Despite some recent apparent signs of improvement, in the past two years we've had very negative economic news from Europe, particularly from countries such as Spain, Ireland, Greece, Cyprus, Italy, and Portugal. High unemployment, failed banks, fiscal insolvency, and a growing distrust of markets are just a few of the difficulties.
All these problems seem to be headline news of the day. But they are not new. The ignorance and irresponsibility of some rulers lead them to make the same mistakes over and over again.
Evidence is in a book that my father, Hugo Salinas Price, prefaced in a recent edition and shared with me. It's entitled Fiat Money Inflation in France, originally written in 1912 by Andrew Dickson White, a U.S. scholar, historian, and diplomat.
The book recounts the case of France in the period following the Revolution (1789), where the new government, consisting of a "Directory", had to establish the new economic and political foundations of the French state.
The following year, the government confiscated a large portion of the properties of the nobility and clergy, and decided to support the value of the paper currency, the assignat, that it began to issue.
The assignats were initially issued conservatively. However, after seven years, a series of bad decisions, corruption, and speculation led to a monetary chaos that resulted in a decline in trade, loss of savings, a rising cost of living, and social unrest.
According to the book, the reason for the chaos was that the Directory authorized the issuance of "assignats" without controls. This naturally caused hyperinflation.
Textbook economics says that an uncontrolled money supply destroys the value of a currency, generating mistrust and encouraging people to spend their money quickly, before it loses its value. This causes consumers to buy excessively expensive goods and in disadvantageous conditions.
The immediate consequence is a decline in purchasing power and, consequently, the inability to purchase basic goods. This, in turn, logically leads to social unrest. The problem is that this phenomenon feeds on itself, with inflation, the most unfair tax of all, causing more inflation.
This was resolved in the case of France seven years later, under the rule of Napoleon Bonaparte, who in 1803 introduced the gold standard, which remained in effect until World War I.
Today, several European countries, including France itself, are experiencing a crisis and the problem has a common origin, namely, the end of the welfare state and excessive public expenditure. The tools that these countries have to handle their crises are limited because they surrendered their monetary policy to the European Central Bank; they do not control the issuance of their own currency.
The uninterrupted nature of the European crisis reminds us of episodes from Mexican economic history, with disasters such as 1982 and 1994, in which the situation became unsustainable, thousands of businesses went bankrupt, and millions of jobs were lost. In the 1980's, even our own Grupo Elektra was on the verge of bankruptcy.
Fortunately we have learned something and the situation in Mexico today is far from the European scenarios. But we always run the risk of forgetting these lessons. We must remain vigilant and demand accountability in public spending on the local and federal level and avoid committing the mistakes of the past.