Why is more money not the cause of hyperinflation in Venezuela? Pasqualina Curcio

It is worrying how monetarist and neoliberal economists, worth the redundancy, fall into a cluster of contradictions when wanting to dogmatically impose their quantitative theory of money to explain reality. Its main postulate is that the increase in prices or inflation is always a consequence of the increase in the amount of money "without support" in the economy. Let us not forget that the monetarist current is the theoretical support of neoliberalism, and incidentally, the veil of the most criminal weapon of imperialism: the attack on currencies.

The problem is not that they contradict themselves in their own principles, nor that they are unable to demonstrate them theoretically and empirically, what is truly worrisome are the effects of economic policies that arise from their wrong diagnosis and that consist mainly in the reduction of the quantity of money which goes hand in hand with the freezing of wages, the reduction of public spending and the size of the State. All policies whose effects end up being devastating on working people, as neoliberalism has shown in half a century of history.

Of course, the most worrying thing is to listen to “socialist revolutionaries” defending, dogmatically, the monetarist postulates and recommendations. In other words, hearing a “revolutionary” say that you cannot increase your salary because there is no money and that increasing the amount of money “without support” will generate higher inflation, sincerely, it is priceless, it has no explanation.

In any case, the monetarists say that prices in Venezuela have risen because the State has issued “inorganic” or “unbacked” money to, in a populist way, spend more than it has. According to his theory, that money reaches Venezuelan households and the government, who, having more money, will increase the demand for goods and services, but when they find a limited supply that cannot respond to said demand, it will lead to a shortage by pressing prices on the rise. In these situations, according to the monetarists themselves, the final effect on the economy will be, on the one hand, an increase in prices (inflation) and, on the other, an increase in the production levels of the economy reflected in an increase in GDP. . Then, the solution they give is to cut the amount of money through the reduction of the State and the freezing of wages and pensions.

They incur at least 5 contradictions when contrasting what they affirm in the previous paragraph with what actually happens in the Venezuelan reality.

Let's look at his contradictions one by one based on his own theory.

1.- The State has issued “inorganic” or “non-endorsed” money

Although in absolute terms, the amount of bolivars has increased since 2013, when we compare it with the size of the economy, which is what really matters to check whether or not that additional money is "backed" in production levels. , we observe that, contrary to what the monetarists say, the amount of money has decreased by 68% between 2013 and 2020. According to data from the BCV, in 2020, monetary liquidity stood at 17% with respect to production levels, that is, for every 100 bolivars that were produced, 17 bolivars circulated, while in 2013 it was 54%, that is, for every 100 bolivars that were produced, 54 bolivars circulated. It is estimated that today, August 2021, the amount of bolivars with respect to the requirements of the economy, does not even reach 2% of GDP. Monetarists will have some explanation given these figures. We suggest that you review this first contradiction.

2.- The State, in a populist way, spends more than it has

Historically, public spending in Venezuela has been, on average, 33% of GDP, today it does not reach 2,5% of national production, in 2012 it represented 40,29%. Where do monetarists get that the state is spending more than it has? Ask the ministers, governors, mayors, presidents of state companies or any authority of the 5 public powers, if the spending budget is enough to meet at least 10% of the programmed goals.

3.- Households and the government increased the demand for goods and services

According to BCV data, between 2013 and 2018 (there is no data for 2019 and 2020) aggregate demand did not increase as claimed by monetarists, on the contrary, it fell 62%. For its part, household consumption for the same period and according to data from the same agency, decreased 52%, while government spending fell 30%. So it is not true that demand in the economy has increased by pushing prices up.

We do not have the data for 2019 and 2020, but the demand has probably fallen even more. In any case, we suggest that monetarists go to Venezuelan homes and ask who in this country is demanding and consuming more goods than in 2013. In Venezuela, demand has not increased, it has fallen, which is a serious and unforgivable contradiction in that incurred by monetarists based on their own theory.

4.- There is a limited supply that cannot respond to the “greater demand”

The industry in Venezuela is operating at 22% of its installed capacity according to data from CONINDUSTRIA, which means that, if indeed there had been an increase in aggregate demand as a consequence of the "greater amount of money" as claimed by the monetarists, the economy would have had enough room to respond without having a more than proportional impact on prices. In economic terms, we are not in a situation of full production capacity, on the contrary, we are in the elastic section of aggregate supply. Check out this other contradiction.

5.- Final effect on the economy: inflation and increase in GDP

This is the most shameful contradiction monetarists incur. It is the case that national production in Venezuela, measured by GDP, has not increased at all, on the contrary, it has decreased by 73% between 2013 and 2020 (BCV data until 2018 and ECLAC estimates for the years 2029 and 2020 ). How do you explain that, according to your theory, we are in the presence of demand inflation, which is always characterized by an increase in GDP, but that, in Venezuela, on the contrary, production has fallen? This contradiction is not just any detail. We suggest that you review the difference between demand and cost inflation in your basic monetarist economics texts.

As long as the wrong diagnosis is insisted that hyperinflation in Venezuela is a consequence of the increase in the amount of money and it is not recognized that the determining and original cause is the attack on the bolivar, which has been criminal and confessed by imperialism Not only will it not be possible to resolve to contain the increase in prices, but with the monetarist policies of contraction of the quantity of money, they will continue to add fuel to the fire and enhance the effects of the attack on the bolivar, namely, a greater deterioration in purchasing power. of working people, worse performance of public administration, greater drop in production, and incursion of the enemy's currency.


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