environment of Wörgl

“The Story of Wörgl,” based on the book The Experiment in Wörgl, by Fritz Shwarz 4 describes the suffering economy of Wörgl during the depression of the early 1930s:

At the time Wörgl had a population of 4,216. Being a railway junction, the railway employed 310 people in 1930, but by 1933 the number had plummeted to 190…. Already in 1929 the service facility for steam locomotives had become obsolete following the transition to electric engines. The nearby cement plant in Kitzbühel employed 45 to 60 workers in 1930, but by 1933 that figure had shrunk to 2.

The Zipf brewery sacked between 10–14 workers from the previous 33–37. A cellulose factory, which in 1930 still employed 360 to 410 workers, in 1933 had only 4 men guarding idle machines. Farmers, who made up about a third of the working population, could barely sell their products at depressed prices and the remaining two thirds of the work force, consisting of blue-collar and white-collar employees, plus people running small businesses, suffered considerably from these bleak circumstances.

The ranks of the unemployed increased daily. Both the umeployed and those with expired insurance benefits turned to their mayor. In 1932 there were some 200 expired benefits cases destined for public charity schemes. In the spring of 1932 Wörgl township counted 350 unemployed. In its immediate surroundings there were 1,500.

The mayor of Wörgl, Michael Unterguggenberger, having previously read an article by Silvio Gesell in an obscure periodical named Der Physiokrat, came to embrace the idea of a currency subject to demurrage.5 The mayor concluded that such a currency would solve what he believed to be the two critical issues facing his township: falling prices and the slow circulation of money.4
The Mayor Applies the Theory

The mayor went from person to person in the township, explaining the concept of demurrage and its benefits if such a currency was implemented in Wörgl. Once he felt he had gained sufficient support, he held a session of the Wörgl Welfare Committee on July 5, 1932.

With the approval of the committee, the experiment began with the first printing of 1,000 schillings worth of notes on July 31, 1932. These were used by the town to pay government wages.4

In total, 32,000 schillings worth of notes were printed. 12,000 were released, but only 8,000 actually circulated. 4,000 shillings worth of notes were hoarded—despite the demurrage—as collectibles, etc.6 A more precise number of notes that ultimately made it into circulation is 7,443 schillings 4, although there are estimates in other sources in the range of 5,000–6,000.
Relevant Factors Regarding the Currency and Its Impact

(Adapted from The Wörgl Experiment With Depreciating Money 6 except as noted)

The demurrage was set at 1% per month, with a stamp affixed to the bill in order to demonstrate proof of payment.

Each of the issued Wörgl notes was backed by the equivalent amount of official central-bank issued notes. These notes were deposited at the local Raiffeisen Bank, earning 6% interest, to be paid to the parish (Wörgl) treasury.

Estimates differ as to the amount of national schillings held as backing (12,000 in one case, 40,000 7 in another).

The Wörgl notes could be converted to official currency at a charge of 2%. The notes entered circulation via payment to the parish employees, first at 50% of their wages, later 75%.

Apparently there was no noticeable price inflation. The notes were accepted by non-Wörgl businessmen, reluctantly at times due to the demurrage, because this was seen as a means of increasing trade.

Projects involving approximately 100,000 schillings of spending were implemented in Wörgl during the time of the experiment. Some of the major completed projects included: improvement of the drainage system in the main streets; streets were repaired and many were asphalted; the Railway Street was lighted in a modern fashion; a ski-jumping platform was constructed; and the parish mill received extensive modernization and improvements.

The experiment was brought to a forced end by the Austrian central bank and Austrian courts on 1 September 1933.8
The Results

The schillings paid to the workers were returned almost immediately as payment of overdue taxes.

The experiment seemingly produced miracles, receiving enthusiastic support of the townspeople. Interviews were conducted with the local businessmen and town leaders and almost unanimously they praised the new money.4

The “miracle” gained notoriety, and other towns wanted to copy the experiment hoping for similar success. Nearby villages even arranged to accept each other’s scrip. “In June 1933 Mayor Unterguggenberger held a briefing in Vienna for 170 Mayors—after reviewing accounts and reports from Wörgl. All the attendants were of the opinion that it was desirable to introduce that "magic money" also in their communities.”4
Financial Gains to the Parish

Besides the boom in projects, there were financial gains to the parish, though relatively minor6
From the 1% demurrage: 50 schillings per month (600 annualized)
From the 2% exchange fee: 690 schillings in 9 months (920 annualized)
6% interest earned on the 12,000 schillings deposited at the local Raiffeisen Bank (720 annualized)

Total: 2,240 schillings annualized

For comparison, the mayor’s salary was 1,800 schillings.

The indirect gains, however, were significant.

At the beginning of the experiment, according to two different sources, the township was owed taxes in arrears of either 118,000 schillings6 or 83,000 schillings8 Both sources, however, substantially agree on the amount subsequently collected by the township: approximately 78,000 schillings. This amount covered most of the delinquent taxes owed and was a finite and already virtually exhausted source of funding for the township.
"When, towards the end of the month, an inhabitant of Wörgl does not know what to do with his money which is about to lose 1% of its value, he bethinks himself of paying therewith his taxes. This alternative has not only led to the payment of the heavy tax arrears which had accumulated for years, but, what is unprecedented, to the payment of taxes in advance!"9

"The fact that the local populace were, as a whole, substantially in arrears on their tax dues to the parish would certainly assure a high level of acceptance (locally) and a continuing demand for the local currency, at least until such time as those tax arrears had been paid.”10

By the time the experiment was forcibly ended, after the first year, most of the taxes in arrears had indeed been paid. Many taxes were also paid in advance. Thus, demand for the scrip from this source would have no longer been significant.

The second indirect benefit was the increase in normal, current tax payments to the parish. During the time of the experiment, local tax payments increased by 37,500 schillings8(presumably due to the increased economic activity, driven by the velocity increase and the massive government spending on projects).

There were other factors at play having nothing to do with the new scrip.6 For one, a 12,000-schilling-relief credit was granted by the Tyrol government. Also, there was a partial default on parish debt owed to the Innsbruck Savings Bank. The Innsbruck Savings Bank reduced interest owed in arrears by 50,000 schillings. Various diverse claims were presented by the mayor to the bank, totaling 70,000 schillings (including interest). A parish deposit book, valued at 37,000 schillings, was presented to the Innsbruck bank. Presumably, the bank had frozen the asset for lack of payment of parish debts. The default, or forgiveness, totaled over 150,000 schillings; while certainly not all would have been payable immediately, no doubt of some benefit to the annual parish budget.
The Roots of the "Miracle"

It seems that the entire experiment was a Keynesian one, with incentives provided by Gresham's Law. The increased spending on public works were financed by:
A significant amount of taxes in arrears (approximately 78,000 schillings representing either 67% or 93% of the total past due, depending on which estimate is used) being collected due to the threat of demurrage.
Taxes paid in advance, of an indeterminate amount.
An increase in annual tax receipts (of 37,500 schillings) due to the artificially stimulated economy,
A credit by the provincial government of 12,000 schillings,
Defaulting on debt owed to the Innsbruck Bank of over 150,000 schillings, some portion of which would have been of benefit to the annual budget.
An annualized amount of 2,240 schillings due to parish earnings on demurrage, exchange, and interest.

Not including the indeterminate amounts for taxes paid in advance, or the benefit due to the partial default, the documented gains to the parish come to almost 130,000 schillings and more than enough to pay for the projects.

Whether by accident or by design, the Mayor collected almost all taxes that were in arrears, in one year's time. If the experiment had not been terminated, all remaining outstanding taxes would have been paid in short order. The demurrage motivated taxpayers to pay the taxes before the end of the month, while they could still receive 100% value for the scrip.

Increasing normal tax receipts via an artificially stimulated economy is nothing new—this method has been deployed often and widely. Easy credit encourages this.

The mayor used these one-time windfalls, some of which are not at all attributable to the new scrip, to pay for 100,000 schillings worth of projects.
Could the Miracle Have Been Sustained?

The Austrian central bank and Austrian court brought an end to the experiment after just over one year. Supporters of demurrage point to this and suggest that (a) this represents the fear of the bankers of the people finding their own, decentralized, solutions, and (b) the miracle would have continued indefinitely or at least long enough to get the local economy back on its own legs.

I agree with the critique of the central banks; any threat to centralized control is a threat to the money power. But would the miracle have continued indefinitely, or at least long enough, to have primed the pump had the central government not intervened? This seems highly unlikely.

The activity would not have been sustainable. Once the taxes in arrears were completely paid and when people had paid enough taxes in advance to feel safe and comfortable (at some point they would stop paying forward), the scrip would lose a key part of its attractiveness.

One way a government can ensure the demand for its currency is to mandate that taxes be paid in the government-issued currency. The other way is through monopoly legal tender laws. Wörgl could not legislate or enforce monopoly legal tender, so the demand for the scrip is partially attributable to the need to pay taxes.

The demand for the scrip could not be attributed to the demurrage, because the national schilling was available, paying interest, and at a one-for-one exchange (setting aside the conversion fee). All things equal, a currency without demurrage and earning interest would be favorable to one with demurrage and not earning interest, especially when the exchange rate between the two is fixed artificially.

Once this need to pay taxes in arrears was satisfied, what would happen to the desirability of a depreciating-value scrip vs. currency that did not come with a 1% monthly penalty? The depreciating scrip would begin trading at a discount (but not exceeding the 2% conversion fee), and sooner or later would be returned to the bank for the national currency, even with the 2% loss. Two percent might be too big a loss when one owes taxes and can satisfy these taxes with the depreciating scrip at full face value. However, when there is no benefit to holding a depreciating currency to the national one, it is highly likely that many would prefer to suffer the one-time 2% charge to avoid paying the recurring monthly 1% charge.

Instead of the scrip circulating, it would be taken to the local bank for exchange. This would quickly have turned into a bank run. The town did not have an unlimited amount of national Schillings for the exchange, holding 40,000 (or 12,000 by another estimate6) national schillings as backing for the scrip.7

According to Anthony Migchels, another proponent of demurrage and the Wörgl experiment, 2.5 million Schillings of trade was financed during the one year.11 This amounts to approximately 7,000 Schillings of trade per day. Instead of being held, or circulating, the scrip would have been exchanged for national currency. In a matter of days the national scrip held as backing in the bank would have been exhausted.

In my opinion, this is exactly the situation that would have transpired in Wörgl had the national government not put an end to the experiment. Depending on which estimate of taxes in arrears is used (given the discrepancy as pointed out above), within one month, but not more than six, all taxes in arrears would have been paid. At that point, I suspect demand for the scrip would have fallen, resulting in exchange for national currency, and resulting in a bank run.

Now, what if the experiment was allowed to continue until the local economy got its own legs, the pump being primed, if you will? I will suggest the time was up. The primary source of the miracle—collection of taxes in arrears—was dried up. If the pump wasn’t primed by the time the experiment was forcibly brought to an end, then it wasn’t going to happen (even if one grants that “pump-priming” is a valid economic concept). There were virtually no more taxes in arrears to collect.
Conclusion

When it comes to the market, and certainly the market for money, credit, and currency, I favor free-market and competing solutions, and am favorably disposed to decentralized solutions of almost any type. Through decentralization and competition, the best solutions are developed and selected, and individuals retain more control over their economic lives. For this reason, I have no criticisms of the localized actions taken at Wörgl.

However, the experiment is deserving of scrutiny and study. Wörgl was not a miracle, but an example of Keynesian spending given incentive by Gresham’s Law. It is certain that the miracle could not have continued much longer even if the national government did not shut it down. Virtually all of the money used to fund the parish's projects came from one-time events, some not in any way attributable to the new scrip. Some factors at play were:
Taxes paid in arrears cannot be again paid in arrears. The outstanding balance owed to the parish was almost completely paid up in the first year.
Taxes paid in advance certainly have a natural life, but how many years will taxpayers continue to pay two years’ worth of future taxes? For how many years can they afford to do this?
The annual increase in normal tax receipts to an artificial boom cannot be sustained, witness the fiscal impacts of the dot-com bubble bursting or the subsequent real-estate bubble bursting.
The Tyrol government credit was a factor fully outside of any local “experiment.”
Defaulting on a portion of the loan certainly freed up resources, but is also not a sustainable method of financing.

Folklore

Frédéric Bastiat

Bastiat was supremely effective at popularizing free-market economics. When he learned of Richard Cobden’s campaign against the British Corn Laws (restrictions on the import of wheat, barley, rye, and oats), Bastiat vowed to become the “French Cobden.” He subsequently published a series of articles attacking protectionism that brought him instant acclaim. In 1846 he established the Association of Free Trade in Paris and his own weekly newspaper, in which he waged a witty assault against socialists and protectionists.

Bastiat’s “A Petition,” usually referred to now as “The Petition of the Candlemakers,” displays his rhetorical skill and rakish tone, as this excerpt illustrates:

We are suffering from the ruinous competition of a foreign rival who apparently works under conditions so far superior to our own for the production of light, that he is flooding the domestic market with it at an incredibly low price.... This rival ... is none other than the sun....

We ask you to be so good as to pass a law requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, casements, bull’s-eyes, deadlights and blinds; in short, all openings, holes, chinks, and fissures.

This reductio ad absurdum of protectionism was so effective that one of the most successful postwar economics textbooks, Economics by Paul A. Samuelson, quotes the candlemakers’ petition at the head of the chapter on protectionism.



Bastiat also emphasized the unintended consequences of government policy (he called them the “unseen” consequences). Friedrich Hayek credits Bastiat with this important insight: if we judge economic policy solely by its immediate effects, we will miss all of its unintended and longer-run effects and will undermine economic freedom, which delivers benefits that are not part of anyone’s conscious design. Much of Hayek’s work, and some of Milton Friedman’s, was an exploration and elaboration of this insight.

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Six Ways to Compute the Relative Value of Australian Amounts, 1828 to the Present

https://www.measuringworth.com/australiacompare/index.php


In 1932, the year it opened, the fare on the Sydney Harbour Bridge was 6 pence for a car (half that for horse and rider.) In 2011, the relative real price of that 6 pence is $1.93 and the relative labor price is almost $8.00. The income value is $14.00. The current fare on the bridge and the tunnel is a maximum of $4.00, so the commute is a bit more expensive in in terms of goods, but lots cheaper in relative earnings.


An important moment in Australia's industrial development was the first all-Australian mass produced car. The Holden 48-215, commonly known as the "FX", was unveiled at the end of 1948 with a price tag of £733. The sticker price clearly increased but looking at it in 2015 terms we find a price tag of $37440 using the CPI measure. Using the GDP deflator results in a slightly higher value, namely $42,360, though still not dramatically different from the prices of current popular full sized sedan car models. In terms of labour costs the price tag represents $116,740 in 2015 values, using average weekly earnings, which indicates that the average worker had to work substantially longer than their modern counterparts to be able to afford such a car.


Attracting qualified medical personal to remote locations seems to have been a problem now and then. In 1870 the mining community of Yankalilla on the Fleurieu Peninsula advertised for a new surgeon as their current one had decided to move on to even more remote areas. The ad stated that the annual income of the previous resident had never fallen below £260 a year. What does that income buy today? Using the CPI to bring it to 2015 values results in $29,420, hardly an enticing salary. However, compared to average weekly earnings the income represents $285,400, a number quite in line with today's salaries for specialized medical doctors.

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