- Swanson, Gerald.
The Hyperinflation Survival Guide.
Lake Oswego, OR: Eric Englund, 1989.
ISBN 978-0-9741180-1-7.
-
In the 1980s, Harry E. Figgie, founder of Figgie International,
became concerned that the then-unprecedented deficits, national
debt, and trade imbalance might lead to recurrence of inflation,
eventual spiralling into catastrophic hyperinflation (defined in 1956
by economist Phillip Cagan as a 50% or more average rise in prices
per month, equivalent to an annual inflation rate of
12,875% or above). While there are a number of books on
how individuals and investors can best protect themselves
during an inflationary episode, Figgie found almost no guidance
for business owners and managers for strategies to enable their
enterprises to survive and make the best of the chaotic situation
which hyperinflation creates.
To remedy this lacuna, Figgie assembled a three person team
headed by the author, an economist at the University of
Arizona, and dispatched them to South America, where on
four visits over two years, they interviewed eighty business
leaders and managers, bankers, and accounting professionals
in Argentina, Bolivia, and Brazil, all of which were in
the grip of calamitous inflation at the time, to discover
how they managed to survive and cope with the challenge of
prices which changed on a daily or even more frequent basis.
This short book (or long pamphlet—it's less than 100
pages all-up) is the result.
The inflation which Figgie feared for the 1990s did not come
to pass, but the wisdom Swanson and his colleagues collect
here is applicable to any epoch of runaway inflation, wherever
in the world and whenever it may eventuate. With money
creation and debt today surpassing anything in the human
experience, and the world's reserve currency being supported
only by the willingness of other nations to lend to the
United States, one certainly cannot rule out hyperinflation as
a possible consequence when all of this paper money works its
way through the economy and starts to bid up prices. Consequently,
any business owner would be well advised to invest the modest
time it takes to read this book and ponder how the advice herein,
not based upon academic theorising but rather the actual experience
of managers in countries suffering hyperinflation and whose
enterprises managed to survive it, could be applied to the
circumstances of their own business.
If you didn't live through, or have forgotten, the relatively
mild (by these standards) inflation of the 1970s, this book
drives home how fundamentally corrupting inflation is.
Inflation is, after all, nothing other than the corruption by
a national government of the currency it issues, and this
corruption sullies everybody who transacts in
that currency. Long term business planning goes out the
window: “long term” comes to mean a week or two
and “short term” today. Sound business practices
such as minimising inventory and just in time manufacturing
become suicidal when inventory appreciates more rapidly
than money placed at interest. Management controls and the
chain of command evaporate as purchasing managers must be
delegated the authority to make verbal deals on the spot, paid
in cash, to obtain the supplies the company needs at prices
that won't bankrupt it. If wage and price controls are imposed
by the government (as they always are, despite
forty centuries of evidence they
never work), more and more management resources must be
diverted to gaming the system to retain workforce and
sell products at a profitable price. Previously mundane
areas of the business: purchasing and treasury, become central
to the firm's survival, and speculation in raw materials and
financial assets may become more profitable than the actual
operations of the company. Finally (and the book dances around
this a bit without ever saying it quite so baldly as I shall
here), there's the flat-out corruption when the only option a
business has to keep its doors open and its workers employed
may be to buy or sell on the black market, evade wage and price
controls by off-the-books transactions, and greasing the skids of
government agencies with bulging envelopes of rapidly depreciating
currency passed under the table to their functionaries.
Any senior manager, from the owner of a small business to
the CEO of a multinational, who deems hyperinflation a possible
outcome of the current financial turbulence, would be well advised
to read this book. Although published twenty years ago, the
pathology of inflation is perennial, and none of the advice is
dated in any way. Indeed, as businesses have downsized, outsourced,
and become more dependent upon suppliers around the globe, they
are increasingly vulnerable to inflation of their home country currency.
I'll wager almost every CEO who spends the time
to read this book will spend the money to buy copies for all of
his direct reports.
When this book was originally published by Figgie International,
permission to republish any part or the entire book was granted
to anybody as long as the original attribution was retained.
If you look around on the Web, you'll find several copies of
this book in various formats, none of which I'd consider ideal,
but which at least permit you to sample the contents before ordering
a print edition.
July 2009 