The Mises Institute monthly, free with membership
Volume 17, Number 7
The Economics of Social
by Llewellyn H. Rockwell, Jr.
On the wall outside my office, the gift of Nelson White, is a framed piece of money: a 500
billion dinar note issued by the
government of Yugoslavia. It was printed in 1993, when it would buy about a gallon of milk.
And that was before the
inflation really got bad. By January 1994, the rate would reach 313 million percent and this note
became literally worthless.
But as both Jude Wanniski and Steve Hanke have shown, it was the IMF that bears primary
responsibility for this fiasco. It
was the agency's emphasis on regime stability after 1987, and the usual package of devaluations,
wage freezes, unlimited
credit, and price decontrol in a setting of collectivist ownership, that made a chaotic economic
setting even crazier, and set
the stage for a wholesale looting of the country by its government.
To those who say economic institutions are irrelevant to the stability of a culture, Yugoslavia
should be Exhibit A.
Economic chaos nearly always precedes civil and social chaos, and economic chaos is in turn a
consequence of bad ideas. In
this case, the bad idea is that what this country needed was a new economic plan thrown together
with paper money.
Civilization is subverted by inflation. Readers old enough to remember 13 percent inflation
remember how it turned life
upside down. Savers were considered to be suckers while financial profligacy was considered
wise. Plans of a lifetime were
gutted, employees were always angry, and businessmen found even the simplest accounting tasks
to be maddeningly
confusing. And yet 13 percent is hardly high by this century's egregious standards.
In his 1994 article in The Review of Austrian Economics, Paul Cantor reinterpreted a 1925
short story by Thomas Mann set
in Weimar Germany. The story is called "Disorder and Early Sorrow." It tells of an average day
for a professor of history
that ends with life gone mad. The children behave like adults and the adults behave like children.
All social authority has
collapsed and all sense of duty and morality is vanquished. It is difficult to tell the real from the
unreal. All coherence and
predictability in social life are at an end.
As Cantor shows, Mann's story is intended to illustrate the way in which hyperinflation
brings about a state of what Cantor
calls "hyperreality," whereby the unreal is no longer a fantasy and the real becomes so vivid and
intense, all proportion is
lost. "If modernity is characterized by a loss of the sense of the real," writes Cantor, "this fact is
connected to what has
happened to money in the twentieth century.
Money is what makes complex economies possible. It is the primary means by which we are
able to discern the value of our
work and our property. It permits businessmen to calculate and to make rational judgments. It
allows all of us to plan and
prepare for the future. That is why each step towards inflation--the systematic,
government-orchestrated watering down of
money's value--takes us towards barbarism.
Reading Cantor and Mann, you sense what life in Yugoslavia must have been like for much
of this decade. Western
advisers armed with Keynesian and inflationist theories, together with Western governments
bearing billions in aid, stymied
the free market.
To blame atrocities in Kosovo, real or alleged, on a single head of state, as the US has done,
or, even more preposterously,
on some evil inherent in the heart of every Serbian, reflects more than just gross ignorance. It
indicates a desire to use a
complicated tragedy to cover up all the bad advice the US government has given.
And now, after such incredible levels of suffering, the US and its satellites decided to
impose on Yugoslavia yet another
form of barbarism: war. If anything can bring about more human suffering and social chaos than
313 million percent
inflation, it is bombing.
There was no need for hyper-inflation. There was no need for an aggressive war. The
influence of bad economics was the
precondition for the first, and the ambitions of a war party bent on imperial control was the cause
of the second. Inflation
and war will not fix Yugoslavia. The means to social peace and prosperity is a free market, a
sound currency, and the
elimination of government power to destroy people's lives.
Llewellyn H. Rockwell Jr., is president of
the Ludwig von Mises Institute. Further Reading: Paul Cantor,
"Hyperinflation and Hyperreality: Thomas Mann in Light of Austrian Economics" (Review of Austrian Economics,
Vol. 7, No. 1, 1994).