Hyperinflation is now here II: Food prices

Bruce Walker writes today at the American Thinker that food prices are what is going to do in President Obama’s chances in the next election.  One of the signs of hyperinflation is spiraling out of control food prices, and Walker points out that the food commodities are up 27% over the last six months.  I don’t know about you, but a 54% annualized increase in food commodities looks a lot like hyperinflation to me.  I wrote a post in August 2010 that dealt with food prices, which I reproduce here:

August 3, 2010

What’s wrong with inflation? Do you have enough to eat?

Monty Pelerin has a excellent article on inflation this morning.  He maintains that the great temptation for government will be to try to solve the problem of debt and unfunded obligations by inflating it away, and that, since politicians are cowards, they will not make the tough decisions to avoid inflation.  He writes, however, about the consequences of inflation:  “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.”

I believe that the real danger of inflation may lie in the consequences it will  have on the food supply.  Never mind that food shortages have never been a problem in the living memory of most North Americans (unless they are over 75 or immigrated here from a war zone or something).  Today, obesity in developed countries is feared more than starvation.  So I made the following comment on Pelerin’s blog:

I am reading Adam Ferguson, When Money Dies (1975). He tells the story of Frau Eisenmenger, an Austrian who at the end of WWI had sufficient investments to live on and care for her family (31). She went into her bank in 1918 to withdraw some funds and her banker advised her to buy Swiss Francs, but it was illegal to hoard foreign currencies, and so she declined. Eventually, her savings became worthless. Her situation was greatly helped by her daughter working in the “American mission” paid in dollars, renting a room in her apartment to an American, and speculative investments in the Austrian stock market.

I fear that what will happen is similar to Europe in that period, when food was scarce and required a large percentage of income to procure. Eventually, the price of food will sky rocket and so more dollars will be created ex nihilo. Then the farmers will refuse to supply their food to people for worthless dollars and food stamps from the government, and they will have to stop producing–because their costs have to be covered too. Then, we will see shortages like never before. A farmer offered Frau Eisenmenger three month’s provision for her grand piano (33); and an acquaintance of hers sold her own piano for a sack of wheat flour.

11 thoughts on “Hyperinflation is now here II: Food prices

  1. Don: How the prices of food in South Africa? Are they spiraling out of control? If not, why not? Because US dollar inflation is creating international inflation because many central banks have huge reserves of dollars to buttress their own worthless currencies. The food price inflation and subsequent riots in Egypt, Tunisia, and many other countries can be attributed to this problem.

    • Food prices have been rising steadily. We’ve been monitoring a basket of goods for the past few years and although there are wild fluctuations, the trend is ever upwards, typically 20% a year. The dairy and meat goods have the highest increase while the ‘luxury’ goods like chips, chocolate and fizzy drinks increase about 10% per annum.

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  3. PW, that was an interesting book. I downloaded it from the Mises site in Word format when it was out of print, and now I understand it’s back on due to high demand. I remember the Frau Eisenmenger story…
    I don’t know about farmers not producing though… Food can be traded like any other commodity, and in small self-sufficient systems, the inputs are limited to water, sun and soil.

    • Hey Centavos: If price controls are implemented, then farmers may not be willing to produce. I read years ago that the farmers were resistant in the early Soviet Union and would destroy their crops rather than give them away. So it really depends on the situation. But your point is correct, as Frau Eisenmenger story attests, that barter is what happens when currency is worthless. It depends on if government implements price controls–which is a very frequent practice during times of inflation. The result is severe shortages of everything with a fixed price and a thriving black market.

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    • Poor weather is not the cause of silver, gold, iron, etc. going up. Rising prices are not isolated to things that grow–for example, in clothing both polyesters and cotton fabrics are experiencing price increases. I would conclude that commodities inflation is a monetary phenomena, i.e., caused by an increase in money supply, especially in the reserve currency of the world, the US dollar.

      Poor yields in various regions around the world, and the large portion of agriculture which is used to generate biofuels, exasperate the problem of inflation in my opinion. Generally, I think that the combined factors of monetary crisis and food shortages based on other human and natural factors can lead to a major global crisis–as we are seeing in various countries now already.

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