In times of ‘Bust’ or Depression, people and more importantly Institutions, will soon refuse to allow their money to circulate. The Institutions act like Dams that choke the flow of the river of currency. There is enough money, enough demand, enough jobs needing to be done and enough people willing to work, but there is no money in circulation as there is no employer willing to for work and no Bank willing to finance projects etc.

Can we, in view of all the above, be able to re-invent the concept of money, to be in conformity with Nature’s Laws in our digital economy? Has anyone ever tried implementing such a system?

Yes, as Robert Frenay writes, – in the early 1930’s when the whole world was in the throes of a deep depression of increasing joblessness and declining value of money, an Austrian town ‘Worgl’, decided to implement a new Financial System in which the value of money would be more in accordance with the Second Law of Thermodynamics.

The town noted that there was no shortage of people willing to work or people willing to employ them. There was only a shortage of trust in the way of keeping score, in the money that was being used, leading to ceasing of circulation. The town decided that the only way out of this quandary was to devise another way of keeping score, linked to money, which could not profitably be withheld from circulation.

The town decided to issue its own scrip backed by the conventional Austrian Schillings, but with one important difference. Instead of being able to gain buying power through the accumulation of interest, they were designed to lose it. Each month, any holder of the new scrip had to purchase a stamp equal to one percent of the scrip’s face value and paste it on the back of the scrip. Scrips without such stamps were invalid.

Thus, Worgl’s scrip lost 12 percent of its value each year. Since the town sold the stamps, that 12 percent in fees went to replenish its treasury.

What’s more, people knew their money would lose value if they held on to it, so no one did. Instead, they circulated it as quickly as possible seeking ways to profitably invest it. Within a year it was circulating through the town’s economy at a rate more than 20 times that of the official Schillings. With ready cash once again in circulation, the effect was dramatic. The town’s water system was rebuilt, streets were paved, new houses went up, then a new bridge, a ski jump. While unemployment was growing steadily across Europe and around the world, in Worgl it declined by 2 percent in a single year. The town had solved its problem.

Curiosity about this solution soon developed in other towns of Austria and even in other Countries. Even the French Prime Minister came to view the ‘Miracle’ of Worgl for himself When hundreds of Austrian towns began to talk of issuing similar scrip for themselves, the Government Central Bank went to their Supreme Court which held that Worgl’s scrip was in effect currency and that as only the Central Bank was authorized to issue currency the Worgl’s scrip was illegal.

‘Worgl’s scrip was thus outlawed, the economic boom/et subsided and unemployment there returned to its previously high levels. Other European towns met with similar opposition. from their Country’s Central Banks and no repeat of this experiment, on such scale, has been tried since.

During the Depression era, Irving Fisher an Economist proposed a similar scheme for the USA. It was considered at the Cabinet level and rejected as being too fundamental a change, overlooking the fact that a fundamental problem would require a fundamental change to be resolved.

John Maynard Keynes, in his ‘General Theory’, also, wrote in support of such an idea. His post war proposal for an International Clearing Union, in which Countries running a trade surplus would have to pay a liquidity charge of one percent per month was submitted at Breton Woods by the British, but was blocked by the USA.

Gessel’s call for a depreciating currency failed only politically, even as it was successful economically. However, the advantages of interest free trade resulted in many Barter Clubs coming up during the depression. From 1934 to today many such Clubs continue to play an important role in the economies of Switzerland, Denmark and the Scandinavian Countries. In the USA, ‘Time Dollar’, ‘LETS’,’IRTA’,’ROCS’, and now e-startups like ‘Swap.com’ are some of such exchanges.

Some years ago Christian Gelleri in Germany introduced an alternative local currency, “the Chiemgauer” as a school project for the local economy, working on similar lines as the ‘Worgl’ script. This project and others like it elsewhere, again proved the workability of the ‘Worgl’ concept.

Today in India, we can emulate this idea and trust the Goods and Services Tax regime to do the replenishment and keep the circulation going, thus avoiding any depression.

Economist James Stodder, studied the cultural impact of the Internet and found that ‘The Economic Activity of Barter Exchanges is counter cyclical, rising and falling against, rather than with, the business cycle.

Now that money is becoming electronic and as in any case the Central Banks are much smaller than the private economy and can thus have control only to a point, all this could have larger ramifications. As economist Benjamin Freedman asserts, “Bank money has become increasingly irrelevant to legal, domestic transactions.” He doubted the ability of any Central Bank to survive in global markets. All of the cash of electronic exchange are flexible and efficient and promise real change. The concept of personal mobile wallets, likely linked to mobile phones and digital currencies, will force the remaking of Financial Institutions.

Today our financial system is no longer made up of linear relationships, it is too complex and has been organized to a level of near instability, a small change can easily trigger a major ‘Bust’, or even a ‘Regime shift’. We need to take a fresh and comprehensive look at it all and reorganize the system for greater stability.

As Nassim Nicholas Taleb writes – in ’Anti-Fragile’- a complex system, contrary to what people believe, does not require complicated systems (Laws and regulations and intricate policies. complications lead to multiplicative chains of unanticipated effects. Because of opacity, an intervention leads to unforeseen consequences followed by apologies about the ‘unforeseen’ aspect of the consequences, then to another intervention to correct, leading to an explosive series of branching ‘unforeseen’ responses, each worse than the preceding one. The more complicated / sophisticated the system, the more specialized it is, the more vulnerable to collapse it is. The road map to modify our manmade systems (is) to let the simple – the natural – take their course. But simplicity is not so simple to attain.

Quoting Steve Jobs –”You have to work hard to get your thinking clean, to make it simple. “ – Or as an ancient Indian saying puts it – “Simplicity means it requires no skill to understand it, yet requires mastery to write it”.

Simplicity is against the spirit (and interests) of a certain brand of people who seek sophistication and complexity so that they can justify their profession. We need to simplify the rules of thumb (heuristics) that make things simple and easy to implement. Their main advantage is that the user knows they are not perfect, just expedient, and is therefore less fooled by their powers.

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