HomeBusiness DigestLest we forget: Hyperinflation — cost and consequences

Lest we forget: Hyperinflation — cost and consequences

By Jimmy Girdlrstone

IN the English calendar November is traditionally given over to remembering the dead. Churches encourage the faithful to make special efforts to pray for deceased relatives and friends. On the Sunday nearest the 11th ––  the day in 1918 when First World War hostilities ended –– the United Kingdom officially remembers all those who died in that conflict and now also in the Second World War of 1939/45 and subsequent conflicts.

Although members of Zimbabwe’s minorities made significant contributions to the Allies’ cause in both world wars, entailing the loss of a proportionality large number of lives, the fallen have not since 1980 been nationally commemorated,.

The lacuna in the local calendar thus provides space for acknowledging an anniversary albeit of a somewhat different kind –– the zenith of Zimbabwe’s devastating hyperinflation generally reckoned to have been about mid-November 2008.

The latter would not, of course , constitute an appropriate replacement for the former, now discontinued, memorial. But economic upheavals characterise destruction just as much as warfare. And both leave other similarly memorable scars.

Writing in 1922/23 Maynard Keynes pointed out that the “progressive and catastrophic” inflations of central and eastern Europe were the consequence of the inordinate printing of paper money while the consumption and production of actual goods remained unaltered.

A government, he wrote, could live by printing paper money when it could live by no other means. It thereby secured “command over real resources, resources just as real as those obtained by taxation”. And it was “the form of taxation which the public” found “hardest to evade” and even the weakest government could enforce when it could “enforce nothing else”.

The Zimbabwean monetary authorities too secured control over the country’s real resources in this way. And from around 2000 local inflation was immeasurably compounded through the dispossession from their farms of approaching 4 500 white farmers causing production ––  and with it consumption ––  to contract precipitously as the volume of commercial crop sales dropped an initial 56% depriving manufacturing industry in the process of some two-thirds of its raw material supplies.

According to Keynes the public has only one remedy against this “ingenious depredation” –– to change its habits in the use of money.

It could spend its ultimate resources of money on desirable objects keeping them in this form until needed; it could reduce the amount of cash it kept and the average time for which it kept it; and it could employ foreign money in transactions for which it would otherwise use its own money.

Broadly similar advice was given by well-wishers and sympathetic visitors to the country although few seemed aware that what they were urging constituted  a counsel of perfection.

Exchange control and foreign exchange scarcity largely ruled out for all except the “privileged few”, Keynes’ third suggestion. But even had foreign currencies been much more readily available their use would have been refused for what the authorities would undoubtedly have considered “unacceptable speculation”.

The first two suggestions both rely upon the presumption that the public enjoyed free and easy access to its own money and could spend it as and when it liked.

In reality, the monetary authorities, increasingly incapable of printing new and ever-higher denomination bank notes fast enough to keep pace with rapidly accelerating prices, found it ever more necessary to ration the distribution of cash through the imposition of progressively more restrictive withdrawal conditions.

Keynes observed that the inflationary tax fell upon the holders of banknotes in proportion to their holdings. But in Zimbabwe the tax fell both upon such holders and even more so upon would-be holders in proportion to their nominal holdings and the time that elapsed before they could become actual holders and, thereafter, spenders.

It is unnecessary to accept as absolute truth certain flamboyant estimates of how high the rate of price increase went in 2008 to appreciate how truly savage and extortionate the tax imposed upon the generality of income earners really was.

Current deep-seated labour grievances may well have been thereby fostered and the ground prepared for excessive wage demands, detrimental to future growth prospects.

There is more than a hint too that a legacy of phenomenally high rates of general price increase has, unfortunately, conditioned the public to acquiesce in frequent, indiscriminate price hikes and rendered the complete replacement of the former, Zimbabwean, currency by the eponymous ,US, one psychologically unoffending in every instance.

In Keynes’ opinion the most striking consequence of inflation is its “injustice to those who in good faith have committed their savings to titles to money rather than things”.

In Zimbabwe, such people constituted a substantial slice of the urban, salaried class whose entitlement to redress, unlike that of the farmers, has received little publicity apart from the odd story questioning the justification for the repatriation of about 400 destitute elderly persons, jocularly referred to as “ancient-Britons”.

The plight of those who lost part, or most, of their income from pensions, interest, rents, savings, dividends and investments as monetary values were truncated in stages by a cumulative 25 decimal places between August 2006 and January 2009 when any of their capital still remaining with local financial institutions was “mothballed”, was certainly no laughing matter.

Although most retained their homes, at least initially, the latter  were frequently transformed from assets to liabilities as the income required to maintain them was no longer forthcoming. So disposal, usually at “knockdown” prices, was often forced upon them. The effects of the
impoverishment …  ‘of the middle class, out of which most good things have sprung, must  slowly accumulate in a decay of science and art’.

Keynes concurred with the long standing recognition by both the business world and economists that a period of rising prices acted as a stimulus to enterprise and was beneficial to business men.


But this was true, he opined, only up to a point.


Hyperinflation compelled the businessman to become a profiteer. This strikes a blow at the economic doctrine of normal profits, ‘a necessary condition for the justification of capitalism’. If a businessman’s gains cannot be held to bear any relation to what his activities have contributed to society ‘the fall in the value of money will not only discourage investment’ it will also ‘discredit enterprise’.


Goods gained by lucky gambling, let alone by nefarious subterfuge, provide occasion  for accusations of disreputable or dishonest conduct.

In one of her short stories a highly acclaimed Zimbabwean writer has described that time in Italy during the Second World War which was one ‘out of ordinary order’ , a period when everything disintegrated ; a time of anarchy; of beating, rape and killing; of looting; of arson and destruction for destruction’s sake. As with warfare so too under the influence of inflation were law and order replaced by anarchy and chaos.

Over the closing months of 2008 and the first two to three weeks of 2009 increasingly large swathes of the business community simultaneously concluded that the days of the Zimbabwe dollar were strictly numbered notwithstanding the authorities’ dogged insistence that it should ‘remain the Nation’s currency’ . Growing numbers of businesses prepared to run the risk of prosecution, and even their staff’s imprisonment, for trading in foreign currency did so. Those who were not ceased trading regularly , some almost entirely.

It was truly a time ‘when all forms of order dissolved’. Goods for sale at the commencement of business had all but vanished by mid – morning. If by chance they were still on the shelves the prices asked for them had risen by leaps and bounds. Not unusually, this put them beyond the immediately available resources of many would – be cash purchasers who had, wrongly, assumed they had sufficient funds at their disposal. Payment by cheque was not acceptable and payment by electronic transfer increasingly shunned as the system failed to keep pace with the increasing demands made upon it.

Firms opened, and closed, in accordance with the level of their dwindling stocks and according to constantly changing price legislation and the increasingly frantic attempts by the authorities to enforce it. Everywhere ‘work in progress’ became no more than that as individuals applied themselves to sourcing funds and quickly finding something they could spend them upon while households devoted an increasing proportion of their time and energy to the daily struggle for survival. Nothing was permanent except change.

Only when the cascades of fiat money finally dried up did  the redistributive effects of inflation became fully apparent . In Keynes’ words ‘He who neither spent nor speculated’, who made ‘proper provision for his family’, ‘who sang hymns to security and observed most straitly the morals of the edified and the respectable injunctions of the worldly wise’, suffered the greatest loss while ‘those made most who had seen first, that the right game was’- wherever possible – ‘to borrow and to borrow and to borrow’  and by securing the difference between the real rate of interest and the money rate snatch great fortunes out of general calamity.


New traders proliferated while old established household names slid further into obscurity.

But beyond the re-assignment of claims to real assets there was overwhelming, if largely anecdotal, evidence of the dissipation of local productive capacity and its substitution in supplying needs by direct import of all manner of foreign goods and services.


Some 80 years ago a visiting professor wrote with reference to Southern Rhodesia that ‘a community so dependent on imported commodities can expand only if its export industries expand’. This would be as apt a description of today’s Zimbabwe as it was in 1930.

All the encouragement of successive governments and the myriad, painstaking efforts of the private sector to fall in with an ongoing process of import substitution over eight decades have been almost totally eradicated. The overwhelmingly major casualty of hyperinflation has been the loss of a high degree of economic independence.

The observances noted in the first paragraph are not restricted to honouring the memory of those who made the supreme sacrifice for their country, valiant though it undoubtedly is. They provide opportunities for reflecting  upon the loss of life, devastation and the frequent futility stemming from attempts to settle disagreements through martial combat. They are also occasions for extolling the merits of dialogue and negotiation, as opposed to force, as the preferred means of reaching just and lasting settlements in closer accord with the civilised behaviour expected of modern international relations.

What is clearly needed, if the country is to profit from its past mistakes, is reflection which gives rise to a firm purpose of amendment to avoid any repetition of the policies and practices which have impacted so adversely upon any attempts at achieving relative price stability, wreaking havoc in the past decade upon the economy and seriously stunting its prospects for achieving sustained growth and the prosperity upon which the future of a growing number of its inhabitants so crucially depends.

Jimmy Girdlestone is a consultant economist with the Tetrad Group and writes in his personal capacity.

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