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The Austrian “Credit Money” Craze of 1920

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In the spring and summer of 1920 a curious phenomenon appeared in Austria. While Viennese bureaucrats were dealing with the consequences of the Saint-Germain peace treaty and Hans Kelsen was drawing up a constitution for the new republic, across Austria every small town and municipality, and even some bishoprics, merchants, and a few private persons, began to issue their own paper money, the so-called Notgeld or “emergency money.” Although these notes were sometimes very crude, often they had a high artistic value, depicting a local landmark and bearing a humorous or patriotic verse. Yet what was the emergency? And why did these notes disappear almost as quickly as they appeared?

Note issued by the market town of Wiener Neudorf in Lower Austria, just south of Vienna. Signed by the mayor, vice mayor, and treasurer. The text beneath “Wr. Neudorf” indicates that the note expired June 5, 1920.
Note issued by Göttweig Abbey, a Benedictine monastery near Krems in Lower Austria. On the front of the note is the date of issue and the signature of the man in charge—P. Ludwig Koller (the p likely stands for pater, i.e., father, indicating he was a priest). On the lower left is the date of redemption, basically December 1920, and below that it says that it is the third printing or edition, indicating that the monks were pretty advanced in issuing these notes.
A basic wood token for twenty heller issued by a private industrialist in the lumber business, Ludwig Altzinger. From Zell bei Zellhof in Upper Austria.

The Wartime Inflation, 1914–20

In order to understand this brief flowering of credit money—which is what it was—in Austria, we have to briefly revisit the inflationary excesses of the Great War years. As with all the other states involved, Austria’s war expenditures were financed partly by going off the gold standard and increasing the money supply. The banknote circulation rose from 5,137 million kronen in 1914 to 30.646 billion in 1920 at an annualized rate of 134.7 percent. As would be expected, consumer prices too rose dramatically: the Austrian consumer price index rose from 90 in 1914 to 4,604 in 1920, an annualized rate of 192.7 percent.1 This inflation, it should be noted, preceded the Austrian hyperinflation that got underway in 1920–24.

As with all inflation, the effect was a fall in the purchasing power of the monetary unit. The average Austrian citizen could get less and less for his krone as the inflation went on, while the government, the first receiver of the new money, could finance its expenditures with the printing press. The accelerating inflation in Austria is best seen in the deterioration of the krone’s exchange rate against the least inflationary currency, the US dollar. The Austrian krone fell during the war from 5.08 against the dollar in 1914 to 8.9 in 1917 to 994.04 in 1921.2 Unfortunately, there is no data for the years 1918–20, but the trend should be clear enough: a gradual fall in the first years of the war accelerating in the last years and in the immediate postwar period.

An unforeseen consequence of the general rise in prices was that the material needed to produce money became increasingly costly. This mattered little for banknotes, since they were virtually costless to produce anyway, but it became an important problem when it came to coinage. Gold coins had obviously disappeared with the suspension of the gold standard, but coins in denominations of less than 1 krone were an important part of everyday purchases. These coins were made of useful industrial metals, such as copper. In normal times, the value of this small change far exceeded that of the metal in it—but that was before the wartime inflation. To take just one example, the price of copper rose tremendously in terms of kronen, especially in the final years of the war. By 1921, it had risen 6,140.4 percent.3 It was increasingly uneconomical to produce coins. As Austrian small change was still in use in neighboring states not subject to the inflationary policies of the Austrian government, principally in South Tirol, which had been ceded to Italy, it was only natural that the coins would be exported to countries where their purchasing power was higher. Thus, throughout 1919, small change became more and more scarce and the small ten- and twenty-heller pieces disappeared completely from circulation.

Enter Notgeld

That’s when Austrian Notgeld, or emergency money, appeared.4 The first issues were made in early 1919 by the Town of Innsbruck (the major town closest to South Tirol) and other large cities began issuing Notgeld the same year: Kitzbühel and Kufstein in September and Vienna, Graz, Salzburg, and Linz in October 1919. The smaller towns, especially in Upper and Lower Austria followed suit in early 1920.

In order to understand what followed, it is necessary to look at the peculiar characteristics of the notes issued. While some were simply called Notgeld, the majority were expressly called Kassenscheine or Gutscheine, i.e., vouchers or short-term notes. The most common denominations were ten-, twenty-, and fifty-heller notes, but other denominations were also used. They were issued at a certain date and could be redeemed for Austrian legal tender at a specific date in the future. They did not earn interest, but the issuing municipality was liable with all its assets for their redemption. There were many local variations, but usually the notes could be cashed in some months after issue. Often, the notes would also explicitly proclaim that the issue was limited and that a fund had been set aside for their redemption. Some notes simply stated that they could be cashed in for a specific period to be announced later in the press. The notes were explicitly credit instruments, and all these assurances were made to enhance the issuers’ creditworthiness.

Note issued by the town of Kritzendorf, north of Vienna, in Lower Austria. Unlike the other notes, which are called Gutschein, this one is called a “Kassen-Hilfs-Schein.” The verse below the picture translates as “When metallic money disappeared this ersatz [substitute] came to our land.”

The towns apparently all honored their commitments. Yet they made a strange discovery in early 1920, when the first major issues were cashed in: a large proportion of the notes were never returned. Some were probably lost or destroyed through wear and tear, and some had disappeared into private collections, as these new curios aroused interest among collectors. As a consequence, the towns had made a tidy profit. Since there was still a lack of small change, more and more towns and private individuals piled onto this profit opportunity, and from April through July 1920 a veritable flood of notes appeared on the market.

A Free Market in Small Change

It is important to understand that, despite the fact that the majority of the issuers were local town governments, what developed was a free market in small change. Specifically, it was a free market in credit money. Mises described credit money5 as evolving out of the use of money substitutes, but that is not its essential feature. Credit money’s defining feature is that it is a claim to money that either is not fully secure or that only matures at a future date. Consequently, good credit money is short-term paper issued by trustworthy, well-known, and solvent institutions. This explains why the market was dominated by local governments. Not only had private industry been ruined by the war and the wartime controls on the economy, making it doubtful that very many private individuals would have the resources to back a note issue, but local governments were usually also the best-known institution in a town or province. Since they also possessed substantial real assets, it was natural that their notes would be preferred to those of private issuers.

Simple twenty-heller note issued by Josef Runge, a soap and candle merchant in Eferding, Upper Austria.

As the money was freely received and used, we should not look askance at the townships’ profits. Always unreliable Wikipedia6 makes it sound like the Austrian emergency money was just a scheme for raising funds for government, but that is not the case. Supplying money is a useful social function, but money will only be produced if it is profitable. The profit in this case consisted in the difference between the amount of money issued and the amount returned.

Since none of the issuers could enforce acceptance of their notes, they had to entice people to accept them. Consequently, the quality of the notes improved: in addition to the facts emphasizing the creditworthiness of the notes, familiar landmarks and landscapes were printed on them and verses in German and local dialects were made to adorn them—some even specially composed for this use. In an expression of Austrian Gemütlichkeit (good-naturedness), they often pointed to the bizarre monetary circumstances and expressed a hope that they would soon disappear. Thus the twenty-heller note issued by the Town of Fraham in Upper Austria had the following verse:7

Now gone is silver and gold,
And nickel and copper too, I fear,
That’s why paper you now hold –
Let’s hope that, too, soon will disappear.

The notes issued by the Town of Eggenburg carried the following lament:

Gold in the time of gold, and iron in the days of iron.
Now only paper is left. O, that it would soon yield to gold!

While monetary authorities in Vienna might pretend to be ignorant of the relative qualities of gold versus paper money, the broader public was clearly not so easily confused.

As quickly as the Notgeld bonanza had begun it ended, and for the same reason. Inflation had made it unprofitable to produce more small change and driven the existing stock out of the country. Now inflation too made the production of emergency money unprofitable. As prices continued to rise, there was no longer any use for the smaller denominations. Even basic necessities would soon cost thousands of kronen, until the madness finally stopped and the new schilling and monetary stability replaced the defunct currency.8

The German Contrast

In Germany too emergency money became widespread after the Great War. However, the character of the two episodes is markedly different. In Austria, as we have just seen, emergency money was a spontaneous response to the scarcity of small change unconnected to the inflationary policies enacted in Vienna. In Germany, in sharp contradistinction, Notgeld was an essential feature of the Weimar hyperinflation.

Already in 1914 German municipalities and private enterprises had issued emergency notes to deal with the temporary shortage of small change caused by the outbreak of war. This issue was quickly withdrawn again as it came to maturity.9 But during the inflation after the war, this would not prove so easy for one simple reason: the federal government got involved.

Originally, the German emergency money had proceeded as a direct imitation of the Austrian case. German townships saw the profits made in Austria and began their own issues. A law prohibited the use of Notgeld in July 1922 but the Reichsbank circumvented it later that year.10 Notgeld not only became legal, but was approved and guaranteed by the German central bank.11 Private persons as well as municipalities could now—as soon as they had permission from the Reichsbank—literally print their own money and insist on paying with it.

A veritable tragedy of the commons developed as everyone tried to profit by producing official notes, adding extra fuel to the inflationary fires. In most of Germany the emergency money was at times just as common as official currency.12 Instead of solving a serious economic problem like the Austrian emergency money did, the German issues simply accelerated the inflationary breakdown of the economy.


Briefly, in the midst of inflation, private and local initiatives provided the Austrian public with small change in the form of credit money. This Notgeld is not only a testament to the enterprising spirit of the people, which had not been completely crushed by socialist policies, but also depicts the Austrian Volksgeist in a unique way. This is on full display in the collection acquired by the Mises Institute.

  • 1. B.R. Mitchell, ed., International Historical Statistics, vol. 3 (London: Palgrave Macmillan, 2013), tables G1 and H2.
  • 2. Lawrence H. Officer, “Exchange Rates Between the United States Dollar and Forty-one Currencies,” MeasuringWorth, accessed June 22, 2020,
  • 3. Own calculations based on data from Officer, “Exchange Rates Between the United States Dollar and Forty-one Currencies,” MeasuringWorth, accessed June 22, 2020,; and the Thomas D. Kelly and Grecia R. Matos, comps., “Historical Statistics for Mineral and Material Commodities in the United States,” US Geological Survey, last modified in 2016, accessed June 22, 2020,
  • 4. Cf. on the following Emil Puffer, “Notgeld in Oberösterreich – Der Kleingeldmangel 1919/20 und dessen Behebung” in Oberösterreichische Heimatblätter 32, no. 1 (1978): 103–11,
  • 5. Ludwig von Mises, Human Action: A Treatise on Economics, scholar’s ed. (Auburn, AL: Ludwig von Mises Institute, 1998), pp. 425–26.
  • 6. Wikipedia, s.v. “Notgeld,” last modified Apr. 21, 2020, 11:47 UTC, .
  • 7. All translations are my own.
  • 8. The new schilling was of such high quality that the Austrians in the 1930s began boasting of possessing “the dollar of the Alps.” Cf. Steven Beller, A Concise History of Austria (Cambridge: Cambridge University Press, 2006), p. 208.
  • 9. Gerald D. Feldman, The Great Disorder: Politics, Economics, and Society in the German Inflation, 1914–1924 (New York: Oxford University Press, 1993), p. 35.
  • 10. Ibid., p. 561, 590.
  • 11. Adam Fergusson, When Money Dies: The Nightmare of Deficit Spending, Devaluation, and Hyperinflation in Weimar Germany (1975; New York: PublicAffairs, 2010), p. 86.
  • 12. Ibid., p. 119. To my knowledge, none of the histories of the German hyperinflation explicitly addresses the tragedy-of-the-commons aspect.

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The Mises Institute exists to promote teaching and research in the Austrian school of economics, and individual freedom, honest history, and international peace, in the tradition of Ludwig von Mises and Murray N. Rothbard. These great thinkers developed praxeology, a deductive science of human action based on premises known with certainty to be true, and this is what we teach and advocate. Our scholarly work is founded in Misesian praxeology, and in self-conscious opposition to the mathematical modeling and hypothesis-testing that has created so much confusion in neoclassical economics. Visit

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