Free Market Institute of the Pacific

Exploring Business, Economics, and Freedom

Robert Mugabe:

One of the most basic of Economics laws is that of the balance of currency and production in a stable society. Production provides wealth, which is more easily represented by an artificial measuring system, called currency, which can be used as a convenient means of exchange. As long as the two are in balance, there is no inflation, no deflation, and the economy is allowed to work efficiently. Robert Mugabe has presented history with a classic lesson in Economics and in the validity of this law.

Initially the President of Zimbabwe, now the dictator, Robert Mugabe is a Marxist who took part in the struggle for that nation’s indepence. He won the first election for the post of President through a more-or-less legitimate election process, but soon began to secure his power using the time-honored tools of terror, assasination, and by promising to give the masses everything for free while “taxing the rich” (a classic Marxist propaganda phrase).

Zimbabwe, formerly Rhodesia, had been an agricultural and economic powerhouse in Africa. The nation had exported foodstuffs and finished goods for decades and was considered one of the more successful of all nations on the continent.

Mugabe, however, was driven to make the classic Marxist utopian dream a reality. As a start his government created a “corporatist” relationship with businesses, regulating and controlling those who would play along in exchange for guaranteed freedom from competition, as non-cooperative firms were pieced out to workers or taxed out of business.

Eventually, he broke up the nation’s farms, forcing most farm owners to flee the country and take their expertise with them, and parceled the land out to loyal cronies who knew nothing of agriculture. Production immediately began to plummet, not surprisingly, and continued to fall by as much as 50% per year.

Unable to supply jobs, and increasingly unable to supply food, Mugabe began printing money in order to supply everyone in the country with an income and allow his loyal supporters, and himself, to continue purchasing luxury items. This new currency, of course, had no connection to production as work was not required to obtain the currency and the only production involved was in the print shops.

Very quickly, Zimbabwe’s currency became worthless on the world market and so goods could no longer be purchased and brought in from former trade partners. The farms, which had been exporters, could no longer feed the people and food prices skyrocketed even further as currency became increasingly worthless.

Inflation grew to a 40% annual rate, alarming the world and anyone who had considered investing in the new nation. But that was just the beginning. By 2007 the inflation rate was officially at over 24,000% and growing.

In February of 2008, inflation topped 165,000 %. In May it jumped to over 355,000 % and by July, thanks to Mugabe’s continuuing creation of money supply, it was over 231 MILLION percent. At that time, an egg was selling for approximately $15 Billion Zimbabwean Dollars...a week later, for nearly $30 Billion.

Since then, the measurment of inflation in Zimbabwe has become somewhat academic. Some economists feel it is technically in the zillions percent annually, but no one can say for sure as the Zimbabwean dollar is simply not being used and has been davalued so often and so drastically that no one can keep track. The society has long devolved into one of trading for hard goods in lieu of the use of currency, and desperation has created an uncivil society of crime, violence, starvation, and general human misery.

Mugabe has given economists and financial experts a view to an extreme example of an ”insane world” where real-life results of such experimentation can clearly be studied and, hopefully, held up as a warning to all in government who are tempted to increase money supply without first seeing an appropriate increase in actual production of goods and services. We can only hope the US Congress takes at least a fleeting glance at what has happened in that desperate country.