Some of the Guardian's economics team really do need to learn some basic facts. This was published this morning as part of an explanation for hyperinflation in Venezuela:
Hyperinflation is the term used to describe prices spiralling out of control, accompanied by plunging currency values — leading consumers to require wheelbarrows full of money to buy everyday essentials.
In theory, prices should always fluctuate depending on supply and demand. Inflation is the term for rising prices, while deflation describes prices falling. Hyperinflation occurs when prices rise so wildly as to render the concept of inflation absurd.
The problem comes when the supply of paper money in an economy outstrips demand for goods and services, causing the value of the currency to fall. This occurs when governments create new money to finance spending above their income from taxation.
First, someone has to realise that paper money is no different from electronic money, and electronic money is more important in just about every economy in the world now than anything printed on paper.
Second, as a result, wheelbarrows are not essential. They can be used, but the Weimar allusions are just that.
Third, the theory referred to is also just that. It's a theory, and not a very good one. The reality is that prices fluctuate as a consequence, or not, of the attempts of government to regulate them. And if the government is either prevented from regulating those prices, or fails to do so, or those prices are subject to an external shock, then inflation can spiral out of control. But to pretend that supply and demand are the major factors in this equation is just wrong: someone needs to get beyond their first-year economics textbook.
And the last claim - that inflation is caused by a government creating new money to finance spending above the income from taxation - is absurd. Any government can spend beyond their ability to raise money by taxation: the UK has since 1694, and has prospered greatly as a result. So this generalisation is another drawn from the undergraduate textbook that is, simply, incorrect because it ignores so many causes for inflation, many of which are external to any economy. What it also ignores is the fact that a government may want to spend in this way to boost economic activity. In other words, the comment ignores the whole of the understanding of fiscal policy based upon Keynesianism.
There are moments when I despair of the mainstream media and its ability to comment intelligently. This was one such occasion.
There is, of course, a hyperinflation problem in Venezuela. But it did not result from printing too much paper. And it's crass to say it is. I am not, when saying so, also suggesting that the government has no part in the problems the country faces: it obviously has. But let's have a mature debate and explanation, and not this nonsense that suggests the printing press is the route to hell in a monetary handcart.
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It concludes by saying:
“Boosting economic growth to balance the budget deficit, or using austerity and privatisations to raise money for the state to close the gap, are among the options available.”
So, to heap austerity on its populous already struggling is the way. Whats this strategy done to the UK’s growth?
Its almost as if this article is written to justify UK Tory policy.
Tony Weston says:
“….Its almost as if this article is written to justify UK Tory policy….”
That’s what it does, but I suggest, the intention is more likely to be to shore up some credibility for team McDonnell and the horse shit they are peddling.
Need a new government like a hole in the head if it’s going to be indiscernable from the departing incumbents.
Indeed. Other factors not being discussed are the shortages of basics such as food and fuel. The crazy subsidies for these things is actually a Heath Robinson engineering solution to devise the shortages as the amount of food produced by the free market has cratered as why bother to produce if you’ll lose money at the guaranteed price or lose your shipment to bandits, and at the same time the amount of money chasing what little food there is has surged.
Venezuela has also made the mistake of not banning emigration. When in a hyperinflation crisis people should not be allowed out as it just makes the problem worse. The reason for this is that you have an expanding supply of money on top of a decreasing population which means the currency is worth even less.
How do you ban emigration?
I do sometimes doubt the value of your commentary
You also do not seem to comprehend the nature of money on all occasions
The same way as you ban or restrict immigration. Progressive protectionism as advocated by people like Colin Hines involves doing this.
“How do you ban emigration?”
Follow the sort of prescriptive policies which prevailed in the old Soviet Union ?
So just why is there hyperinflation in Venezuela?
I have made clear that is not the reason for my comment and I am not engaging with far right trolling on this issue
I will be deleting further comments of similar type to this for that reason
I’m normally accused of being a wishy washy Cambridge liberal, out of touch with the common man, etc, etc. “Far right troll” is a new one which I will now have to adjust to.
PS It was a genuine question, not an attempt to trap you into an uncomfortable position.
OK
Apologies
Sometimes it is hard to tell, and sometimes the onslaught feels like that
The discussion should centre around the collapse in the bolivar and why international trading entities have no confidence in owning it. Here are a few:
1) Collapse of property rights (going back years) and the “annexation” of assets by the Govt without fair compensation . This has caused the private sector to shrink, direct international investment to steer clear, and for the currency to depreciate.
2) Exchange controls going back to 2003. This caused a black market and inflating the price to buy dollars etc thereby worsening food shortages etc. Exchange controls have the reverse effect of the intention. International investors / potential trading partners will never trust a regime which resorts to exchange controls.
3) Oil reserves in Venezuela are the largest in the world. The country should be enormously wealthy. It isn’t. Unfortunately PDVSA is the State run oil company and is legendary for its mismanagement and corruption. Indeed ExxonMobil and Conocco Phillips had assets expropriated when the oil industry was nationalised in 2007. State control has proved so disastrous that Venezuela now need to import crude oil.
Venezuela, with Turkey following in its tracks, is a story in what happens when Government loses control of its currency and is a counter argument for excessive state control. Also, the points made are before printing to fund social policies are accounted for. So when critics of neoliberalism (or whatever term is coined) say it cant get any worse – well it clearly can. Venezuela had the good fortunate to have an abundance of natural wealth yet is a complete basket case.
You forget effective sanctions and the role they have had
And the failure to tackle the shadow economy
jamesc says:
“The discussion should centre around the collapse in the bolivar and why international trading entities have no confidence in owning it. …”
You come up with some fine propagandist excuses for the chaos in Venezuela, (masquerading as economic wisdom) but the truth is almost certainly that collapse of the Venezuelan economy and society suits US ambitions .
….and those conditions have been assiduously and surreptitiously stage managed over the past few decades.
So if it wasn’t printing too much money, paper or electronic, what did cause the hyperinflation in Venezuala?
You don’t seem to give an explanation other than saying it has nothing to do with printing money and nothing to do with the governments attempts to control prices.
Venezuala seems to be the only country in the world currently experiencing hyperinflation, so it must be something to do with Venezuala itself.
So what is it?
A too large shadow economy undermining fiscal policy – a common problem that I point out
And debt linked to the dollar
Plus effective economic sanctions from the US
Try the last as the prime cause and work in reverse
The government is at fault. I said so. But not entirely. And that’s all that needs to be said on this
I have many problems with what you are claiming.
“A too large shadow economy undermining fiscal policy — a common problem that I point out”
Venezuala has a large shadow economy, but so do a lot of other countries which are not experiencing hyperinflation. I also see that you have no evidence that the shadow economy has caused hyperinflation – you just made a claim. By all accounts, hyperinflation has seen the size of the shadow economy increase dramatically, so if anything it looks like hyperinflation is a driver of the shadow economy, not the other way around.
“And debt linked to the dollar”
They don’t have that much Dollar debt, especially in comparison to their peers, and regardless have effectively defaulted on it anyway. Again though, it is hard to see how having some Dollar debt would cause hyperinflation when other countries with much larger Dollar debt are not experiencing the same problem.
“Plus effective economic sanctions from the US”
US sanctions are pretty limited, and Venezuela is not the only country with sanctions. Again it does not likely that such sanctions would cause hyperinflation – unless you can provide some evidence for this.
It seems you are odds with the rest of the world as to the reasons behind Venezuela’s hyperinflation and economic collapse. I don’t see any evidence other than your own assertions as to why money printing isn’t the main cause.
The IMF seem to clearly think it is down to massive printing of money.
https://blogs.imf.org/2018/07/23/outlook-for-the-americas-a-tougher-recovery/
In a nutshell what happened is that during the oil boom Venezuela benefited, and massively increased government spending. When the oil price fell, they found themselves with a roughly 30% budget deficit. They the compounded this problem by expropriating what little remained of private industry and taking government control of almost all major industry in the country, and then tried to fund their huge budget deficit by printing money. Which led to a massive fall in the value of the currency.
If they hadn’t tried to print money Venezuela might have just had a nasty economic shock, but the act of printing money wiped out the value of the Bolivar, and made the economic collapse inevitable.
Of course, that then led to the prices of imported goods rising sharply, and the start of the inflation problem. They tried to control this by regulating the price of goods, but simply what happened was that the shelves emptied as retailers wouldn’t sell products at the government price if they were going to lose money on it, because the import price was now so much higher. So goods became more scare and inflation took another leap higher – and the black market took over as the pricing engine of the economy.
All of which led to a fall in economic activity, and massive devaluation of the currency, which in turn led to hyperinflation.
What does this tell us?
Well, it tells us that budget deficits do matter.
It tells us that printing money leads to the devaluation of the currency and various other adverse effects.
It tells us governments can’t effectively regulate prices.
It tells us supply and demand are huge drivers of an economy.
I think the reason you are trying to claim that printing money is not the cause of Venezuala’s problem, and that the government trying to regulate prices isnt either, is that it makes the claims you have made in other articles look ill-founded at best, or downright wrong and stupid at worst.
In some of your articles you say that budget deficits don’t matter. You also say that (because of MMT) a sovereign government with its own currency can never go bankrupt. Both because the government can simply print money instead of borrowing it. You also say that printing money won’t cause inflation (unless there is full employment).
You also claim that there would be no adverse effects of printing money.
Venezuela is rather the case in point that shows that you can’t simply do this and expect nothing bad to happen. If what you are saying is true Venezuela should be rich, rather than an economic basket case.
I suggest you read the comment from John D who offers much better insights than you have to offer, in my opinion
Ah I get it now. This website is one of those lunatic fringe places where the fruitcakes hang out, not a serious economic website with any knowledgeable or serious authors.
What other reason could there be for
A) claiming hyperinflation in Venezuela has literally nothing to do with the huge amount of money the have printed, then..
B) the supposedly economically literate author ignoring the errors he has made pointed out to him, and failing to meaningfully answer any of the questions put to him, and the finally…
C) Pointing to a Libyan conspiracy theory website like Internationalist 360 as an explanation for the crisis in Venezuela.
It must be a US conspiracy. It can’t be my precious MMT, government or money printing that has caused all this problems!
I did get youy right then
I thought I had
“I did get youy right then
I thought I had”
Hole in one !
Neolib BS, but prettily dressed. Followed by the usual echo chamber accusation and cries of conspiracy theory…..Yawn..
I suspect a short historical memory is at work here as well as political bias. The neo-liberalisation of Venezuela in the 80’s was an utter disaster that produced poverty rates of 50% and right wing authoritarian crack-downs that caused many deaths, Why is that forgotten even by some of Venezuela’s own citizens?
Even now, despite the severe conditions, economically, there is free health care reaching about 60% of the population and 500,000 homes A YEAR are being built for largely poor people. It has the second lowest rate of homelesness in Latin America.
The country is effectively dollarised with the local currency being exchanged for dollars on black markets.
Regarding the much touted food shortages: much of this is to do with a huge monopoly that produces these main foodstuffs being owned by a ghastly billionaire, Trump supporter who stock piles the produce to control the prices whilst selling on the black market for greater profit and thereby contributing to inflation. The CEO’s want to keep control and enjoy price gouging.
I urge anyone to watch this video which challenges the cliches about Venezuela:www.youtube.com/watch?v=_fV-C1Ag5sI
I saw that article and am glad that you commented on it as it’s just so lamentably wrong on everything.
Larry Elliott’s piece is also, to say the least, somewhat lacking – his note that “Financial sanctions imposed by the US have not helped.” is as far as he goes to include what has very likely been the most systematic and sustained campaign of economic warfare since the end of the (first) Cold War.
Venezuela is not, as we are repeatedly told, a wholly socialist country –
food distribution remains privately owned, most staples are provided by private monopolies, most of the media is private, and there’s plenty of evidence of hoarding and market manipulation there (John Pilger has reported upon this many times). Many other essentials are controled by one or two externam multinationals (Proctor & Gamble, Johnson & Johnson, Kimberly Clark for instance) – and there’s evidence that they’re on board too (see the book recommendation below).
There’s also plenty of evidence of external ‘market manipulation’ – the ‘country-risk’ measures provided by (the corrupt) Moody’s etc are always higher than would be expected for a country that has not, in recent times, failed to honour any of it’s externam commitments.
I found a book by Venezuelan academic economist Pasqualine Curcio Curcio ‘The Visible Hand of the Market: Economic Warfare in Venezuela’, which has been made available for free (linke below) very illuminating. It could be over-egged, but it’s not as if we haven’t seen it before in Chile, Cuba & Nicaragua.
None of this is to say that the Venezuelan Government have not mismanaged, but the context we are offered by our Corporate Media, is very far from balanced – and IMHO very far from the truth.
https://www.alainet.org/en/articulo/184345
Or a gist of Curcio’s position can be found in this interview:
http://axisoflogic.com/artman/publish/Article_77560.shtml
Venezuela is an oil economy, if it were functioning then, at a guess it would be 95% of GDP. Oil is state backed with assets taken over from private companies for a token price..at some point those advocating a big role of a Socialist state have to hold up their hands and say this is one example where not only it didn’t work but it was an unmitigated disaster. Venezuela was bestowed natural and this regime has fu@ked it up big style.
“Bestowed natural wealth”
I am not defending Venezuela
I never have
I am just saying it’s not in trouble because it printed money – the issue is much bigger
The issue is dollarisation and falling out with the source of the dollars more than anything else
But it has also undoubtedly got things wrong
But then, I don’t describe myself as a socialist so the comment was not aimed at me
Venezuela is a lot more than an oil state.
When i visited the gran savannah region – 1990 – the amount of precious metal mining was mind blowing.
They have many natural resources – the global robber barons believe it is ALL theirs and have inflicted their economic warfare, guerilla warfare and propaganda – which is The Groans role.
It is another arrow being prepared against the next Labour election manifesto.
Adrian D. says:
“Larry Elliott’s piece is also, to say the least, somewhat lacking …..”
People get old and tired at different stages in their life….
They shoot horses don’t they ?
The Guardian is carrying an increasing amount of negative news stories about Venezuela, Nicaragua and Bolivia. It is also strangely quiet on the upcoming Brazilian election where the future of democracy in the world’s 5th most populous country hangs in the balance.
What is happening in Venezuela is fairly straightforward. The economy is being sabotaged by the Venezuelan oligarchy under the direction of the US state department. These attacks will continue until Venezuela’s oil reserves are back under the control of the oligarchs and their US backers.
Stu says:
“[…]…. These attacks will continue until Venezuela’s oil reserves are back under the control of the oligarchs and their US backers….”
Bullseye. !
I wonder what the root causes of this bout of hyperinflation are? Could it be caused by, or exacerbated by, the policies of foreign governments such as happened in the Weimar Republic?
I think I have made clear that is a factor
And of course it is
Hello Richard.
You may be right that hyperinflation is not always caused by Government printing money, and hyperinflation in Venezuela indeed has several causes.
It is generally agreed that the immediate cause was the Government printing money. to cover its deficit https://www.efe.com/efe/english/business/money-printing-production-plunge-cause-hyperinflation-in-venezuela/50000265-3428752
That in turn was caused by a collapse in the supply of goods and services (caused by incompetent and corrupt price controls), a collapse in oil production (caused by incompetent and corrupt management of industry) and then the collapse in the oil price (which a less incompetent government would have prepared for).
Hence I would say you are both right and wrong. If the Government had come to its senses, and responded to the deficit by changing its policies rather than printing money, there would have been no hyperinflation.
AR
You say that is generally agreed
And I think that simplistic
But I am not getting distracted by the point
And I am not going to spend hours discussing it either because this is pure trolling territory – and I have a liufe to get on with
My is clear and I think correct. Indeed, you too make it: there were other factors that led to miobney creation. Money creation did not come first and not did a failure of fiscal policy do so either
Thank you for this.
If I had a £10 for every time I’ve heard about the Weimar Republic and Zimbabwe mentioned in polite society when discuss the printing of money I’d be a rich man.
In that case, what DID cause the inflation problems in Venezuela?
A whole range of issues, some external and some internal
But not just, as I said, money printing
“many causes for inflation, many of which are external to any economy”
You’ve explained in the past that taxation can be used to curb inflation but if inflation can be caused by forces external to the economy, how can taxation ever be relied on to bring inflation under control?
Only free floating exchange rates can do that
A problem Venezuela has is effective dollar pegging which has not allowed this
I never said tax solves al problems
And externally imposed inflation an economy has no choice but embrace by exchange / conmuptuon adjustments
I appreciate you don’t want to kick off a troll-fest, but I don’t know why anyone’s surprised by what’s happening in Venezuela. US neo-liberals (Republican & Democrats alike) simply won’t tolerate socialism in Latin America. The ‘Washington Consensus’ – originally presented in 1989 by an Englishman, John Williamson – is alive and well. As is ‘Operation Condor’ –
https://libya360.wordpress.com/2018/05/02/the-new-operation-condor-is-underway-in-latin-america. Abby Martin here offers her first-hand insights as to where the sources of the problem lie – https://www.youtube.com/watch?v=lMeli0BA3UA (June 21, 2018). Of course there’s plenty more data available to anyone prepared to look further than the MSM and their own cognitive-bias.
And, as Richard has said: The untaxable Venezualan black economy is of such a proportionally overbearng size taxation cannot be a meaningful actor.
You and your claims are flawed.
Just try to look closely to sanctions. Those are non-economic, but individual.
It is okey to attempt to put responsability on the U.S., i can understand that. But the US is also the main client of the public Oil company from Venezuela, so they are in fact financing the current government.
US involvement is not a true story in the Venezuelan case. It is true that the US has intervened in other countries, but they have not in Venezuela, simply because the current government is stupid enough to mismanage an economy and the World’s biggest oil reserves by themselves.
What you call shadow economy is actual people trying to engage in free markets. So it exists, but it is a good thing.
Debt linked to the dollar? Nobody forced the government to indebt themselves with Dollar capitalists, but that was what they did.
Try to be careful on this case. My advice is for you to look it from the very principles of economics. It is not a complex economy. We only have simple-big-problems, that can be evaluated from the “first-year economics book”. Sometimes it is just very simple.
If you ever feel interested in coming here, be my guest.
Ah the standard ‘no one forced anyone to borrow in dollars’
What nonsense that tells me all I need to know about your position
Leaving the politics aside – and I am not defending the Venezuelan government – that is crass, and you should know it
Steve Keen in his book ‘Debunking Economics’ highlights how neo-liberal thinking over-simplifies the complexities of the economy as a means of arriving at self-affirming conclusions about – well…. neo-liberalism.
I see a lot of over simplification in the disparaging comments here.
The crux of Richard’s post in my view is that the Guardian (and other orthodox publications and thinkers) is jumping to hasty, lazy conclusions. It seems to me that be that any country printing money whose economy is in difficulties is guilty by the association that they are printing money. Which is a load of old rhubarb really.
The printing of money is singled out. Yet all the other causes are discounted. Why? Take sanctions. When Germany told the Western powers that it was not going to pay reparations for World War 1, do you imagine that the sanctions that followed helped the German economy? They certainly helped a strange bunch of egotists that became the Nazi Party to gain power – that’s for sure.
And the other old neo-lib chestnut I’m seeing here today is that money (like markets supposedly) is neutral (oh yeah!) – in this case the US dollar which I believe is used as a means by which to trade oil word wide. There is no countenancing by some posters that the dollar is being used as a weapon against a state by another state. Particularly the state that issues the dollar in question – the USA – who has ‘previous’ in its dealings with South American states like Venezuela who want to live and trade as they wish. Some chance.
All I can say to the likes of Javier and Jamesc and others is that if you like ontological reductionism that much, consider going elsewhere. We don’t do reductionism of that type here – understood?
But before you do go, why not read Michael Hudson’s book ‘Super Imperialism: The Origin & Fundamentals of US World Dominance’ (2nd ed, 2003, Pluto Press). It might wake you up somewhat.
Thanks
Appreciated
Some people read what I say….
“I am writing in defence of a good bloke who is asking the right sort of questions. In my view his post is not really about Venezuela”
Of course the post is about Venezuela. It is about the regime and the mess the country is in. The fact it is a socialist state regime that has messed up is seemingly irrelevant. So long as you can sit on one side of the fence you seem happy to endorse whatever nonsense is thrown your way and sit and clap like a performing seal…one day you will say “RM you are wrong on this..” or maybe you won’t..
James
Politely, you are wasting my time
And I think that means your time here is over
That is a complete misrepresentation of what the disucssion was about: it simply says what you want to think
Best regards
Richard
Oh dear. So you are now telling people who are debating the issue with RM (who has chosen to publish them) that they should ‘go elsewhere’ & presumably not raise the points they have.
The posters you name have, in my view, posted issues and questions which are worthy of debate & answers, which is I believe what this blog is for. Assuming Javier is indeed from Caracas his points are surely worthy of discussion.
BTW – Panama has used the US dollar as it’s official currency alongside the Balboa since 1904.
You seem to have missed several commentators have more than ably responded
You not liking the response does not mean the issue has not been appropriately addressed
The problem would appear to be all yours
You referenced me so please read my opening post. I cite 3 reasons why the currency crashed and didn’t mention printing money. I highlighted State control and the loss of property rights by the private sector. The $ a weapon?…it never can unless a country and currency is a complete basket case. A conspiracy theory can’t be used to defend a regime and an ideology that has proved to be disasterous.
Oh come on….the dollar is the world reserve currency and could be used as a weapon anywhere
It isn’t always
But the threat is always there
Please talk sense
Talk sense?..of course the $ is the worlds reserve currency so it is relevant for every country. So to state the obvious it appreciates /depreciates against all currencies not one in isolation. To blame the $ for the crisis in Venezuela is bizarre… i suppose the eradication of property rights, the crowding out of the private sector by an all consuming State and the imposition of capital controls had nothing to do with to with the crash in the currency?? post this nobody, thats domestic and international, wanted to hold it!!.. That was before the State flooded an already unwanted currency with a a virtual infinite increase in supply. And you want me to talk sense..
Actually, the dollar is entirely to blame in that case…
But you want to make it pure anti-socialist politics
I am clear that the Venezuelan government has made many mistakes from not floating the Bolivar, to not effectively managing the economy onwards, to not controlling the shadow economy, not collecting tax and allowing a shadow market for the currency to be rampant
But that still comes down to the dollar undermining the local currency as a primary issue
I reference you James and others because it’s a bit like that old saying ‘The lights are on but no-one’s at home.
Some of you detractors are just not getting the point.
I am writing in defence of a good bloke who is asking the right sort of questions. In my view his post is not really about Venezuela.
It is about MMT and QE and printing money into the wider economy rather than into the private financial system as happened from 2008.
MMT and PQE is long overdue here. And any smidgen of failure where printing money is used by a state will be used to ensure that Peoples’ QE (main street rather than Wall Street) does not happen in the US, UK and Europe where it is desperately needed NOW.
However, Venezuela does offer us some lessons for MMT/PQE advocates. The big point for me is that printing money is not enough. You have to have a raft of other complementary policies in the economy to support it.
The Venezuelan government seems to have carried out the printing of money without looking at other aspects of the economy. In fact you could say that the way this has been done in Venezuela is neo-liberal in nature. They have been too simplistic in their approach.
Which just shows the corrosive influence that the Chicago Boy Bullshit still has on economic policy the world over.
We must free ourselves from this corrosion and embrace complexity once more.
interesting discussion. Still suspect though that policies of many years ago encouraged the informal economy which you cite as a source of instability.
So what is your advice to developing countries? Shut down informal economies? Reject favourable tax arrangements for foreign investors?
Enforce tax regimes
And we need international financial institutions that help them do so by lwnding in their own currencies
If your country by country model becomes the norm, what else would you advise developing countries do as a matter of policy?
In what way?
I do not follow the question given it is intended to find the profits they can’t locate
So what was the main cause of the problems in Venezuela?
The dollar
June
Why don’t you go and do some reading? See for yourself! You don’t have to come here demanding answers you know!
The UK did not exist in 1694.
I think that scores a point in pedantry corner
Not if you’re Scots it doesn’t
I confess I cannot follow your logic – but that is because when I moderate I cannot see what you are replying to
Richard, I have a lot of respect for your opinions/comments/analysis, but, your analysis of the Guardian piece only raises further waffle…. e.g. “In other words, the comment ignores the whole of the understanding of fiscal policy based upon Keynesianism.”
What the f… is Keynesianism?
Is it not true that fiscal policy is a way of buying votes and modern fiscal policy is affected by the openness of modern economies, i.e. choice of what to buy?
I think that on a site that discusses economics I am entitled to use the word Keynesianism
And to laugh at those who think fiscal policy is vote buying
“I think that on a site that discusses economics I am entitled to use the word Keynesianism”
….and expect contributors to have at least a vague idea what it means…..
Chicago School Economics is also vote buying but exclusively for the rich and powerful.
The same myth about printing money is widely believed about inter-war Germany too.
https://thegreatcritique.wordpress.com/2015/01/14/the-wrong-lessons-of-the-weimar-republic/
The Weimar hyperinflation was not caused by printing money and investing it in the economy, but by printing money to buy gold (to pay the reparations). So it depends, of course, what is done with the money created.
Alexander Kurz says:
” So it depends, of course, what is done with the money created ”
It ALWAYS depends on what is done with the money created.
Spot on.
Yes, all hyperinflation type events need good historians to get at the totality in perspective AK. Knowing that, and not entering the ’cause and effect’ debate above: Weimar produced goods a services that were ‘sold’ for export to pay reparations – with the bits of industry left under their control. The workers wages and middle class bonds and savings flooded back into the market, chasing the remaining loaf or jar of jam in the domestic economy. Photograper makes history with the cart of money photo. Government printed and didn’t tax. With no way forward and no way back, Germany played ‘Strategic self harm politics’ with UK and France to change the rules of the game imposed on them after the war. Did not check what Keynes said would happen – or hoped it wouldn’t? Thought they had more time? Who knows. The rest, as they say, is lazy BBC journalism.
Think again Alexander.
Are you saying that when Germany refused to pay reparations that there were no economic consequences?
I sort of thought that it was only the Daily Heil which published this sort of thing. FT letter:
Given the massive hyperinflation in Venezuela, the crippling food shortages and the 95 per cent devaluation of the bolÃvar, could Jeremy Corbyn confirm whether he still sees Venezuela as an economically well run socialist paradise that Britain should aim to emulate?
Emeritus Prof Chris Hamnett Dept of Geography, King’s College London, UK
It’s pretty pathetic stuff
“Think again Alexander. Are you saying that when Germany refused to pay reparations that there were no economic consequences?”
No, I didnt say this. It didnt even cross my mind. Why do you think that this is sth I wanted to say?
Because Alexander the economic consequences of the sanctions against Germany had an impact on hyperinflation as well as the printing of marks and other behaviours in the economy. There are lots of dynamics at work to create hyper-inflation OK?
And you should have considered them Alexander – all of them – in my view at least.
It’s probably important to put the Venezuelan situation into some context before we start making MMT = hyperinflation.
As others have noted cases of hyperinflation all have unique roots with (some) common themes.
Amongst which are, scarcity of resources, civil unrest, coups, armed insurrection, runaway violent crime, military dictatorships, authoritarian regimes, very high murder rates, corruption, economic sanctions, financial mismanagement, a large black market, the resource curse, weak institutions, a failure to collect taxes, obscene poverty rates, abuse of power and probably countless other maladies that afflict developing countries. Most of these troubles, to a greater or lesser extent predated Chavez & Maduro, but also, to a greater or lesser extent, were continued and sometimes made worse by the pair of them.
How any of that would apply to say the United Kingdom, or any other country for that matter whose experience doesn’t match that of Venezuela is hard to see.
For folks who do make that connection between Venezuela and MMT, i could be generous and say they’re being slightly disingenuous. The cynic in me just thinks they’re being dreary shills for neoliberalism or holding precious metal*
*take your pick
Thanks Jeff
Is the key reason for the hyperinflation the US-dollar denominated debt not so much of the government directly but of the nationalized petroleum company PDVSA? If a government/central bank prints local currency to convert into foreign currency (eg USD) to use to service debts denominated in that foreign currency, then you get hyperinflation. That’s similar to the Weimar situation where local currency was converted to pay war reparations denominated in foreign currency. Am I oversimplifying this?
Yes, in a word
Others have offered better explanation here
I am without a clue on the real causes of economic events after 20 years’ teaching and research in universities. I can see I would fail main media presentations at undergraduate level whether on hyper-inflation or the price of fish. I find Parliamentary debate depressing on quality. Facts are not put at my disposal, but waves of ideological psalm singing are, usually a tiny percentage of the paradigms available. Lying is the major content after fashion-consciousness, vagueness and docile decorum are removed. In many ways, ‘answers’ rely on groaf-oaf-jawbs-burn-the-planet of economics as war by other means. There are plenty of alternatives to teach, from Critical Theory, at least nine variants of economics and MMT/positive money. Former colleagues talk and write about closing the business school for teaching neo-liberal politics under cover as science.
I believe we can see the paucity, even absence of public dialogue and the repetition of Thucydides’ and Plato’s criticism of blathering and corruption problems in democratic epistemology, including false myths of origin and infatuation on democracy itself. Plato gave up on removing corruption after 7 books. Wealth changes hands in inflation and we lack the means of tracking this and such as the looting of economies and firms. This is extremely odd given new technologies that could tell us what the price of fish is and who needs a meal where and repeated resource-cursed economies with looting plight to tax havens. Failures in our monitory democracy remain the problem for me in getting anything I would regard as data and be able to say anything beyond polemic. Main media seems to know even less than me and put over the failed neo-classical as close, uncontested certainty. Socrates would have a field day!
Sad isn’t it. ?
Report card is going to say “Could do better” I think. We are all damned by association.
Sad indeed that supposedly professional, maths-wrapped economics could be turned over by routine questioning methods from 2,500 years ago.
It is only labour which creates wealth. Economics should ‘follow the money’, that is the extraction of surplus labour.