Thursday, November 15, 2012

Summer’s Faith


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.


  1. BM:
    - I did not address everything, because your lengthy article overlooked the main issue: velocity.

    - Theft and envy is nonsense. In an economy there are two parties: those holding money and those not holding money. Both have rights.

    Again: I'm talking about a means of exchange, you are talking about a store of value. A means of exchange needs to circulate to be effective.
    A means of exchange is not wealth. It's not even really private property in the real sense of the word. It's more a public utility that we use together. It derives its value from the fact that everybody in the community underwrites the agreement to use it. This means everybody has certain rights. It's fine to store wealth (although I'm not too much in favor of that either, for spiritual reasons), but don't use the means of exchange for it. For if you do, other cannot pay.

    That is is the issue at hand.

    - Coercion is nonsense, there is no coercion, there is incentive. Just like interest, which you so passionately defend, is an incentive to hoard, demmurrage is an incentive to spend.

    - Your calculation is all wrong BM: 7000 in transactions per day is NOT 7000 in scrip! These transactions were financed with 5000 in circulation, meaning the certificates exchanged hands maybe 1,5 times a day.

    Like I said, and you quoted: " While only about 5,500 worth of certificates were circulating on average. "
    So there was 40000 in the bank, only 5,500 circulated: at no time was there any risk of default.

    Turnover is NOT the money supply!!

    - So there is never a threat of inflation, the only threat is that the City Council would issue more scrip than the economy needed and people would often need to convert back, losing 2%. If this happened, this 2% would most likely be passed on in prices and is the max possible loss to the community.

    BM, the Worgl, like for instance the Chiemgauer and the Berkshares and many other local currencies, are fully euro/Schilling/dollar/pound backed. They usually use the national currency as the unit of account, saying, for instance: 1 Chiemgauer = 1 Euro. There is no threat of default (unless the issuing organization runs of with the funds). There is no risk from inflation, other than the inflation that these units import from the national unit as a result of the 1 Local Unit = 1 Dollar agreement.

    There is no hoax, no lack of clarity, only a well established M.O. that functioned well for almost a century in many different places.

    The only thing there is is Money Power and PTB opposition obscuring the issue and preventing from people finding out.

    Thanks for discussing Interest Free Economics, furthering crucial education on the matter.

    1. Mr. Migchels

      To offer proper treatment, I have replied via a new post, here:

  2. Hi BM,
    Hope all is well with you and your family.

    Not sure where my "faith" came into the equation but I certainly do try to cultivate in myself a modicum of humility and an open and inquiring mindset - hence my questions to AM and your good self.

    Your tone in your posts seems slightly haughty and arrogant and a little angry? Try and relax.

    A cool assessment of the arguments put forward thus far seems to favour the abolition of interest and the insidious and nefarious neo-colonial wealth transfer that it invariably leads to. Margrit Kennedy is a nice lady and seems very relaxed when she describes the scale and magnitude of the artificial wealth redistribution brought about by interest - hard to argue with such a cool-headed and nice lady talking sense backed up by facts.

    Just so we're clear: Worgl is not the issue - It's the Interest, Stupid! Why Bankers Rule the World (Ellen Brown's words - not mine).

    Abolish interest - its a relatively modern device that was instituted by a bunch of money-lenders and their paid cronies. Don't get hung up on Worgl - its a nice town - you might want to take a break and visit? Peace and quiet so you can relax...

    You ignore:

    1) That the *principles* applied in Worgl were in operation for hundreds of years through the zakat system leading to prosperity.

    2) That demurrage and the no-interest system of Worgl *remedied* the misery of the depression in the town, caused by the compound interest debt system.

    4) Since you now seem to accept (as an Austrian) that calculations can be used in estimating economic results, look at Kennedy's. Even if some or all of the certificates were exchanged for schillings, people would only have lost out on 2% value whereas in a system with interest, Kennedy has calculated that 45% disposable income alone would be spent on it. Therefore, people would still be much better off with the Worgl/zakat type system. The people of the town loved their free-market experiment and realized it benefited the society at large by preventing hoarding and increasing the velocity of the currency (but you have now realized that was the main point after your initial lapse even after you research).

    5) People would not have to pay up to 3 times the price for their homes due to interest.

    6) That goods and services were cheaper due to no interest. Kennedy gives the example of rent, around 75% of which is made up of hidden interest.

    7) Examples such as of those of Guernsey and Liverpool illustrate that merely removing interest from the point of money creation resulted in better economic conditions for locals and yet you have no problem with interest.

    8) You're hung up on a hypothetical scenario about what people might have done, don't you believe in human action? Perhaps people would have bought gold, property, shares or other commodities with their spare certificates in order to avoid demurrage and if so the experiment certainly could have continued even if a less rigorous pace (people may have converted some certificates).

    I am sure, as before, you will cherry-pick points but there it is. Debunk away!