Price distortion is one of the major pillars of late capitalism or cronyism for short. When there is no agreed upon standard to measure something, it is relativity and arbitrariness that take over the whole task. For the obvious reasons, these two cannot serve as the foundation of a system of rational measurement/metrology. In our current capitalist global economy price is supposed to measure almost everything that is in play. However, since 1971, incoherent relativeness and ineffective arbitrariness were systemically introduced into the global economy by way of measurement. This situation came into being when the Bretton Woods Agreement collapsed, i.e., when the US government officially abandoned the Dollar’s convertibility to gold. At the time all other currencies were pegged to the US Dollar, hence, by extension to gold. After 1971, prices of goods/services became prone to the built-in-inflation of state’s policies!
Price is the most crucial signal that facilitates production, services and trade in a capitalist world economy. When prices are distorted, including the pricing of money itself (because of various manipulations) the system loses its most celebrated function, namely the efficient allocation of capital! 1971 ushered, explicitly/implicitly, economic policies based on unearned phony money. This economic lunacy, implemented and operating at the global level, started to create fictitious prices worldwide and ended up dictating the allocation of resources, including the non-renewables! Useless and unproductive projects proliferated the globe as a result of this intentional mispricing, fully anchored on phony money. The world is now paying the price for such shortsighted policies. The abandonment of the gold standard, amongst many other things, encouraged nation states to indulge in the excessive manipulation of the market. The result; inflation became the foundation of all economic policies in each and every country of the world. Deficit financing, which has become a currency in the nation states budgets, owes its modern existence to the fiat/phony money system. At times, states conviction of ‘inflate or die’ can get pretty much out of hand (Argentina, Zimbabwe, etc.) forcing the intervention of multilateral institutions likes the IMF, ECB, Etc.
Ironically, it was the socialist states that undermined, rather intentionally, the logic of price discovery in their planned economies. The political orientation of the ‘socialists’, i.e., USSR, China and others, was primarily ethical and was not obsessively concerned about efficiency, which of course the market mechanism excelled at. Ultimately, it was the incapacity of the socialist economies to appreciate the centrality of the price mechanism in the world economy that did them in, so to speak! The current systemic distortion of prices that took over the West’s imagination after 1971 will also have the same effect, sooner than later. By comparison, the depth of intentional price distortion in the West is more cynical and malicious than the socialisms of the bygone era. When a country allows its banks, under the auspices of the central banks, to print/digitize money with abandon, inflation is bound to be the outcome. The systemic inflation created all over the world is paid by the sheeple (human mass). The continuous pauperization of the sheeple (human mass) and its general livelihood is one way of paying for the excessive money printing. This is exactly what happened in the West, in late 1970s and early 1980s. To thwart off the dangerous adventure, the then FED (the late Volcker) raised interest rate to about 20% and directed the world capital into savings, thereby creating havoc in the periphery/third world. Don’t forget, at the time the US dollar was the sole global reserve currency!
In 1985, the Plaza Accord was signed by the major core countries of the system to depreciate the US dollar, particularly against the then emerging giants of production, namely Japan and Germany. The Japanese bubble thus created (compliment of the yen’s appreciation) gave rise to an immense misallocation of capital. For example, just before the burst of the Japanese bubble, the Tokyo Palace of the emperor was valued more than the whole state of California! In 1989 the Japanese economy collapsed and it has not regained its mojo since then. In 1989 the Nikkei index constituting the top 225 companies in Japan, was about 40,000, today it is below 20,000! Germany was probably saved because of the two unions, East Germany & European Union. The Deutsch Mark became the currency of united Germany, while the DM became the template and the anchoring currency behind the euro. The Euro was supposed to benefit from the Bundesbank’s traditional emphasis on guarding against excessive inflation. Today the Mediterranean countries of Spain, Portugal, Greece and Italy as well as the smaller nations like Ireland, are facing the brunt of this Euro policy. Since these countries cannot print their own fiat currencies, but are nonetheless forced to live and compete in a fiat world, they faced economic dislocation. For instance, Italy has lost over 25% of its industrial capacity since joining the Euro currency. Even in these days of pandemic, the monetary conservatives, (Germans, Dutch, etc.) are not willing to accept the issuances of certain bonds (by the EU) to help countries like Italy and Spain. In fact, only few days ago, the German Supreme Court lent its support by upholding German/Dutch position, against the protestation of Brussels’ bureaucrats. More and more, the project of the European Union is becoming untenable!
The fiat currency regime impacted the African economies in ways that was not easy to reverse. Unsustainable mode of development, based on the export of non-renewable resources, was taunted as a solid foundation for resilient and sustainable progress that will bring decent livelihood to Africa’s sheeple. However, the reality was and still remains very different, notwithstanding the idiotic rhetoric of the global establishment and its local lackeys. Extreme dependence on external institutions of economic governance, (like the BW institutions, EU, etc.) both for policies and finance, has left the nation-states of Africa without reliable bearing. Africa’s youth must start interrogating our lopsided integration into the world system, which is based on perennial unequal exchanges. Without rectifying this centuries old regime of exchange (unequal exchanges), there will be no meaningful and equitable development in Africa. See our Covid-19 update next column and other articles on page 30.
“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. Deficit spending is simply a scheme for the ‘hidden’ confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights.” Alan Greenspan. Good Day!