The tactics employed to survive during high inflation were these:
You usually have a lot of time, or know someone who does; so you try to do things yourself (bye bye division of labor).
Don't hold cash, buy stuff you really need and use.
I remember we didn't discard anything, we made a lot of things ourselves instead of buying them.
We unpacked gifts with great care so the paper would be as new, and fold it carefully for later use.
We also saved glass jars and used them. I would "help" my grandfather to make peaches in syrup. I was just a small kid, so I wonder how much I really helped there. My grandparents also had a machine to make tomato pulp. This was canvassed into sterylized glass bottles (also saved). So we also saved the metal caps from soft drinks, to put on the bottles.
Clothes were mended. Sometimes leather patches on knees were applied when trousers were bought brand new for kids. This prevented holes.
We would also paint the apartment where we lived ourselves. The division of labor was reduced as much as possible, there was much time but not much work or money.
It was very important to hedge from inflation. Monthly wages were rapidly invested in buying all that month's non-perishable grocery goods. Savings were held in US dollars, which are still believed to be a safer storage of value than the uruguayan peso.
Used clothes, toys and books stayed in the family as much and as long as possible, kids wearing hand-me-downs from elder brothers or cousins. My other grandparent loved reading and regularly bought books, which where then passed to my father and to my uncle. I still have some, including Ayn Rand's "The Fountainhead".
I remember when I was 20 and worked as a clerk in a supermarket, asking for an advance on my salary (this was quite usual back then) and using it to buy dollars. By the end of the month I had already recouped the spread between buy and sell prices. This was 23 years ago - how time flies.
So there you have it: spend as little as possible, conserve capital (in the form of goods), find ways to hedge from inflation (buy early, bulk, cheap exactly as much as you need), don't hold depreciating currency.
These were the guidelines. The rest followed (or didn't! ) according to the ingenuity, means and resoucefulness of each one.
I wonder how things are going to develop this time...
3 comments:
There´s not going to be high inflation this time... there are too many deflationary pressures...
We are in a liquidity trap...
Just look at what is happening in Japan... 2 decades of high money supply and consistent deflation...
and now in the US... core inflation is now below 1%... we may be in deflation in about 3 to 6 monhts...
Housing prices are heading back down and fiscal stimuli are fading out...
and capacity utilization is still low at 74%... when it begins to reach around 78%, then you may see inflation pressures... but that is not for some time yet...
Edward,
To be sure we are in deflation now, until that too changes. Liquidity trap is a keynesian term, for which the solution, by keynesian lights, is stimulus spending. That just kicks the can down the road. Until and unless the failed businesses (Banks Insurance Defense) are allowed to go bankrupt, and govt policy gets out of the way if innovation, no one will want to borrow all that liquidity laying about.
Keynes admired Hitler's totalitarianism and told the German people that in his foreword to the 1936 German version of his General Theory. War is another way to solve the crisis, since war tends to destroy the excess capacity formed by malinvestment as a result of currency and interest rate manipulation. The benefit of war is not only do the people wh caused the problem stay in power, they actually become top on the "best presidents" list, and so on. Pray it does not come to that, pray that Obama really is another Jimmy Carter.
HI John, Fiscal spending is the govt expansionary solution in a liquidity trap because monetary policy has no traction... you can´t lower interest rates below zero...
Govt spending now is not kicking the can down the road... it´s preventing immediate damage to the economic infrastructure...
Now the problem is that this recession will last so many years, with escalating costs over the next 10 years, that people don´t feel that govt spending can keep on supporting the economy that long... in which case you might end up doing more damage to the govt as compared to the benefits of maintaining economic infrastructure...
Milton Friedman said that the best govt is a benign dictatorship... In the early years of Hitler, people thought he was benign... Friedman designed the economy in Chile under Pinochet... Income inequality increased... real wages decreased for 20 years... oligopolies formed... regressive taxes and social costs... and now you have the country trying to create internal aggregate demand by raising median wages...
The low wages in China for two decades have helped the rest of the world control inflation... But those wages in China are still low... Combine that with the asset bubbles there that will burst... and what do you have?... A Chinese recession with low wages, low aggregate demand... then China will fall into a liquidity trap...
Then they will export their business contraction like Europe is doing now...
There is one thing I have learned in my years... people really don´t know the value of so many things... This is a big problem and a big opportunity in the free market...
Have a good day John... I like your work...
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