This article was published by The McAlvany Intelligence Advisor on Monday, January 23, 2017:
George Santayana most famously said: “Those who cannot learn from history are doomed to repeat it.” But he wasn’t the only one. Aldous Huxley put it this way: “That men do not learn very much the lessons of history is the most important of all the lessons of history.” Said Samuel Taylor Coleridge: “If men could learn from history, what lessons it might teach us! But passion and party blind our eyes, and the light which experience gives us is a lantern on the stern which shines only on the waves behind.”
There’s a lesson being taught to the hapless and now helpless citizens (shown above) of Venezuela. It’s a lesson so often taught but not learned that one may, with great confidence, predict the final outcome.
On Friday Venezuela’s Marxist dictator, Nicolas Maduro, fired his banker, Nelson Merentes, the head of Venezuela’s central bank. There was no statement issued by either party, but the instant cause has unfolded in just the first few days of January. On January 1, evidence surfaced that the military, now in total control of what’s left of the food supply chain, has been enriching itself in the process through graft, payoffs, and other means.
On January 8, Maduro announced a 50 percent increase in the nation’s minimum wage in a feeble and failing attempt to keep up with the nation’s runaway inflation. That’s the fifth increase in less than a year, and a 454 percent increase altogether. The new minimum wage is 40,683 bolivars, or about $12 a month.
One January 16, Maduro, following up on a decision announced in December, replaced the all-but-worthless 100 bolivar note with a new 500 bolivar note (worth about fifteen cents American) and 20,000 bolivar note (worth about $6). In making that announcement, Maduro attempted once again to deflect the blame onto others: “price gouging” by unscrupulous capitalists, the Mafia, and an economic war being waged on his country by the United States.
The IMF announced (as Merentes has given up reporting on the economy) that Venezuela’s economy, which shrank 15 percent last year, will shrink another 20 percent this year. The IMF also stated that inflation last year was 800 percent while predicting that this year it will exceed 1,600 percent.
Just as the end point of the runaway inflation ravaging the country is predictable from lessons of history, so is its beginning: the monstrous hubris that everyone can live forever at the expense of everyone else. The opportunity was seized by Marxist Hugo Chavez, elected in 1998, who used oil revenues then swamping the country’s coffers to install a welfare state. Briefly, it raised the standard of living of many of the poor to such a degree that socialists around the world rejoiced in its success: one can live well at the expense of others after all!
But when Chavez passed away in 2013, he left the crumbling welfare state to a former taxi-driver, Nicolas Maduro, who knew only one thing: borrow, print, and spend. With the assistance of Merentes, long an overseer of the growth and destruction of the welfare state, Maduro borrowed so much money that investors are now seeking as much as 21 percent premiums on their loans to offset the increasing risks of default. The duo printed so much money that they exceeded the capacity of the central bank’s printing presses, and had to import currency from printers abroad. Cargo planeloads of bundles of the bolivar currency arrived in the middle of the night in late 2015.
It was downhill from there. In a story that has been repeated many times, it can be summarized briefly here: inflation of the currency led to its increasing worthlessness. That led to price increases by producers trying to stay profitable. Then came price controls, amid claims that those producers were greedy capitalists intent on enriching themselves at the expense of the poor citizen.
Then came shortages as producers could no longer produce profitably. People, especially the lower class, the very people Chavez had allegedly lifted up, were down to two meals a day, depending upon what they were able to glean from the garbage dumps. Those who got sick died, as hospitals no long had the necessary supplies, drugs, and bandages to keep them alive. Infant mortality soared.
Then came the black market as people, so desperate that they were willing to run the risk of arrest, prison, and “disappearance” just to obtain essentials, like food and toilet paper.
Then came the final crackdown: the military would take over from here. Maduro called it the Great Sovereign Supply Mission. It was the installation of a de facto dictatorship: if he can control the food supply, he can control the people.
What about the constitution? Too late. Maduro had already named his fellow travelers to the Supreme Court and the Electoral Council, which effectively blocked any attempt to vote the man out. And those who opposed him? They were arrested and simply disappeared.
The citizens are out of options, many of them wondering, no doubt, what happened. What happened can’t be blamed on Maduro, although he was the primary enabler. It can’t be blamed on Merentes either, although he helped Maduro with his country’s economic and political destruction taking place on his watch. It can’t be blamed on a central bank infected with the hubris that politicians and bureaucrats can run a country.
No. Final blame must rest firmly on the citizens, infected with the idea that they could somehow vote themselves wealth and prosperity without work and without consequence. After all, Chavez was elected, and then reelected, until his death in 2013. Maduro was elected and then reelected right up until the time when elections no longer meant anything.
History teaches the end point: the currency will be totally destroyed, Maduro (or his successor) will be tossed out of office, probably with extreme prejudice. People will rejoice, learning perhaps the lesson they should have learned long ago, putting in place a sensible ruler, following the rule of law, removing obstacles to the free market, rolling back regulations and nationalizations of key industries, allowing citizens to keep what they have earned, and following the constitution that is designed to keep the government in its proper place.
But between now and then, the process will be increasingly painful. That’s what makes them lessons to be learned and remembered.
Lew Rockwell: Central Banksters Created Our Problems, Not the Rich
The Wall Street Journal: Venezuela Introduces New Banknotes Amid Soaring Inflation