Until Money became an Immutable Measure of Value in the 17th century, humanity had never produced enough wealth to launch The Middle Class.
Immutable Money got established between the early 1600s; when the Bank of Amsterdam began controlling its municipalities for bill-printing and coin metal-content; and the early 1700s, when Isaac Newton formulated the Gold Standard.
Nonetheless, Newton’s Gold Standard, after having enriched the world for 200 years, got dismantled at the start of the 20th century and eventually replaced by FranKeynesntein!
Told exclusively from Central Bank Charts, in this video or you can access the original Prezi directly.
“Capitalism is the only system of economics compatible with human dignity, prosperity, and liberty. To the extent we move away from that system, we empower the worst people in society to manage what they do not understand.” — Frederick Hayek
Venezuela epitomizes Hayek’s dictum. It enjoyed the world’s fourth highest per-capita income in 1961, when it established the political system that over the six following decades, it tenaciously expanded, until fully abolishing capitalism and destroying its economy.
Visualizing how the progression from one wealth-extreme to the other happened, entails charting how each of the dominant economic regimes, before and after 1961, impacted Real GDP per capita (dotted line) and oil production (continuous red line), versus Oil price (continuous blue line). Below, a few more pointers:
BACKGROUND COLOR RUBRIC
Blue– Capitalism: GDP and Oil production grow unbounded, despite Oil price
Yellow– Socialism: GDP binds to Oil price and Oil production drops materially
Red– Communism: GDP depends on Oil price and Oil production starts a persistent descent
TIMELINE AND OTHER POINTERS
- The coloring of the labels coincides with the periods along the timeline when Venezuela, formally or not, adopted each type of economic policy. Note that GDP & Oil Production outcomes closely follow the rubric above, even for the shortest time period (89- 92).
- Though in 1961, Venezuela adopted central planning as the guiding principle of its economy, it continued to enjoy the same degree of economic freedom that allowed foreign concessionaires to invest capital, knowledge and technology in developing oil production to the high reached in 1970, when our new constitution began impacting it.
- Though constitutionally allowed since 1961, the nationalization of Venezuela’s oil business was not openly debated in Congress until the late 60s. Yet, by 1970, the certainty that the oil industry would be nationalized had pushed foreign oil companies to stop all new investments in oil exploration and production expansion.
- Even as oil production begins dropping sharply in 1970, GDP doesn’t follow until 1977, a year after oil nationalization. What postponed the decline was the sudden and massive inflow of petrodollars, coming from the multiple oil price increases that began in 1973.
- Capitalism returns in 1989, and though cut short by a military uprising that forces the president to resign, its economic-liberalization and government decentralization reforms go on to benefit Venezuela for at least a decade. Note also that, as per the rubric, GDP & Oil production begin growing, despite oil prices dropping during most of this period.
- Upon the return of Socialism, economic difficulties caused by years of low oil prices and a local banking crisis forced the new president to honor the previous government’s plan to reopen Venezuela’s oil business to foreign oil firms, under the Orinoco Oil Joint Ventures. Once again, Capitalism is what brings oil production back to higher levels.
- Communism begins under a democratically elected militaristic regime, that eventually seizes power via undemocratic maneuvers and starts an indiscriminate wave of company expropriations, FX and economy-wide price controls, and many other counterproductive economic policies that over time bankrupted Venezuela’s economy.
Only one year after measuring how much devaluation the Chavista regime had imposed on its citizens since 1999, the aggregate sum of counterfeit money the Venezuelan central bank has issued totals 6.5 million times the amount of Bolivars available in Venezuela, when Chávez came to power in February 1999.
As a benchmark of Venezuela’s purchasing power for many decades, our “4.30” represents an ideal gauge to measure the degree of embezzlement gulped down by the current regime since 1999.
In fact, the monetary dilution of the past 19 years has been so many times greater than “4.30,” we need to use a logarithmic scale to visualize it. Additionally, log scaling allows us to expose the scam, using data directly available on Banco Central de Venezuela’s web page, rather than using conversions that require any explanation.
As the chart confirms, via massively printing Bolivars, the government diluted all of the capital Venezuela had amassed until 1999, plus every resource that entered our economy since then.
LINKS WITHIN POST
LINKS TO 2017 ORIGINALS
Banco Central de Venezuela
U.S. Energy Information Administration
Organization of the Petroleum Exporting Countries
Servicio Nacional Integrado de Administración Aduanera y Tributaria de Venezuela
Ministerio de Petróleo y Minería de Venezuela