Inflation is how governments plunder
SUB-Saharan Africa is the world’s highest economic growth region at present, but this is not Africa’s greatest accomplishment. A little-known fact is that one African country outperformed such global leaders as Greece, Poland, Argentina, Hungary and mighty Germany by huge margins. It achieved the world’s highest economic growth rates, fastest-rising incomes and astounding productivity; all of its wealth was produced by a tiny workforce. People had so much money that they had no debt, millions of people took extended working holidays in choice locations abroad, and everyone became a trillionaire.
Instead of income and gross domestic product (GDP) rising at single-digit rates, they doubled daily.
The African superstar was Zimbabwe. Its miracle maker was President Robert Mugabe’s central bank governor, Gideon Gono, who solved poverty by printing enough money for everyone to have more than linguists know words for. Vendors were duosextillionaires, or whatever unfathomable sums are called.
Few know how extreme Zimbabwe’s hyperinflation was by 2008, what caused it, or how it affected civilians. Inflation made the world’s richest country, nominally, its greatest monetary disaster. A splendid forthcoming book by Philip Haslam and Russell Lamberti, When Money Destroys Nations, tells the human interest and scholarly story. It exposes ominous parallels between Zimbabwe’s hyperinflation and trendy profligate policies in supposedly responsible western democracies.
Gono set a new record for adding and removing zeroes from notes, but managed only second place for the inflation rate, and the number of zeroes per note. His inflation rate was nearly 80-million, or -trillion, or -billion percent a month, or year, or day. If you want to know which, get the book. Who cares or pretends to understand such madness? Had he not removed 13 of his earlier zeroes, Z$100-trillion notes would have had 27 zeroes, far more than Hungary’s 1946 record of 16 zeroes (a quintillion). Zimbabweans could not fathom how many million-, billion- and trillion-dollar notes were needed to pay, say, Z$13.18-quadrillion. When the government finally capitulated, an original Z$1 note would not buy a pixel of the ink on the Z$100-trillion note in my mad money collection.
The book has many facets, such as how hyperinflation destroys savings. “Those who had saved all their lives … lost it all … savings of Z$10m … couldn't buy a matchstick.”
It tells the familiar story of governments fighting the effects of their policies. “Price controls caused shop owners to stop supplying goods,” so the government forced them to sell what stock they had at a loss, which worsened shortages and insolvencies. Desperate citizens resorted to black markets and barter, or fled. Within a week of Zimbabwe replacing its own dollar with the US dollar, normality returned: empty shop shelves filled, people traded legally and the economy started growing.
Why do governments, including ours, inflate? Why do they want central banks and nationalised currencies? Why not let people use whichever currency they wish?
Though they deny it, and compliant economists confabulate to the contrary, the real reason, as Gono demonstrated, is plunder. Governments like ours get away with modest money supply growth rates indefinitely without people realising why monetary value erodes, or where eroded value goes.
The standard excuse for coercive currency monopolies is “heterogeneous preferences”. This is econospeak for cross-country conditions differing sufficiently to justify, for instance, the quantity of money changing at different rates.
The refutation is that some of the world’s wealthiest countries have no national currency. In practice, currency inflation is tax by subterfuge, and central banks are disguised tax collectors.
Moderate inflation is like cutting a dog’s tail off by the centimetre. Unlike Gono, who took inflation-tax to its logical conclusion, most nationalised currencies are inflated slowly to extract inflation-tax by means that avoid unpopular overt and honest taxation.