Hyperinflation generally arises when a regime needs to spend grossly in excess of what it can collect in taxes. We’re not talking American-style deficit spending here, we’re talking about a regime which must spend two, five, or even 10 times what it collects in order to survive.
This imbalance can be result from any number of factors, alone or in combination: A nation may face threatening neighbors, or a weak dictatorial regime may need to buy the support of the army and public, or politicians in an unstable democracy may engage in bidding wars to remain in office. On the revenue side, war, civil disorder, economic mismanagement, or physical inability to collect taxes can cripple revenue collection.
Strong and secure dictatorial regimes don’t usually resort to hyperinflation. Tottering regimes, whether democratic or dictatorial, often do. During the heyday of the Soviet Union, inflation was modest.
To cure hyperinflation, the imbalance between revenue and spending must be corrected, which relieves the government of the need to print excess currency. How to do so? A regime at war may end the imbalance by winning or losing the war. Americans won the Revolutionary War and our currency stabilized; Confederates and Nationalist Chinese lost theirs, and their currency became worthless.
In a democracy, politicians sometimes achieve the will to control runaway spending by exhaustion of alternatives. After decades of inflation and military coups, Latin Americans are more willing to accept austerity programs which promise long term gain at a cost of short term pain. A dictatorship must either establish itself more firmly (as in Hungary), so that it can collect taxes and retain support with less bribery, or be overthrown (as in Brazil).
I make no pretense of having a count of which alternative occurs more often.
Hyperinflation sucks. I have seen it in Latin America. The antique shops are full to the gills as people sell all their stuff for a meal. (I bought a Bolivian one-peso note for a couple of thousand pesos at one such shop.)
I had a buddy who worked at the US Embassy in Paraguay (Bolivia?). He took his toaster into the shop for repairs. He picks it up and the guy charges him (say) 100 million pesos. He pays and walks out to his car. Guy from the shop runs out, he made a mistake. He charged 100 million instead of 10 million.
Think on that. They guy overcharged by a factor of ten and neither he nor my buddy noticed it at once.
I have family in Brazil and a lot of things were done differently. For things such as jobs, people would pay based on how many minimum salaries it was. I think that my dad’s social security is still measured that way. Some shops in Sao Paulo simply priced things in Dollars and calculated the price based on the exchange rate.
When people got paid, they would rush out and buy a month’s worth of supplies wherever feasible.
It screws with the economy in that no one is making loans or getting them. Not much point in saving since your money will usually be worth less in the long run. Whenever we visited, we usually had relatives who would buy dollars. I remember that the paper would publish both the official exchange rate and the black market rate. There was a lot of barter as well. When my parents sold an apartment they owned in Rio, the price was calculated in dollars, but what they received was another apartment in the City, a statue, and some gold coins from Renaissance era Italy.
It’s extremely unlikely. We’re an economically strong, stable democracy facing no existential military threat. Thirty years ago, the pain of 13% annual inflation resulted in an administration being voted out of office, and 13% is a great deal short of hyperinflation.
I disagree. Hyperinflation is usually a result of government policy not a sign of a poor economy. And no government is immune to stupidity. If anything, our political system makes us more vulnerable than many other western democracies. A parliamentary government that was causing hyperinflation would be voted out of office - our government doesn’t have that recall option.
If Mugabe just needs to pay his army and police enough so they don’t overthrow him, it would make more sense to pay them in government-only credits redeemable for a fixed amount of specific goods (so many loaves of bread, so many liters of gasoline, etc.), which businesses would be required to accept. It’s quasi-feudalism, but at least it would allow the common people’s currency to remain stable.
Nothing. The credits would just be vouchers entitling their holder to requisition goods. The business owner would have to hand over the goods and shred the credit slip.
Yes we do, every 2 years. And with the House being to originators of all money bills, it is safe to assume that they will all be voted out unless for some bizarre reason Americans start believing that the President somehow controls the budget . . . but that will never happen. We Americans know our Constitution from beginning to end.
Is it really as simple as saying “here’s a new note, worth a thousand of the old” and prices drop? Is there another fundamental change to make along the way?
Taking the goods outright (in limited, prescribed quantities for each government employee) is exactly what I’m proposing. The government would no longer be dumping currency on the market. (They could also stop collecting taxes.) Currency would only be used for private enterprise. There’d be a lot less of it around, so its value would rise.
An honest government would redeem them for cash. At what rate is the problem. Not a problem for Mugabe - he would announce that they’re edible and that the business owners should eat them and be grateful.
