After last week’s discussions of requirements in case of zombie apocalypse, it seems obvious that we’ll be sorted for the essentials – food, shelter, diesel, chainsaws mounted on big trucks, light armoured vehicles, and the rest. So my brain turns, as it often does at four in the bloody morning, to the harder questions, like how do we maintain a stable currency in the event of zombie invasion?
Currency is useful as a means to store wealth, it’s a promise against the future. You can do an hour’s worth of work now, get back a piece of paper that you can exchange for someone else’s work in the future. Inherent in that is some kind of labour-capital exchange, the ability to swap lots of labour for lots of capital, like a house. You can look at capital as a store of past labour.
Assuming 90%+ of the world’s population is infected, then we’re faced with a quite awkward monetary situation. We’ve got an excess of capital – many houses, cars, factories per person, but it’s all going to depreciate at a horrific rate, coz we don’t have enough people to look after them. So you can have that Ferrari (assuming you can find the particular zombie that has the keys in its pocket), but stocks of petrol will run out in months, and even if we start growing our own biofuels, odd on are that the only Ferrari mechanic in NZ has been infected. So that Ferrari rapidly loses it’s exchange value.
Same for houses. All of a sudden, houses are pretty much free, as we’ve ten times as many of them as we need. Still, you’re only going to live in one, so why bother keeping up maintenance on the rest? It’s not like there’s enough people to rent them to, nor will there be for quite a while. So the housing stock collapses, destroying lots of capital.
Immediately after the invasion, you can get a Ferrari an hour’s labour. Some months later, an hour’s labour might get you half a ploughed field. So people will want to consume now, gather as much physical wealth as they can in preparation for the hard times ahead. The real wage now is high now, decreasing rapidly. An economist’s way of saying this is that real interest rates are very high.* Thus the demand for money increases, leading to inflation.
The usual response, to lower the money supply, is going to be tricky, coz the banks are full of zombies and thus unresponsive to changes in the official cash rate. Given such situations, people may be tempted to throw up their hands, loose their faith in cash and revert to a barter system.
However, cash is handy, and by far the best way to deal with an inflationary crisis when the wealth of a nation changes rapidly is to replace a fiat currency with something that’s backed by some barterable commodity – i.e. a return to the Gold Standard. If everyone’s bartering anyway, then you might as well use money that’s based on barter.
Then, we run into the problem of how much gold have we got in the country? That’s pretty hard to assess, coz as soon as gold backs the currency, it becomes the currency, and we spend all our time picking over the ruins looking for old jewelry. Thus we might get more inflation, or we may invade Australia for the gold mines, resulting in the kind of rampant inflation that Spain saw when it ruled South America. So instead of the gold-backed Pacific Peso, I propose a better currency – the Scandinavian Blond. This is a good fit with our requirements. There’s a fairly fixed supply, they’re inherently valuable and will be accepted in trade by the barbarian hordes (coz, some Aucklanders will probably survive). They do have disadvantages, of course, they’re annoyingly indivisible, so only suitable for large transactions, but that’s hardly insurmountable. If we did decide to increase the money supply, then that would involve long sea voyages, but frankly, that’s a worthwhile hedge against inflation for when the economy does get back on its feet.
(* Or possibly negative. In which case case, remembering that nominal interest rates can’t go below zero, then we still get inflation.)
In other news, and you may want to be sitting down for this – the new Pendulum album sucks. It’s like they thought to themselves, “we’re the most successful Australian drum and bass band ever, but we’re not getting enough groupies.” Then they thought, “who gets lots of groupies? AC/DC!” So, being Australian, they prayed to the great gods who are AC/DC and lo! AC/DC appeared in the sky and the members of Pendulum cried “oh Lords of ROCK!, what should we do to get more groupies?” But AC/DC were busy shagging groupies and didn’t care to answer. So the members of Pendulum thought, “well, if it works for AC/DC, it’ll work for us” and made a whole album of ROCK! But Pendulum are Pendulum, not AC/DC, they did not possess the true essence of ROCK! so they sounded like yet another bad AC/DC cover band. Alas, the groupies said to themselves, “why sleep with yet another bad AC/DC cover band when we could sleep with AC/DC”, and the drum and bass heads said to themselves, “wtf?” and downloaded the JFB dubstep mix wherein JFB decides that there should be more to dubstep than low, dark wobblers. Instead, there can be low, dark wobblers with counterpoint.