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Source link: http://archive.mises.org/6448/radioactive-money/

Radioactive Money

March 29, 2007 by

The Islamic Republic of Iran has just issued a new 50,000 rial banknote. The denomination of the note is much larger than that of the highest banknote previously in circulation — 20,000 rials; which 20,000 rial note was only issued three years ago. In both cases, the notes were issued because rampant inflation was making the currency of the country awkward for use as a medium of exchange. Written on the new Iranian banknote, in Arabic, is a quotation of the prophet Mohammed, that the scientists of Persia would reach to the heavens for knowledge. If the government of Iran were scientific, it would heed the science of economics and desist from inflation before it totally ruins its own country. FULL ARTICLE

{ 12 comments }

Nick Bradley March 29, 2007 at 10:31 am

So here’s the big question:

If hyperinflation is looming in Iran, will the Iranian state (a) braek down into internal disarray or (2) precipitate external agression in order to distract the populace?

I wonder if there are any Department of the Trasury operations out there that are shorting the Iranian currency…

Michael A. Clem March 29, 2007 at 11:14 am

In relation to the recent article on inflation, is hyperinflation ALSO an increase in the money supply, but simply at a higher rate? This article suggests that, but doesn’t come right out and say so.

Stephen W. Carson March 29, 2007 at 11:42 am

Michael A. Clem wrote:

is hyperinflation ALSO an increase in the money supply, but simply at a higher rate

That is correct… Hyperinflation is just an accelerated rate of inflation. But there are additional implications. A low rate of inflation, though damaging, might allow an economy to tool along even though it is hampered. But when hyperinflation hits then you start to see, as the author says, real breakdown… Barter begins to make a comeback, economic calculation breaks down and, often, social and political chaos ensue.

Todd Marshall March 29, 2007 at 6:05 pm

The governing equation for management of the media of exchange is DEFAULT = INTEREST + INFLATION.

This is another of the continuous stream of essays that can’t seem to make that point. Thus they don’t show that the problem is not fiat exchange media … it’s reporting and discipline. Further, they think yellow shinny stuff can be substituted for (or can assure) discipline.

To drive home the point that they just don’t get it, when have you ever seen DEFAULTs tracked and reported?

Todd Marshall
Plantersville, TX

Brent March 29, 2007 at 7:24 pm

“Thus they don’t show that the problem is not fiat exchange media…”

So they DO show that the problem IS fiat exchange media?

Dennis Spain March 30, 2007 at 12:03 am

“The governing equation for the management of the media of exchange is DEFAULT = INTEREST + INFLATION.”

Because I am not an expert, I don’t get it. So I will just have to revert to my default amateur position…stop trying to “manage” the market in any way, including (especially) the legislating of the medium of exchange. Or as Lao Tzu said: “The world is ruled by letting things take their course. It cannot be ruled by interfering.” He’s not often cited by government economists or Federal Reserve bankers in their reports.

TGGP March 30, 2007 at 1:41 am

If anybody cited Lao Tzu I would ask them what they’ve been smoking.

Yancey Ward March 30, 2007 at 9:48 am

There may be standard definitions for “hyperinflation”, but I tend to think of it as the time where the desire to hold cash balances is equal to zero.

Reactionary March 30, 2007 at 10:47 am

“Further, they think yellow shinny stuff can be substituted for (or can assure) discipline.”

It can, because there is a finite amount of that yellow shiny stuff.

Joshua Shoenfeld March 30, 2007 at 10:50 am

Unfortunately, there is little mention of iran’s dire economic situation in the US media. How can the big bad Persians be a serious threat to their neighbors given their extensive welfare state, inflation, price controls, and decreasing oil exports?
If the American public learned about Iran’s weaknesses, that would undermine support for a hawkish foreign policy towards Iran and the idea that the US must keep its soldiers in Iraq. Clearly, the war party and the “Lobby” would not want to mollify the fears that ordinary Americans have about Iran.

lester April 1, 2007 at 11:19 am

I posted this at a middle east forum i go to and go this:

This is idiocy, Lester, the article at least. The new note is a sign of inflation. This much is true. The analysis used in much of the rest of the article is simplistic bunk, particularly the assumption that inflation always originates from the nation itself. Of course, this simplistic analysis, eliminating from the picture the existence of the rest of the world surrounding enables the writer to tie the article into the one-note drone of the Austrians “everything is the fault of governments, and has nothing to do with moneyed fascists like the ones our writings serve.”
Only in the mention of the Weimar Republic is there acknowledgement of the fact that curency collapses often stem from the actions of outside forces. Curiously, although the author includes mention and graphs of the hyperinflation of a number of South American nations, without giing mention to the fact that this hyperinflation was a result of a) economic distasters forced by the deregulation of the global financial system and currency devaluation schemes enforced by the IMF.

Nor do they mention that the best way to stabilize currencies is through global fixed currency exchange-rate frameworks such as the former Bretton Woods system. I’m sure the author’s likely hatred of FDR has nothing to do with this omission. ”

He is very much a tariff/ price control guy, but he knows alot more than me so I don’t usually have anyhting to say lol

Bruce Koerber April 4, 2007 at 5:31 pm

What is extremely interesting is the correlation between intervention and injustice!

If anyone wanted to find an injustice they could begin their search with any act of intervention, and every time they would succcessfully find an injustice or a series of injustices.

If it is so easy to find injustice why does it go unnoticed? Because intervention is so pervasive, there are no guiltless ones. In these dark days of economic fallacy to speak out against intervention is to expose one’s own hypocrisy.

The fact that Iran practices intervention is clear evidence that there is injustice there. And yet the injustices in Iran are extreme, as is the degradation. The extreme degradation of Iran stems from its rejection of the Bab and Baha’u'llah.

Iran is on a road of ignorance perpetrated by hate. Imagine what a miraculous transformation will have to occur for Iran to cease its intervention into the economy!

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