A correspondent wondered why the Krugerrand was cheaper in 1976. I replied that it wasn’t cheaper. The Krugman (dollar) is cheaper today, because their supply has been so multiplied.
In 1976, 1 Krugerrand bought 125 Krugmans (a 1976 dollar = a Krugman). Today 1 Krugerrand buys 1365 Krugmans. So it’s the Krugman that has fallen in price. A Krugerrand today buys 10.92 Krugmans for every 1 that it bought in 1976. This is an annual depreciation of 7 percent (continuously compounded) in the Krugman!
For the sake of one’s wealth, it’s very important to maintain accurate accounting, and accounting in terms of Krugerrands is more accurate than accounting in terms of depreciating Krugmans. That’s the thrust of my reply. I am deadly serious about your wealth and using the Krugerrand as the unit of account. If you invested 1 Krugman in a security that paid 7 percent a year (reinvesting the interest), you’d have maintained the value invested in terms of Krugerrands. Your 1 Krugman would have grown to 10.92 Krugmans. However, you’d have to pay TAX on the phantom appreciation and TAX on the intermediate interest. Hence, even if you had been lucky enough to have found a security that paid 7 percent a year, you’d still end up being robbed by the taxes levied using the Krugman as a unit of account. This is only one way in which the government robs you by depreciating the Krugman. There are others. With confidence, we can say that Paul Krugman knows this, even if he is an economist or because he claims to be an economist or because he got a Nobel Prize in economics, and so we can confidently say that he advocates this form of government theft.
