Archive for July 24th, 2018

Venezuela Turns to Barter

July 24, 2018

Reports are coming on inflation touching 1 million % in Venezuela

Joseph Salerno of Mises Institute says the situation has led people to barter:

In the poorer areas of Caracas and its hillside slums, people in service industries regularly resort to barter. One barber charges 1 million bolivars (equal to about $0.30 at the current black-market exchange rate), but accepts food items as well. He also occasionally accompanies his customers to a local butcher shop where they buy him something of equal market value, presumably with debit or credit cards. The owner of an accounting firm allows his clients to settle their bills in steak, chicken, butter and deodorant. One hairdresser makes arrangements with his customers to pay their monthly bills by permitting him to select items from their stores. A plumber repairs a dishwasher in exchange for a few lbs. of pasta, a bit of beef and 200,000 bolivars (worth about $1.20 at the beginning of 2018).

Resourceful people have begun to develop their own crude media of exchange. A teacher with diabetes and a family member wait in line for hours to purchase highly salable items such as packages of pasta to trade for the insulin that she requires. She is able to exchange 1.5 kilos (about 3.3 lbs.) of pasta for the required dose of medication. With sources of protein in general demand, a professor of architecture at the University of Caracas discovered that that the egg is a “perfect” medium of exchange, while onions or bananas will not do. She paid cash and two eggs for parking and her university department compensated a computer programmer with a carton of eggs.

The currency shortage has added to the tremendous inefficiencies caused by widespread government interventions and pandemic political corruption. It is no surprise that the Venezuelan economy has been shrinking rapidly, with growth rates of -16.50% and -13.20% in the 2016 and 2017, respectively . With the government unlikely to give up its use of the printing press anytime soon, the collapse of the entire monetary system is imminent and the gruesome consequences of Chavez’s vision of a barter economy may come to pass.

 

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If you want to know what money is, don’t ask a banker. Take a leap of faith and start your own currency

July 24, 2018

Longish interesting piece by Brett Scott.

Money is a complex cultural technology. Sometimes it breaks down, but that just gives us all the more reason to tinker with its blueprints. Each new system, though, will have its own psychological side effects and trade-offs. We know what mainstream currencies such as the US dollar are good for: overcoming barriers between buyers and sellers who don’t particularly know or trust each other. The trouble is, by reducing the need for personal trust relationships, mainstream money encourages social atomisation, to the point where arms-length purchasing starts to seem like the only valid kind of transaction. Look at the obsession economists have with measuring gross domestic product in monetary terms. GDP is supposed to reflect what is created in society, but if my grandad builds me a table in his workshop, it’s not included in GDP, and if I buy a table in Ikea, it is. The former is not considered valid production, whereas the latter is. That is arbitrary, and obviously something has gone wrong.

The problem might be that mainstream money is simply too efficient. It numbs people into forgetting that it’s a socially pragmatic delusion, and so we take it for granted, just as we take oxygen for granted. But oxygen is vital for our survival, whereas money is only an intermediary tool, cushioning us from the base-level economic production that actually sustains us. There’s an ecological dimension to this, of course, which is my overriding concern. Our ability to exchange without knowing where things come from blinds us to the real core of the economy: not money, but the physical things we must wrench from the ground by human effort, which is underpinned by agricultural systems, and energised by sunlight, water and soil.

The more we abstract and fetishise money as a thing in itself, the more we lose sight of its sources and its goals. We get confused, and feel disempowered relative to those who wield larger flows of it. Sealed off from inquiry in its hermetic shell, money distorts our perceptions of one another. We can’t seem to remember that it is merely one means of exchange among many. What energies would we unleash if we were to break open that opaque shell and split the monetary atom?

He discusses cryptocurrencies as well. The article was written in 2013 and the author was excited about this new form of money.

Formalization vs Informalisation: Lessons from history of indigenous banks

July 24, 2018

In a recent Mint article, Shruti Rajagopalan argued (Formalization of the economy is a form of coercion, 9 July 2018) that we must not treat informal sector unfairly and call it unproductive. The reasons for firms wanting to remain in so-called informal sector is mainly due to the burdensome regulatory framework for formal sector. By staying out of the formal sector, these firms avoid the costs of formalisation.

The article reminded me of a similar discussion that happened in India’s banking sector in 1930s. When RBI was established in 1935, one critical issue was linking the informal money market with the formal one.

RBI’s first history volume (1935-51, written in 1970) notes that organised sector comprised Imperial Bank of India, the exchange banks and the Indian joint-stock banks whereas unorganised sector comprised the indigenous bankers, moneylenders, chit fund, nidhis etc. The co-operatives were accorded an intermediate position. In this article, I just focus on this regulatory history of indigenous banks (and moneylenders) as history of nidhis and chits followed a different trajectory.

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