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Opinion

What is Hyperinflation? Ask Venezuelans


  • By The Newnan Times-Herald
  • |
  • Aug. 24, 2021 - 6:20 PM

What is Hyperinflation? Ask Venezuelans

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 reached at lreed@fee.org

Broadly speaking, prices in the U.S. are rising at their fastest pace in more than a decade.

A few bold forecasters are predicting hyperinflation on the horizon. But how fast must prices gallop to reach that ominous threshold?

If there’s a consensus among economists about what that magic number is, it might well be a rate of 50 percent per month. That would translate into prices soaring by almost 13,000 percent on an annual basis.

Thankfully, Americans are a very long way from anything like that. 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 publishing money supply numbers, but we know that in 2017, the money supply was six times higher than it was just two years before.

The bolivar is so close to absolute worthlessness that Venezuelans are refusing to use it, preferring American dollars and cryptocurrencies instead. On Oct., 1, the regime of Nicolas Maduro will “reform” the bolivar by officially lopping off six zeroes. “All monetary amounts expressed in national currency will be divided by one million,” the central bank announced last week. New paper notes will be issued in face values of from five to 100 bolivars.

The new money will promptly sink in value just like its predecessor. Why? Because destroying value is what socialist governments do best — through reckless government spending and printing of money, vilification of profit and private entrepreneurs, coercive redistribution of wealth, and cronyism and corruption on a colossal scale.

In 2018, the Maduro kleptocracy “reformed” the bolivar by removing five zeroes, so the October adjustment means the currency will have shed a whopping 11 zeroes in just three years.

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

Socialists have endless schemes to seize wealth, give it to their friends or buy votes with it but no thoughtful perspective on how it comes into being or how to generate more of it. Socialism ends up as the equivalent of burning the candle at both ends: It destroys wealth creation at the same time 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 off.

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

On Oct. 1, Maduro will herald the disappearance of six zeroes as a bold, new day. Everybody else will see it as nothing more than another socialist clown show that isn’t the least bit funny.

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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 reached at lreed@fee.org.)