What if your savings account experienced an 83 percent loss in value within just 18 months? You’d likely feel quite frustrated. Unfortunately, this is the harsh reality in Venezuela right now.
According to El Universal, “Since February 2013, the Venezuelan government under President Nicolás Maduro has maintained the exchange rate at VEB 6.30 per US dollar, despite an average increase of 83 percent in the price of goods. In contrast, inflation in Venezuela’s major trading partners—such as the United States, China, Colombia, Mexico, and Brazil—remains significantly lower. Thus, what you can purchase with VEB 6.30 in Venezuela is much less than what a US dollar can obtain in those countries.”
Clearly, Maduro’s enforced exchange rate is misleading. If VEB 6.30 were genuinely equivalent to 1 US dollar, the purchasing power would be the same. The fact that it is not only illustrates that Maduro is failing to uphold his commitment to accurately represent the nation’s currency.
However, it’s worth noting that the U.S. dollar isn’t without its flaws either. While it hasn’t depreciated 83 percent in the past 18 months, it has suffered an 83 percent decline in value over the course of 43 years. This timeframe surpasses an average person’s working life and highlights persistent issues.
As indicated by the Bureau of Labor Statistics’ own inflation calculator, the dollar has lost 83 percent of its value since 1971, the year when the last ties to gold were severed. While an 83 percent loss spread over 43 years may seem more palatable than a rapid decline over a year and a half, it constitutes a form of systematic theft.
The Drapier’s Letters
Let’s draw a parallel to the actions of William Wood, an English iron goods merchant who was granted a 1722 patent by the English Parliament to mint copper currency for Ireland.
The Irish populace, understandably, was not in favor of this patent. They noted it lacked the approval of the Irish Parliament and opened their currency to potential devaluation—another instance of English political and economic exploitation.
Jonathan Swift, the renowned satirist and political commentator, vehemently opposed Wood’s copper coins. He authored a series of incisive pamphlets to galvanize public sentiment in Ireland and advocate for the financial autonomy of the Irish kingdom. These writings are now collectively known as The Drapier’s Letters.
Swift’s primary concern was not a lack of currency but the emergence of inferior copper coins that could disrupt the circulation of higher-value silver coins. He argued that without Irish oversight on quality and quantity, the economic stability would be at risk.
This phenomenon is aligned with Gresham’s Law, which states: “Bad money drives out good.” Specifically, when both good and bad currency circulate as equals, bad currency tends to dominate. A historical example is seen in the U.S. in 1965, when quarters were switched from silver to a copper-nickel alloy. As inflation rendered the silver in pre-1965 coins more valuable than the coins themselves, these silver quarters quickly vanished from circulation.
Refuse the Filthy Trash
Swift astutely recognized that the Irish people were under no legal obligation to accept Wood’s inferior copper coins. In The Drapier’s First Letter, addressed to the shopkeepers, tradesmen, farmers, and common people of Ireland, he outlines what the law does and does not require.
“I will now, my dear friends, to save you the trouble, set before you, in short, what the law obliges you to do; and what it does not oblige you to.
“First, you are obliged to accept all money in payments that is coined by the king and meets English standards or weight, provided it is gold or silver.
“Secondly, you are not obliged to accept any money that is not gold or silver; this includes copper or farthing coins from England or elsewhere.
“Thirdly, and most importantly, you are certainly not required to take those vile halfpence from Mr. Wood, which cause you to lose almost eleven pence in every shilling.
“Therefore, dear friends, stand firm together: refuse this filthy trash. It is not treason to resist Mr. Wood. His Majesty’s patent does not force anyone to accept these halfpence; our gracious prince has no ill advisers about him; or, should he be advised poorly, the laws uphold that it’s in the king’s power to compel us to receive only lawful coins of standard gold and silver.”
Thanks to Swift’s persuasive arguments in the Drapier’s Letters, Wood’s patent was revoked in 1725, sparing Ireland from the consequences of an influx of cheap money—an experience that Venezuelans are currently enduring due to Maduro’s interference with the currency.
Sincerely,
MN Gordon
for Economic Prism
