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Price Transparency during high inflation

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rosstaylor posted on Thu, Mar 7 2013 12:08 AM

Central banks around the world are printing gigantic amounts of money, we are now entering a truly uncharted territory (old news I know).

Which leads me to my question, how will people and businesses conduct trade under a period of high inflation in regards to price transparency? What will be the most stable currency to trade in (bitcoin?)? Can anyone speculate on how international commerce will be conducted?

For comparison, I only know of only one period that had high inflation (which affected trade internationally) - during  late 1960s and throughout the 1970s, as a result of the guns and butter policies. I read that families would rush to buy groceries on pay day in order to get rid of their currencies as soon as possible since inflation was diminishing the value of their money. What other negative consequences do you see for the average family?

How do the prices of goods get calculated currently? Rice, corn, milk, etc (Chicago board of trade)? Do they calculate these prices based a weighted scale or formula? What websites would provide such information currently? How will we find the "true" prices of goods during a period of high inflation? Please speculate on how governments around the world will react to such dire circumstances (I believe that 1970s was quite a violent period).

It appears to me that we are approaching this ominous period quite rapidly then I expected, would anyone like to second this statement?

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Ross, do you seriously believe that there is a room full of pencil pushers that sit around and determine prices?

The marketr determine prices and buyers and sellers watch the market. A buyer and seller agree on a price and the buyer then finds a profitable use for the product or not. Tomorrow he decides it wasn't worth it and he refuses to pay the same price and he puts in a lower offer. Or conversely, he decides it was a very good purchase and he puts in the same bid, only to find out his competitors watched him benefit so the asking price is now higher.

The market sets it, it fluctautes, it sorta stabilises after a while as the knowledge becomes more widespread.

Even in an inflationary market this happens, only depending on the rate of inflation it might happen faster or slower or even violently abrupt. If a government beaurocracy tries to foretell this price, they will get stuck with either a shortage or a surplus.

The Mises website has multiple articles, books and videos on price theory.


How will governments react? Traditionally they step in with price controlls, setting of floors and ceilings, which prevents the free market from functioning - which again leads to shortages and surplusses.

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OK, well, how does the inflation rate get calculate in that situation? I recall reading about hyperinflation in Germany, people would listen to their radios regarding the latest update on the 'inflation' rate. If an item was worth 100,000 deutsch marks, after an hour or so, it would be worth 120,000 deutsch marks, and so on, the seller would remove the price sticker and replace it with a new one.

Where would people turn to for the "current" market price in that situation? What would be the best currency to be trading in?

I know that my question is a bit broad, but I am trying to see how commerce can be conducted successfully in such situation - especially international commerce. I suppose that the US dollar would be abandoned but now, virtually all central banks are conducting the same atrocities on their currencies.

Even when there are price controls, the markets will find ways around it, as we all know.

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Just about your last sentence, "the market will overcome price controls"- yes but at what cost? Honest people might die or starve in the process, criminals with machine guns will take over the black markets. People might resort to eating grass and insects if there are food shortages.There might even be wars instigated by the state to force you to abide, like what happened in the American Civil War.


Well exactly how trading will be done under hyperinflation is anybody's guess. The market will find thousands of ways to trade depending on the circumstances.

There is not an accurate way to determine what the inflation rate is going to be by the time you show up at the shop to buy something. You might recognise a trend of prices doubling every day so you anticipate that your $50 bag of flour might be $100 by the time you buy it tomorrow. But if you get there and there is only one bag of flour left and your neighbor offers $120 for it and you only offer $100 then the inflation on that product went up immediately.

You find the "current" market price by going to the store and making an offer and seeing if it gets accepted. It will be like an ongoing auction that gets more crazy as the shelves get more empty of product.

Of course this is only an illusion. The flour did not become any more valuable than it was yesterday, only the money became worth less. It still takes you 6 hours of work to earn enough money to buy one bag of flour. You might just ask to be paid in a currency other than the official fiat money.

Nobody can actually calculate the overall inflation rate at the time very accurately, only after the fact. And the official inflation rate as calculated by the government is a lie. And the official inflation rate for the country is a useless number for the consumer because it will vary from product to product depending on its demand and supply. It gets adjusted every second by what a buyer is willing to pay and what a seller is willing to sell for, for each item.

Even now,  you will hear "the official inflation rate in the USA is X% - not counting food and gas" what use is that number, we all eat and drive. Its like saying the official price of a new car is $4000 , before you add the engine and the tires. Yet if you go to the store you know that a year ago we paid $4 per pound for steak and now you pay between $10 or $12. There is no official inflation rate that reflects that, but you just know you have to pay twice as much if you want the product.

Individuals quickly learn that if they buy food or other essentials every day, it goes up. So they take every penny they can to buy all the essentials they will need and hoard for as long as they can. Amongst private individuals who cannot calculate the lost value of the currency, they will likely trade amongst each other with valuables.Nobody will use the state currency to pay each other. The state will likely ration and control certain things and insist you use their money to buy it, but amongst people they will use the products to barter. Food, gas, clothing, cigarettes and of course gold and silver will be used as barter. Whatever you have that is more valuable to someone else will become the currency for you to buy whatever they have that they value less than your offer.

Internationally it is hard to say. If a currency is debased as bad as Weimar Germany nobody will accept that currency for international trade. They will have to buy another currency or gold or silver to trade with. The only difference nowadays as you noted is that ALL countries are debasing their currencies. So even though the dollar is worth less now to the consumer, so is the Yen and the Euro. So maybe governments will keep trading with each other in their own currencies.

Individual international businessmen will trade with whatever works in the situation. The American businessman migh ship raw material to China in exchange for finished product that he can ship back. There will be bartering just on an international scale. Businessmen who know each other and know that their counterpart has valuables backing his credit will accept each other's IOU's.Official banks will become irrelevant and blackmarket barterers will evolve.I deposit 1 ton of grain that you give to a baker who deposits 500 breads which my neighbor delivers to hungry Italians for  Italian shoes. We agree amongst each other what the relative value of each of our products are.

Who knows what guns or drugs or food or building materials will take the place of currency. The scarcer the product you want to buy, the more shady will be the competition bidding against you. Weapons grade uranium, pharmaceutical cocaine, stolen military computers, who knows what will be used in the underworld.

Smart businessmen will deposit their savings in hard assets that will still have value after the state and its currency collapses, like real estate or ships or heavy equipment or factories or farms.

Why do you think Germany is asking for their American credit to be paid in gold, and China and Russia are buying up gold by the megatons?

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