What is hyperinflation? Ask Venezuelans

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Lawrence W. Reed, a resident of Newnan, is President Emeritus of the Foundation for Economic Education. His most recent book is “Was Jesus a Socialist? He can be contacted at [email protected]

Overall, prices in the United States are increasing at their fastest rate in more than a decade.

A few bold forecasters are predicting hyperinflation on the horizon. But how fast do prices have to gallop to reach this worrying threshold?

If there is a consensus among economists on what this magic number is, it could well be a rate of 50% per month. This would translate into a price spike of nearly 13,000% on an annual basis.

Fortunately Americans are a long way from something like this. In Venezuela, however, people know exactly what hyperinflation is because the socialist money-printing tyrants in Caracas have been delivering it for years now. They stopped releasing money supply figures, but we know that in 2017 the money supply was six times higher than it was two years ago.

The bolivar is so close to absolute uselessness that Venezuelans refuse to use it, preferring instead US dollars and cryptocurrencies. On October 1, Nicolas Maduro’s regime will “reform” the Bolivar by officially cutting six zeros. “All monetary amounts expressed in national currency will be divided by one million,” the central bank announced last week. New paper banknotes will be issued in denominations of five to 100 bolivars.

Fresh money will quickly lose value, just like its predecessor. Why? Because destroying value is what socialist governments do best – through reckless government spending and printing money, vilification of profits and private entrepreneurs, coercive redistribution of wealth, cronyism and corruption on a colossal scale.

In 2018, Maduro’s kleptocracy ‘reformed’ the bolivar by removing five zeros, so the October adjustment means the currency will have lost 11 zeros in just three years.

As a medium of exchange, money is only useful for what it earns you in trade, which usually means real wealth in the form of goods or services. Think of money as a sort of receipt or claim ticket. You earn it, but then return it for something you really want, much like giving the clerk a ticket to collect your coat after a theatrical performance. If while you were watching the show the coats were burnt and the clerk issued thousands of new claim tickets, none of those tickets would be worth anything.

Socialists have endless plans to grab wealth, give it to friends, or buy votes with it, but no thoughtful perspective on how it is formed or how to generate more of it. Socialism ends up being the equivalent of burning the candle at both ends: it destroys wealth creation at the same time as it issues more claim tickets redeemable for a diminishing supply of wealth. Socialism is the irrational belief that politicians and power can veto the laws of reality and make us all better.

A cup of coffee in Caracas now costs 7 million bolivars and the GDP per capita in Venezuela is lower today than it was 35 years ago.

On October 1, Maduro will herald the demise of six zeros as a bold new day. Everyone will see it as nothing more than another socialist clown show that isn’t funny at all.

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(Lawrence W. Reed, a resident of Newnan, is Chairman Emeritus of the Foundation for Economic Education. His most recent book is “Was Jesus a Socialist?” [email protected].)


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