With his reply, Migchels only proved the point that the experiment was doomed to fail. Can you figure out why, without asking him?
Don’t worry, I will give you the answer at the end of this post; but first let’s address a couple of other points he raised:
AM: Well, it was far from impressive, was it not? It's really strange to write two articles on Worgl and not notice that velocity was the key issue.
BM: I listed several specific reasons why the experiment was nothing more than a government forced boom and Gresham’s law at work – I wrote over 6000 words and listed almost 20 sources. None of these specific criticisms have been addressed by you or (to my knowledge) Migchels.
As to the velocity issue, I addressed it in a subsequent post in reply to memehunter. But I suspect you know this. Further to the velocity issue, Migchels deep-sixes this benefit in the passage of his that you quote – being clear that the “key issue” of velocity is only temporary. Can you figure out why, all on your own? (Don’t worry, I will get to this.)
AM: But this is a very difficult concept to grasp for those infested with Austrianism, which is only concerned with the sacred rights of those holding money. This 'Entire society be damned, it's MY CASH and I CHOOSE' kind of mentality is really very hard to get rid of.
BM: it is easier to attach labels (especially when one has no understanding of the term) than deal in facts. The disposal of private property isn’t an Austrian issue; it is an issue of justice. However, with this sentence, Migchels makes clear the spirit behind his advocacy of demurrage – theft and envy. This is the mentality that is “very hard to get rid of.” It is the mentality behind the theory of government and state as practiced throughout the world today.
AM: The fact that 'the fear of demurrage' solved unemployment and the associated profound suffering is really irrelevant in the face of the fear of that great ogre of Austrianism: INFLATION.
BM: In my article I explained in detail why the experiment worked as it did and why it was bound to fail. I did not blame it on inflation, or potential inflation. But again, Migchels seems to be hung up on lables. Inflation was not likely as long as the scrip was convertible…and Migchels states this later in his comments. What if the scrip was not convertible? Well, let’s wait to answer that.
AM: the total amount of trade financed by the certificates amounted to the equivalent of 2,5 million Schillings. While only about 5,500 worth of certificates were circulating on average. Meaning that the small demurrage of 12% made the certificates circulate at least a hundred times faster than the Schilling.
BM: Get it? According to these numbers, 7,000 schillings of scrip transferred hands every day (2.5 MM / 360 days). I will give you a hint to the big answer – how Migchels kills his own argument: the parish had 40,000 schillings of national currency at the bank as backing for the scrip. Keep the figures 40,000 and 7,000 in mind.
AM: By the way: there was no threat of inflation in Worgl: the endgame would have been that all backward payments would have been settled and then the certificates would have been converted back to Schilling and out of circulation.
BM: There you have it. Did you see it? What did Migchels say would happen to the scrip when all the back taxes were paid?
Let’s walk slowly: 7,000 scrip schillings of transactions a day will no longer occur; instead this same 7,000 schillings will be returned to the bank for national currency according to Migchels (and he is correct, for as long as the conversion game can last). But wait! The bank only holds 40,000 national schillings available for the exchange. In six days…POOF. Not a very long game of “velocity.” So much for “the key issue.”
What do you think it would do to his (and your) daunted velocity, once all the scrip was removed from circulation and replaced with the national currency?
Migchels says “that velocity was the key issue” yet he shoots himself in the foot. He knowingly or unknowingly predicts a bank run.
Alternatively at this point the parish could stop converting the scrip. Now what? Come on, summer. What do you think that would do to the value of the scrip?
OK, I will tell you. Worthless scrip. Inflation if not hyper-inflation (assuming any merchant would even take it).
Summer, you are stumbling in your faith, not wanting to recognize that your belief is based on faith. You want to believe in miracles. You are stumbling because you cannot handle the faith being questioned by fact. That’s OK – I believe every word of the Bible, and I would feel the same way on that subject. But at least I admit my belief in the Bible is based on faith, so I don’t get hung up about it.
Bring back some serious criticisms and questions. Address the specific points in my article.