In most developed representative democracies, inflation is raising its ugly head again.
According to Trading Economics, these are the numbers:
France 2.2%
Italy 2.5
Netherlands 2.7
Sweden 2.5
Denmark 2.2
Norway 4.1
Australia 3.0
United Kingdom 3.1
Euro Area 3.4
Germany 4.1
United States 5.4
Canada 4.4
SWITZERLAND 0.9
This means that inflation in the United States, the country with the highest inflation number in the list, is 6 times higher than in Switzerland !, but inflation in the two countries with the lowest inflation, apart from Switzerland; France and Denmark, inflation is 2.4 times higher than in Switzerland.
Countries that many consider still serious and responsible, like Sweden, Norway, are even worse than Denmark and France.
Perhaps the most shocking data comes from Germany, at 4.1%,inflation it is 4.6 times higher than in Switzerland. You probably heard things like “the Germans will never forget when Germany’s representative democracy; the Weimar Republic, destroyed the economy and itself, creating the conditions for Hitler’s arrival.
Well, it is obvious the Germans have forgotten. If they have not forgotten, perhaps they are paralysed by collective guilt, or by a nutty “sense of solidarity” with other (irresponsible) EU governments.
Why Switzerland has such low inflation?
Since the 1990s, inflation in Switzerland has been low. Most of the time it was kept below 2%. It is not unusual or Switzerland to have negative inflation; things become cheaper in Swiss Francs. That is not what happened in the US for decades. That is why since 1971, when Nixon threw the Gold Standard ot the window. This is why since 1971 the US Dollar has lost 85% of its value against the Swiss Franc.
By the way, it does not matter if the progressives or the conservatives govern; in the US Trump was not any better than Biden at preventing inflation.
Switzerland is mostly a German-speaking country; more than 60% of the Swiss are German-speakers. Considering that the Swiss German-speakers are approximately 5 million, and share borders with about 93 million German-speakers in Germany and Austria, it is reasonable to think there must be quite a few cultural similarities among them, yet the political history of the three countries can not be more different.
But, somehow, the Swiss, including the French-speaking, Italian-speaking and Romansh-speaking Swiss, developed a unique political and electoral system; the closest to the most direct democracy humans ever developed; Ancient Greek Democracy. Amazingly, 2600 years later, modern democracy, including Switzerland, has not caught up the Ancient Greeks.
The Swiss never went for kaisers, emperors or führers. Switzerland is the most stable country in the World, and has been so for almost the last two centuries. Direct democracy has a lot to do with it.
Direct democracy brings many benefits. Direct democracy gives voters the power to elect representatives, nothing special here. But it does something very different; it gives the people real power to stop laws made by politicians and also to introduce laws and to change the constitution. The people have the final say on anything they want to have the final say on.
The Swiss people do not need the consent of the Executive, the Legislative or the Supreme Court to do all that, they exercise their power by themselves.
Direct democracy forces Swiss voters to decide responsibly because it is them, no the politicians, who have the final say. The Swiss people decide every important issue that affects the present and future of the country. This means that Swiss voter can not do what often the voters of the other countries do; blame the politicians, the parties, the lobbies (who often have too much influence on politicians), etc.
This means that Swiss monetary policy is more responsible than the policies of those other countries because the people know and understand that inflation is bad and vote accordingly. The Swiss do not let the politicians, the central bank, etc-, print money the way they do in the other countries.
Swiss politicians do not have the power to “buy” votes with this or that program or project devised to make people feel good for the short term.
You must keep in mind one thing; paper currencies are unstable because governments in representative democracies can not resist printing money so the the “economy will function”. What they in fact do is try to hide the fact that the economy is not functioning, by printing money.
That is what the politicians did in 2008 to avoid the collapse of many irresponsible banks, mostly in the US, and also mismanaged companies, many also in the US, but in other countries too. They never stopped printing money because “it worked”.
When “the virus from Hell” arrived, the politicians could not resist applying the same “medicine”, but in much larger doses. The result is a lot more paper money chasing more or less tha same goods. This means prices go up because the value of money goes down.
I am no economist. This is how the Foundation for Economic Education describes what happens.
I quote:
“We learn from extreme cases, in economic life as in medicine. A moderate inflation, that has been going on for only a short time, may seem like a great boon. It appears to increase incomes, and stimulate trade and employment. Politicians find it profitable to advocate more of it—not under that name, of course, but under the name of “expansionÂary” or “full employment” policies. It is regarded as politically suicidal to suggest that it be brought to a halt. Politicians promise to “fight” inflation, but by that they almost never mean slashing government expenditures, balancing the budget, and halting the money-printing presses. They mean denouncing the big corporations and other sellers for raising their prices. They mean imposing price and rent controls.
When the inflation is sufficiently severe and prolonged, however, when it becomes what is called a hyperinflation, people begin at last to recognize it as the catastrophe it really is. There have been scores of hyperinflations in history—in ancient Rome under Diocletian, in the American colonies under the Continental Congress in 1781, in the French Revolution from 1790 to 1796, and after World War I in Austria, Hungary, Poland, and Russia, not to mention in three or four Latin American countries today.
But the most spectacular hyperinflation in history, and also the one for which we have the most adequate statistics, occurred in GerÂmany in the years from 1919 to the end of 1923. That episode repays the most careful study with the light it throws on what happens when an inflation is allowed to run its full course. Like every individual inflaÂtion, it had causes or features peculiar to itself—the Treaty of Versailles, with the very heavy reparation payments it laid upon Germany, the occupation of the Ruhr by Allied troops in early 1923, and other developments. But we can ignore these and concentrate on the features that the German hyperinflation shared with other hyperinflations.
Convertibility Suspended
At the outbreak of World War IÂ on July 31, 1914, the German Reichsbank took the first step by suspending the conversion of its notes into gold. Between July 24 and August 7, the bank increased its paper note issue by 2 billion marks. By November 15, 1923, the day the inflation was officially ended, it had issued the incredible sum of 92.8 quintillion (92,800,000,000,000,Â000,000) paper marks. A few days later (on November 20) a new curÂrency, the rentenmark, was issued. The old marks were made convertiÂble into it at a rate of a trillion to one.
It is instructive to follow in some detail how all this came about, and in what stages.
By October 1918, the last full month of World War I, the quantity of paper marks had been increased fourfold over what it was in the preÂwar year 1913, yet prices in GerÂmany had increased only 139 percent. Even by October 1919, when the paper money circulation had increased sevenfold over that of 1913, prices had not quite increased sixfold. But by January 1920 this relationship was reversed: money in circulation had increased 8.4 times and the wholesale price index 12.6 times. By November 1921 circulaÂtion had increased 18 times and wholesale prices 34 times. By November 1922 circulation had inÂcreased 127 times and wholesale prices 1,154 times, and by NovemÂber 1923 circulation had increased 245 billion times and prices 1,380 billion times.
These figures discredit the crude or rigid quantity theory of money, according to which prices increase in proportion to the increase in the stock of money—whether the money consists of gold and convertiÂble notes or merely of irredeemable paper.
And what happened in Germany is typical of what happens in every hyperinflation. In what we may call Stage One, prices do not increase nearly as much as the increase in the paper money circulation. This is because the man in the street is hardly aware that the money supply is being increased. He still has confidence in the money and in the pre-existing price level. He may even postpone some intended purÂchases because prices seem to him abnormally high, and he still hopes that they will soon fall back to their old levels.
Later Stages of Inflation
Then the inflation moves into what we may call Stage Two, when people become aware that the money stock has increased, and is still increasing. Prices then go up approximately as much as the quanÂtity of money is increased. This is the result assumed by the rigid quantity theory of money. But Stage Two, in fact, may last only for a short time. People begin to assume that the government is going to keep increasing the issuance of paper money indefiniteÂly, and even at an accelerating rate. They lose all trust in it. The result is Stage Three, when prices begin to increase far faster than the governÂment increases, or even than it can increase, the stock of money.
(This result follows not because of any proportionate increase in the “velocity of circulation” of money, but simply because the value that people put upon the monetary unit falls faster than the issuance increases. See my article, “What Determines the Value of Money?” in The Freeman of September, 1976.)
But throughout the German inflation there was almost no preÂdictable correspondence between the rate of issuance of new paper marks, the rise in internal prices, and the rise in the dollar-exchange rate. Suppose, for example, we assign an index number of 100 to currency circulation, internal prices, and the dollar rate in OctoÂber 1918. By February 1920 circulaÂtion stood at 203.9, internal prices at 506.3, and the dollar rate at 1,503.2. One result was that prices of imported goods then reached an index number of 1,898.5.
But from February 1920 to May 1921 the relationship of these rates of change was reversed. On the basis of an index number of 100 for all of these quantities in February 1920, circulation in May 1921 had increased to 150.1, but internal prices had risen to only 104.6, and the dollar exchange rate had actualÂly fallen to 62.8. The cost of imported goods had dropped to an index number of 37.5. Between May 1921 and July 1922 the previous tendencies were once more resumed. On the basis of an index number of 100 for May 1921, the circulation in July 1922 was 248.6, internal prices were 734.6, and the dollar rate 792.2.
Again, between July 1922 and June 1923 these tendencies conÂtinued, though at enormously inÂcreased rates. With an index numÂber of 100 for July 1922, circulation in June 1923 stood at 8,557, interÂnal prices at 18,194, and the dollar rate at 22,301. The prices of imported goods had increased to 22,486.
The amazing divergence between these index numbers gives some idea of the disequilibrium and disÂorganization that the inflation caused in German economic life. There was a depression of real wages practically throughout the inflation, and a great diminution in the real prices of industrial shares.
How It Happened
How did the German hyperinflaÂtion get started? And why was it continued to this fantastic extent?
Its origin is hardly obscure. To pay for the tremendous expenÂditures called for by a total war, the German government, like others, found it both economically and politically far easier to print money than to raise adequate taxes. In the period from 1914 to October 1923, taxes covered only about 15 per cent of expenditures. In the last ten days of October 1923, ordinary taxes were covering less than 1 percent of expenses.
What was the government’s own rationalization for its policies? The thinking of the leaders had become incredibly corrupted. They inverted cause and effect. They even denied that there was any inflation. They blamed the depreciation of the mark on the adverse balance of payments. It was the rise of prices that had made it necessary to increase the money supply so that people would have enough money to pay for goods. One of their most respected monetary economists, Karl Helfferich, held to this rationalization to the end:
“The increase of the circulation has not preceded the rise of prices and the depreciation of the exchange, but it followed slowly and at great distance. The circulation increased from May 1921 to the end of January 1923 by 23 times; it is not possible that this increase had caused the rise in the prices of imported goods and of the dollar, which in that period increased by 344 times.”¹
Of course such reasoning was eagerly embraced by Germany’s politicians. In the late stages of the inflation, when prices rose far faster than new money could even be printed, the continuation and even the acceleration of inflation seemed unavoidable. The violent rise of prices caused an intense demand for more money to pay the prices. The quantity of money was not suffiÂcient for the volume of transactions. Panic seized manufacturers and business firms. They were not able to fulfill their contracts. The rise of prices kept racing ahead of the volume of money. The thirty paper mills of the government, plus its well-equipped printing plants, plus a hundred private printing presses, could not turn out the money fast enough. The situation was desperÂate. On October 25, 1923 the Reichsbank issued a statement that during the day it had been able to print only 120,000 trillion paper marks, but the demand for the day had been for a quintillion.
One reason for the despair that seized the Germans was their conÂviction that the inflation was caused principally by the reparaÂtions burden imposed by the Treaty of Versailles. This of course played a role, but far from the major one. The reparations payments did not account for more than a third of the total discrepancy between expenÂditure and income in the German budget in the whole four financial years 1920 through 1923.”
END OF QUOTE.
So, if you want to save your savings, your familiy, your country, from the mess ahead, you better demand direct democracy before it is too late. We the people must control the politicians. Elections are not enough, we need the power and the freedom to decide issues. Without the freedom to decide issues that affect us we are not really free because the politicians control or lives.
Under Swiss-style direct democracy, we do not have to get rid of the politicians, we only have to clip their wings by demanding that we, the people, have the final say on anything the politicians want to do that the majority of us consider is not prudent; from printing too much money to getting involved in wars, rising or lowering taxes…, anything.
Once the politicians have less power, the lobbies will have less power too; the voters will have the final executive power on any major issue.
The politicians will change their behaviour radically; they will become responsible because they will have no other choice. They will govern never forgetting the concerns of 70-80% of the voters.
That is what happens in Switzerland; when the Swiss politicians realized they could not pass any law or sign any treaty without the explicit or tacit consent of the majority of the people, they looked at each other and decided: “you know what?, it makes no sense we fight in Parliamenat about this or that law or policy, let us work together to make sure the majority of the people will accept and support what we do”.
Because of that, the 4-5 major Swiss parties govern together in a coalition; nothing of “major party in power, “major party in the opposition” and all the verbal fireworks, demagoguery and other shenanigas we see in the parliaments of representative democracies.
Another enormous benefit of direct democracy is that it erases the Right-Left polarisation we see in representative democracies. Why? because the people do not rally around “political religions”. This means political fights are far less aggressive because less power is at stake. The lobbies know that too. They know there is not much point in throwing millions into political campaigns because, in the end, it is the people who decide, not the politicians.
Many people try to discredit direct democracy as “dictatorship of the majority”, “it is slow”, and other foolishness. It is obvious that direct democracy has propelled Switzerland ahead of the rest in practically all indicators and facts on the ground; from highest income per capita to best universal health care.
But you better get moving. Do not be like those Germans of the 20s and 30s who believed their elected politician would guide them in the right direction. It is time for us, the people, to take the running of our countries in our own hands.
If we complain about “the Left”, “the Right”, “the politicians”, “the parties”, “the lobbies”, “big business”, “big unions”, etc., but do nothing to bring change, we are also part of the problem; in fact, we are the root problem.
If you think this post and direct democracy may be of interest to others, pass it on to relatives, friends, co-workers.
Victor Lopez
