Economics of Social Collapse
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.
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.
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 con- sequence 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.
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.
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.
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.
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.
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
bil- lions in aid, stymied the free market.
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.
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.
was no need for hyperinflation. 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
READING: Paul Cantor,
"Hyperinflation and Hyperreality: Thomas Mann in Light of Austrian
Economics" (Review of Austrian Economics, Vol. 7, No.