"THE HYPERINFLATION SURVIVAL GUIDE: STRATEGIES FOR
AMERICAN BUSINESSES" IS BACK IN PRINT
In the early 1980s, Harry E. Figgie, Jr.
(the founder of Figgie International, Inc.) became concerned
that the United States' Government was following the same
destructive path that lead countries such as Argentina, Bolivia,
and Brazil into hyperinflationary economic collapse. In the
1980s, each of these South American countries were running
massive annual deficits, were accumulating unmanageable national
debts, and each respectively had a central bank creating
money (out of thin air) at a reckless pace. In looking at
the frighteningly similar profligate behavior, on the part
of the U.S. Government, Mr. Figgie became concerned that
hyperinflation could emerge in the United States as well.
As a businessman and an entrepreneur, Harry Figgie was concerned
that his business enterprises may not survive if his management
teams were not prepared to operate under the unstable conditions
wrought by heavy inflation. Since little had been written
about managing a business under hyperinflationary conditions,
Mr. Figgie initiated a research project to find out what
a business must do to survive the ravages of inflation. So,
in his own words, here is what he decided to do:
As a result, we initiated research of our own, and chose our target
South America - specifically Bolivia, Brazil and Argentina - as
the best available examples of economies suffering high inflation
We put together a three-person team headed by Dr. Gerald Swanson,
a University of Arizona economist and director of the Academy for
The team went to South America four times over a two-year period
to study the development of inflation and its impact on businesses,
individuals and governments. They interviewed 80 leading bankers
and industrialists and a considerable number of ordinary citizens
throughout Argentina, Brazil and Bolivia.
As a result of this research, Dr. Swanson wrote The Hyperinflation
Survival Guide: Strategies for American Businesses (which was first printed in 1989). The superb content
of this book can be attributed to Mr. Figgie's foresight and
to the outstanding research and writing of Dr. Swanson. What
follows are a brief "Austrian" perspective about this book and
then specific details about the book's content.
AN AUSTRIAN PERSPECTIVE
The Hyperinflation Survival Guide: Strategies for American
Businesses is a book that
provides sound business strategies for entrepreneurs to implement
when operating a business under economic circumstances in which
monetary calculation becomes increasingly difficult due to a
rapid fall in money's purchasing power. Although the term "monetary
calculation" is not found anywhere in this book, it is crucial
to understand that monetary calculation is a method of thinking
for the businessman. As the extraordinary economist Ludwig von
Mises explains in his magnum opus Human Action:
Monetary calculation is the guiding star of action under the social
system of division of labor. It is the compass of the man embarking
upon production. He calculates in order to distinguish the remunerative
lines of production from the unprofitable ones, those of which
the sovereign consumers are likely to approve from those which
they are likely to disapprove. Every single step of entrepreneurial
activities is subject to scrutiny by monetary calculation. The
premeditation of planned action becomes commercial precalculation
of expected costs and expected proceeds. The retrospective establishment
of the outcome of past action becomes accounting of profit and
A tool businessmen use to determine the success or failure of
past actions is a financial statement (which includes a balance
sheet and an income statement). It is important to understand that
all entries in the balance sheet and income statement are expressed
in terms of money. Under conditions in which money's purchasing
power is stable, a businessman can directly correlate whether his
company's capital base (i.e. the company's net worth as reflected
in the balance sheet) is expanding or contracting depending upon
if the company turned a profit or made a loss. Such monetary calculation
assists a businessman in deciding to maintain or change a business
plan based upon satisfying the ever sovereign consumer.
But what happens to monetary calculation under conditions of inflation?
As Murray N. Rothbard explains in his fabulous book Man, Economy,
and State, businessmen may
be "tricked" into making poor decisions thus causing consumption
...the inflationary process inherently
yields a purchasing-power profit to the businessman, since
he purchases factors and sells them at a later time when all
prices are higher. The businessman may thus keep abreast of
the price increases (we are exempting from variations in price
increases the terms-of-trade component), neither losing or
gaining from the inflation. But business accounting is traditionally
geared to a world where the value of the monetary unit is stable.
Capital goods purchased are entered in the asset column "at cost," i.e.,
at the price paid for them. When the firm later sells the product,
the extra inflationary gain is not really a gain at all; for
it must be absorbed in purchasing the replaced capital good
at a higher price. Inflation leads him to believe that he has
gained extra profits when he is just able to replace capital.
Hence, he will undoubtedly be tempted to consume out of these
profits and thereby unwittingly consume capital as well. Thus,
inflation tends at once to repress saving-investment and to
cause consumption of capital.
Indeed, inflation can lead to entrepreneurial error and, thus,
to business failure.
SPECIFICS FROM THE BOOK
The Hyperinflation Survival Guide provides excellent strategies for businessmen to adopt
and act upon should hyperinflation emerge. Although this book
is geared more toward owners/managers of manufacturing companies,
operating under inflationary conditions, any businessman (and
any individual) can garner excellent advice from this insightful
book. The four chapters in this book cover financial management,
marketing strategies, manufacturing decisions, and industrial
Chapter one of this book (titled "Financial Management") can be
summed up as follows: "Cash management is the difference between
profits and bankruptcy. The single fact that influences every decision
is: Time eats money." The following list highlights a few of the
important financial management issues covered in this chapter:
- Make absolutely certain your managers understand the time value
- Never allow your cash to remain idle.
- Good cash management can provide a major source of profit,
while poor cash management can destroy a company in a matter
- Be prepared to convert dollars into a stable foreign currency.
- Be aware that the stock market may become an uncertain source
- Be prepared to maintain more than one set of books.
- Inventory valuation should be based on NIFO (next in first
out) rather than LIFO.
- Develop an appropriate inflationary adjustment for capital
replacement or the value of your capital will disappear.
Chapter two is titled "Marketing Strategies". Pertaining to the "4Ps" of
marketing (price, promotion, place, and product), this book concentrates
on pricing and product.
Since government intervention and regulation inevitably become
even more oppressive during bouts of high inflation, it is important
for businesses to sell products with the largest profit margins.
As Dr. Swanson points out:
A fact of life in a hyperinflationary economy is the disappearance
of products whose controlled price does not cover the cost of production.
In Brazil, for example, dairy products such as milk, eggs and cheese
became unavailable when the regulated price was set below their
Likewise, in the United States, high volume products with extensive
competition--characteristic of many consumer products--may be
the first to disappear should inflation begin to rise, because
they tend to have low profit margins.
With respect to pricing, the book conveys
that pricing "...policies
undergo a dramatic transformation during hyperinflation. Fluid
pricing becomes an absolute necessity, and prices must change frequently
and sharply to accurately reflect the impact of inflation. True
costs become increasingly difficult to track, even as the need
to do so grows more important."
For Americans, it is hard to imagine products disappearing from
the marketplace let alone having to cope with hyperinflation. Just
imagine the nightmare Bolivian businessmen went through, in 1985,
when inflation hit 50,000% annualized. Upward price adjustments
would have to be made by the hour. These upward adjustments accumulate
to the point of seeming absurd. For example, under 50,000% inflation,
a $25 necktie would cost $12,525 one year later.
In chapter 3 (titled "Manufacturing Decisions"), Dr. Swanson emphasizes
that management must be flexible and innovative. In fact, corporate
survival may require radical decisions. For example, during "...periods
of high inflation, manufacturing operations are particularly hard
hit. In fact, in some extreme cases in South America, corporate
attempts to survive have led some companies to shut down their
manufacturing operations in favor of speculation, which can be
a more profitable use of capital." The cold reality here is that
the rates of return on speculating in commodities and currencies
(under conditions of severe inflation) may exceed the rates of
return on capital projects. In turn, this means laborers will lose
Other important points covered in this chapter include the following:
- Anticipate that your purchasing department will assume a more
important role in the long-run survival of your firm.
- Be aware that hyperinflation creates increased opportunities
- Effective cost control requires that you develop methods for
estimating your internal rate of inflation.
- Anticipate difficulty in maintaining capital expenditure programs.
Chapter 4 of this book is titled "Industrial Relations". It could
just as easily be titled "Employee Relations". As Dr. Swanson and
his team discovered in South America, the impact of hyperinflation
on wages and benefits was stunning. For instance, "...Brazilian employees
who were not given raises in the first three months of 1988 watched
their buying power plummet 64 percent. Even worse was the spring
of 1985, when Bolivians saw their real income drop 90 percent in
only three months." Such bouts of inflation become especially difficult
for businessmen to cope with as inflation is inflicted upon society
by a government's reckless monetary creation (out of thin air)
while, in turn, government regulations (for the alleged purpose
of controlling inflation) prevent employers from granting raises
to employees. Unfortunately, employers take the brunt of the blame
for the declining living standards (that employees experience during
bouts of severe inflation) when government is the real culprit.
As standards of living decline, Dr. Swanson
found that "...individuals
tend to seek the support of a group to represent them in order
to survive constantly rising prices." He further articulated:
This is certainly true in Bolivia, Brazil and Argentina, where
the union movement is very strong in both the public and private
sectors. Some South American business leaders go so far as to complain
that union leaders actually use hyperinflation to their own advantage,
recognizing it as a major source of their power. Because wages
continually lag behind rising prices during hyperinflation, there
is a near-constant need for negotiations, as union members press
their leaders to push for higher wages.
Other notable labor relations issues covered in this book are
- Labor relations staffs should be prepared to
face stronger unions and virtually continuous negotiations.
There is a high likelihood that wages will at some point be
frozen, and labor will apply pressure on management to circumvent
Prepare to shorten pay periods.
Anticipate morale problems among middle management, which often
bears the greatest burden during hyperinflation.
Consider the type of index you will use for cost-of-living
adjustments, and be prepared to make adjustments often.
Fringe benefits must be adjusted to reflect inflation or they
This book's appendix provides a nice bonus
as it covers the disastrous results of the wage and price controls
President Nixon implemented to "combat" the United States' 4.7% inflation rate and its 5.8%
unemployment rate. Two of the most notable actions President Nixon
undertook on August 15, 1971 included an immediate 90-day freeze
on wages, prices, salaries and rents and of course, the reprehensible
floating of the dollar (by severing the last vestige of the dollar's
linkage to gold). For a president to state that severing the dollar's
link to gold will help reduce inflation completely defies logic.
In reality, what President Nixon "accomplished" was to enable the
federal government to create money without limit. How such an irresponsible
action can be construed to be anti-inflationary is a sad testimony
to the economic illiteracy of the American populace.
To buttress the point about economic illiteracy, here is an excerpt
from this book's appendix:
Domestic reaction to Nixon's proposal was overwhelmingly positive.
Leaders of the nation's corporate giants, believing that some sort
of action was overdue, responded with general enthusiasm, and opinion
polls showed broad support among the populace.
Financial markets reacted with unprecedented gains, as trading
on the New York Stock Exchange hit a record 31.72 million shares,
and the Dow Jones Industrial Average set a one-day record by
climbing 33 points. Bond prices also rose sharply in heavy trading...
In all, President Nixon implemented four phases of wage and price
controls (with the final phase ending in April of 1974) and the
results were predictably terrible. For example, there were shortages
in beef and textiles. Moreover, prices rose at an average annual
rate of 6 percent while the controls were in place, yet in the
eight months following the end of Phase IV, prices climbed at an
annualized rate of over 12 percent.
Of the books
published regarding hyperinflation, this may be the only one
that provides effective strategies for operating a business
under conditions of a rapidly depreciating currency. To reiterate, "The
Hyperinflation Survival Guide: Strategies for American Businesses" was
written by Dr. Gerald Swanson (an associate professor of economics
at the University of Arizona). Harry E. Figgie, Jr. sponsored
the research and the original production of this book. As it
was originally printed in 1989, it was way ahead of its time.
However, this doesn't change the fact that this book will prove
to be an excellent resource for businessmen and individuals
once the Federal Reserve's destruction of the U.S. dollar enters
its terminal stage.
Let me close
with a little bit of sobering humor:
There are 10^11 stars in the galaxy.
That used to be a huge number. But it's only a hundred billion.
It's less than the national deficit! We used to call them astronomical
numbers. Now we should call them economical numbers. Richard Feynman (1918