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Hyperinflation, alive and well

In my initial post last May I mentioned I would discuss some of the economic environments that I have worked in as part of my consulting work. I have some very clear memories about inflation in the US from the late 1970s and early 1980s. I worked in a grocery store from 1979 to 1980 in suburban Chicago and one of my duties was to change prices on the full range of grocery products. This was before the time of electronic bar codes that allowed price changes to happen essentially automatically. Back then you had to either scrape the price tags off cans and put the new price tag on, or for products in boxes the old price tags had to be covered up with the new, higher price tag. Also as a business student in the early 1980s I remember that we took up quite a bit of time on inflation accounting, learning how to detail financial statement footnotes regarding the underlying cost basis. I don’t recall ever using that concept in practice once I started working full-time in the mid-1980s.

In one of my trips late last year, I spent some time working in Belarus in November.  One interesting characteristic that I found about the Belarusian economy is that inflation is currently hovering around 100 percent. The currency experienced two major devaluations during 2011. Last spring the USD/BYR exchange rate stood at about 3,000:1. One devaluation occurred in May that sent the rate to about 5,000:1 and another devaluation in September and October sent the rate to just under 9,000:1 which is about where it stood when I was there. It has recently drifted back to about 8,300:1. Usually when I travel to a country I immediately exchange a few hundred dollars into the local currency. I didn’t do that in Belarus. I exchanged about $40 of spending money every two or three days and I got a few thousand BYR more each time I went to exchange currency. Some cite loose credit in the form of “issuing cheap loans to cover state firms' budget gaps and propping up the ruble at what eventually became more than double its actual worth” as the cause of the problems with the economy. Most of the lending in Belarus is undertaken by large state-owned banks.

One final anecdote will close out my post. I have been to three countries where I have seen Lenin statues previously—Tajikistan, Ukraine and now Belarus. In Tajikistan and Ukraine, the statues were tucked away in parks. In Belarus, the statue is in front of the Government.


  • Paul Marks

    Karl Marx himself mocked the doctrines that, long after his death, became known as "Keynesianism" (i.e. the idea that increasing the amount of money created real increases in employment and wealth – rather than flash in the pan nonsense whilst people adjusted to the increase in the money supply)- see Hunter Lewis "Where Keynes Went Wrong".

    "Lenin" (at least according to Keynes – see his Economic Consequences of Peace) did not consider inflating the money supply as a road to prosperity – but, rather, as a weapon to destroy the "capitalist" economy (which, of course, it is).

    However, the Italian Marxist P. Straffa (a friend of Maurice Dobb and co of Cambridge) combined Keynesianism and Marxism – in a way the demented rulers of Belarus would approve of.

    However, I have never been sure whether Straffa was sincere – or whether he (and those who followed him) were not still thinking in Marxist/Leninist terms (i.e. only pretending to think that Keynesianism was good for prosperity – whilst really seeing inflation of the money supply as a weapon to spread economic chaos).

    Perhaps others here will be able to help me out of my ignorance and tell me whether Straffa and co were sincere or not.

    As for Belarus – yes Sir, it is the worst economy in Europe. The international "Occupy" movement would love the place – it is the end result of their principles. "Public ownership" of industry (the unions and the leaders of the people working as one….., no greedy big landowners (other than "the people" of course), and no big private banks either.

    Want to see what the academic and media "liberals" (as well as their product the "Occupyers") want? Then look at Belarus.

  • Keynes doesn't argue that simply increasing the money supply increases employment and wealth. He argues that central authorities commanding resources regardless of market forces can increase employment and wealth, and he further argues that market forces alone sometimes cannot increase employment and wealth while these authorities can.

    I'm extremely skeptical of the first argument, and I reject the second one entirely if the law establishes propriety effectively; however, current law in the United States often does not establish propriety effectively, and other legal systems establish it even less effectively.

    Marx does advocate a central bank, but he doesn't advocate it simply to inflate the money supply or to spread economic chaos. He advocates it to centralize the organization of productive means by statesmen acting nominally "for the workers".

    I don't know anything about Italian Marxist P. Straffa, but the "Occupy" movement is a hodgepodge of malcontents without any coherent principles. Attributing principles to such a diverse group is nonsense. If you care about the Occupiers at all, you should try to teach them your principles, as Ron Paul does, rather than alienating them.

  • Paul Marks

    The scary word (at least to me) in the quotation from Keynes (from his introduction to the German edition of his General Theory…) is the word "totalitarian".

    In short it is not that he does not know that Nazi Germany is totalitarian (he is not confused or misinformed) – he does know, and that is what he LIKES about Nazi Germany. As you point out Martin he does not just want to create a lot of new money (in his gut he understands that the unions will just ask for higher pay, and unemployment will not really fall for long, if at all) he wants the governement to control things – levels of pay, who does what (and on and on).

    Of course not Hitler and co (they are too vulgar) – but well educated and cultured people like himself and his Cambridge pals. That is who should be in charge – telling everyone else what to do.

    The totalitarianism of a cultured elite.

    Plato rules O.K.

    I think (on this at least) we can agree.

    Plato does not rule O.K. – it is not O.K. at all.

    No form of totalitarianism (no matter how cultured the rulers) is O.K.

  • Bill Stepp

    There is a fourth country with a Lenin statue. There's one at 250 East Houston Street in the People's Republic of New York, atop the building at Red Square. I wish I were making this up, but it's true.

  • Paul Marks

    Bill – yes you are correct there are Marxists in New York City (for example Jeff Jones formally of the Weather Underground – now of the Apollo Project and Centre for American Progress crowd, but still just as much a Red as he ever was). It was ever thus – even in 1883 there was a big gathering of Marxians to make the death of Karl, they met in Union Hall and a century later the modern Marxists were there at the centenary conference.

    Comrade Barack was, of course, at that conference (part of his life history that the media somehow does not know) – so was Bill Ayers (he lived in New York back then) soon Bill went back to Chicago, and Barack followed (oh I am mean, by a total coincidence….).

    The "liberals" love have it both ways – they put Lenin on their building and then they call us "McCarthite" if we call them Communists.

    My reply to that has always been "I do not support Senator Joseph McCarthy on housing subsdies [I doubt I would support him on banking and money either], but on trying to expose you Reds to the light of day – yes this over-the-hill Brit supports Joe to my last asthmatic breath".

    That gets them laughing (which is part of my intent) – but, of course, I mean every word.

  • Bill Stepp

    Paul-I didn't know Comrade O is a Marxoid. He could make a fan out of me if he pulled a Nixon (his "I am not a crook" speech was the greatest speech ever by an American president), and went on TV and said, "The American people have got to know whether their president is a Marxist…. Well, I am not a Marxist."

    Speaking of Marxoids in NY, Trotsky supposedly lived at 80 St. Mark's Place for six weeks in February and March, 1917. (If you do a google street map/street view search, it's the apartment on the 2nd floor to the right; one of the windows is obscured by greenery.) I say supposedly because the building owner (Lorcan-he lives in the building and gave me a tour of the apartment) told me about it, and said the information came from his father and grandfather. However, LT mentions an address uptown and doesn't mention the St. Mark's address in the chap. on his NY sojurn in his autobiography. Maybe he was trying to throw off Stalin, who eventually, ahem, eclipsed him.

  • Paul Marks

    Well if Barack is not a Marxist he must be the most unlucky man alive. Someone who just happens to have been surrounded by Marxists his whole life (his childhood with the mother and then with Frank Marshall Davis he could not help – but the rest of his life?). And there is a plenty of evidence that he was a Marxist as an undergraduate at Occidential and as a postgrad at Columbia – and there were those DECADES of work with Bill Ayers and co in Chicago, and going to a Liberation Theology (i.e. Marxist "theology") Church for twenty years and……..

    Of course someone can change their opinions – but there is a problem with that. When a Marxist rejectes Marxism it is a very important event in their lives, they lose all their closest friends (who tend to be Comrades) and so on. Everyone who studies their lives can point to the moment when so-and-so "lost the faith".

    When was that moment for Barack? On what date did he STOP being a Marxist? I can not find any moment of terrible intellectual and spiritual trial in his life, when everything changed for him – he seems to have been the same guy for ever. And that is bad news – really bad news.

    As for Trotsky – an unusally clear speaker and writer for a Marxist (they tend to write in a obscure way – following Hegel in that). For example the line "where the state is the sole employer, dissent means death by slow starvation" is classic Trotsky.

    Max Eastman (Trotsky's American bodyguard and assistant) applied that line to Trotsky himself – but even if Stalin was not in charge and the people choose you, that line would still apply. Therefore Max left the Marxian faith.

    Most of the interesting leftist thinkers of our time come from the tradition of Trotsky (such as the Hitchens brothers – Peter who eventually rejected leftism, and Christopher who never quite did reject it).

    I can find no influence of Trotsky in Comrade Barack – he seems to a be a "mainstream" Marxist (mainstream Marxism, in the West, having developed since Karl's time via the Frankfurt School of Marxism – and the general "cultural Marxist – Political Correctness" movement), boringly so.

    Barack would be of no interest what-so-ever (not as a thinker) – if he was not President of the United States (which is a big problem).