Inflation And Its Uses

Inflation is a subtle way to make you pay for the corrupting gifts you had accepted

By George Handlery

Regrettably, this column often needs to deal with the trends of the economy. Politics, especially the “getting elected” aspect of it, is being economized. As a result, and increasingly, the governors’ economic policy responds to the dictate of political concerns. The intertwining of the two areas that are meant to be separated is not accidental. Collectivists converted the framework within which societies produce their livelihood to a political matter, that is, into a something that is steered by those that hold power. This capture of economics by politics causes havoc. The consequences of the political steering of what would otherwise be a natural process, is characterized by derailments. The record confirms the ultimate failure of collectivistic approaches. This new order, within which society is organized as an association for satisfying its member’s needs through production, wobbles.

As insinuated above, with the economizing of politics, government intervention is expanding into areas in which the outcome is not optimal. This expansion is a consequence of the pursuit of short-term political interests that contradict society’s long-term purpose. Such interference involves the derailing of economic processes and the chronic deficits that this entails. The intrusion results in inflation. Inflation, as a government-induced process, is more than only a plague that hits the diligent, the frugal, the responsible that plan their retirement. Guided deficit followed by devaluation is a great way to do away with debt incurred by irresponsible overspending. 

What is sold in our day as “socially sensitive policy” means that deficit spending is said to demonstrate a solidarity made obligatory by the opinion makers. As we are being nudged to engage in the exercise, we discover that others tell us for what amount, and for whom, solidarity is to be shown. The resulting programmed deficits are signposts. They mark a path that leads to state insolvency even if society –the association of voters-  would be on a sound footing if left alone. A further contributor to the descent is the practiced economics of magic. The tricksters’ newest ploy allows indebted states to support failing banks through transfers to international institutions that then purchase the uncovered debt. The stirring of these components continues when the acquired “assets” are invested into “treasuries” that create the impression that the empty vaults of the guarantors of the debt of others are filled with something of substance. Whipped cream comes to mind: a little cream churns into a lot of foam.

Since inflation is ahead of us, the topic deserves elaboration. For that devaluation, there are politically driven reasons. It is so because inflation is the best means to make disappear the condemning evidence of politics’ knowingly committed past sins.

Probably the most striking case of inflation you know about is Germany’s after Great War. In its course, a streetcar ticket sold for what used to be the entire pre-war debt of the Kaiser’s Reich. Closer to home, one remembers minor cases from close-up. Such as the writer recalling gas on Santa Monica Boulevard for ¢19. Visiting Europe in the sixties, his dollar bought 4.33 Swiss Francs. Now 0.95 buys a Greenback. (Admittedly, the dollar used to be over-valued. Nowadays the CHF, being a safe, stable hard currency became, due to the wish of the smart to seek protection, overvalued.) 

To the observant, the recent case of Zimbabwe might ring bells. Mugabe’s socialist dictatorship –why use adjectives that are synonyms?- has created a record that deserves admiration. In college, we learned that, history’s greatest inflation has been achieved in Hungary. Whether Zimbabwe under Mugabe’s retrograde socialism has surpassed Hungary as she moved from German to Soviet occupation, is unknown to the writer. Whatever the exact performance that determines the gold medalist, there is a difference. In one instance, the cause is internally induced devastation by policy. In the other one, ruin came from the looting by foreign conquerors. Regardless of the details, socialism as a policy and foreign conquest as a curse emerge as matching competitors. Socialism you can choose, foreign conquest’s origins is more complicated. The choice between the plague and cholera is for the reader to make.

The bill shown at the top of this page to represent pictorially a case, is by far not the highest denomination produced in Hungary. Collectors have much more impressive specimens. Nevertheless, the slip of paper below that unconvincingly pretends to be money, serves adequately to illustrate what, in practical terms, inflation can entail. This accidentally preserved specimen deserves some explanation.

Let us begin with the word “Pengő”. That money replaced the „Korona/Crown“ once WW1’s victors dissolved the Austro-Hungarian Monarchy and the local Soviet Republic replacing it could be defeated. Under Horthy’s rule, the Pengő became, in spite of the hardships imposed upon a defeated and truncated country, a stable currency. For many years, a Pengő was reliably worth a “quarter”. Alas, that original quarter is only remotely related to what nowadays two bits are supposed to be worth. 

The next detail to be pointed out is that the „Hungarian National Bank” calls the paper „egy milliárdmilpengő”. The words mean one billion multiplied by a million. Please do not feed that into your computer: the circuits will melt. This is the thing about the number that prevented the HNB from expressing the alleged value of the „money” in numbers. No one would have understood the value of several lines of „0’s“. You can file the matter as a rare practical triumph of imprecise words over exact numbers. 

What your columnist really likes about the bill is a warning at the bottom. It is a stern reminder that “forgery is punished by law”. The grim threat must have scared stiff many crooks. Seriously, can anyone conceive of a sane person making bogus bills of that inflated currency? 

Indeed, counterfeiters are smart enough not to invest their means into the duplication of something that is worth less than the paper used for the forgery. With that, they demonstrate a virtue. They know something worth knowing and they act upon it. That happens to amount to something that, those who as voters allow their currency be watered down, need to learn. Is the conclusion that the crooks –including the ones in government house- are smarter than the voters are?