21 January, 2010

Ante Marković - Milton Friedman of Western Balkans

What led to the fall of Soviet Union and Yugoslavia? To a great degree it was inflation, the same thing that is slowly plaguing the United States and most every other country in the world.  A short definition of inflation - printing money out of thin air. In other words, it is a form of taxation without legislation, where governments steal the people's money without the need to tax them directly.

That is a classic unlearned lesson in economics which is repeating itself since the Roman Empire.  In this following video clip, a famous policy maker from former Yugoslavia Ante Marković says: "If the entire creation of resources, not including these latest ones, is between 3 to 4 times larger than the entire GDP, then it is clear that the problems were being created and attempted to be resolved artificially, in an artificial way, without the real, realistic foundation.  It led to a formation of one giant bubble, in which there is nothing, which has now exploded."

In other words it means that large sums of money were being printed, created out of thin air without any backing with real value (definition of inflation), for the purpose of financing government projects and agendas which normal budget cannot afford.  Citizens are now paying for all that through higher prices, which is the direct result of inflation.  Prices have risen simply because printing money out of thin air has made the paper money less valuable.

History shows that diluting the value of money has brought destruction to many empires and countries.  The best example of this comes from times of Roman Empire.  In the time when it became overstretched and couldn't finance all of its campaigns, Romans resorted to clipping of gold coins and used clippings for creating more coins, diluting the value of the currency directly.
And former Yugoslavia is one of the best examples of excessive money printing and hyperinflation in recent history, as a country whose inflation at one point reached astronomical proportions, perhaps second only to Zimbabwe.

In a system where government is confined to its proper role of protecting life, liberty, and property of all individuals - something which the US government used to be from its inception up until the turn of the 20th century, the government would be tied to its limited budget, and politicians could not spend money by inventing new laws, starting wars, or looking for ever more excuses to help themselves under the auspices of taking care of people's needs.  Having honest money - backed up by real value (gold and silver), and no power to create inflation (print the money out of thin air), and not being able to dictate to the free market, would allow market forces to solve people's problems in a best most efficient and timely manner.  Companies in bad shape would not be helped by their governments, leaving them to fail, thus creating incentive for healthy businesses to invest carefully and conduct business in the most efficient way.

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