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Danilo Nogueira provides a brief
history of the Brazilian inflation in The Language of Inflation:
Traps in Translating Brazilian Portuguese. The article is one of the more
insightful articles that I have seen on the topic. The author, a business
translator, examines the inflation from a translator's perspective. He
illustrates what Hayek called the corruption of language through politics as
words are used to obscure politically inconvenient truths.
von Mises emphasized the importance of the monetary unit serving as a unit of
economic calculation. What he meant by this is that accounting, both backward
looking in the summarization of a company's books, and forward looking as in
the evaluation of different investment possibilities, requires a single unit
so that different possibilities can be compared and a value of profit or loss
estimated in a single unit of measure that is comparable among all
alternatives. Mises also emphasized how inflation disrupts the process of
economic calculation by destroying the monetary unit as a unit of account and
a means of economic calculation.
Tradutor provides some
fascinating stories about the attempt by population to create alternative
measures of economic calculation that were more stable than the rapidly
declining currency.
While the article is worth reading in its entirety, a few themes stand out:
The political manipulation of price indexes to
understate inflation:
The most egregious mark of inflation is
Correção Monetária (CM), the indexation system
introduced in the mid 70s. Now most professionals appropriately translate
that as indexation. However, you will also find the terms monetary correction
or monetary restatement, which are improper because their meaning is
difficult to pinpoint, as well as price level accounting, which is a misnomer
because official CM indices seldom reflected anything like a price index. In
fact, they were tools of economic policy. In other words, the index did not
reflect past inflation, but was what the government thought convenient at the
time. Often one or more increases were considered “abnormal��? and thus excluded from
CM computations. This was called inflação
expurgada—expurgated inflation. Any accountant will tell how tax
revenues could be manipulated in this way.
The gradual impoverishment of most working people as
their wages or fees lagged behind the cost increases of their inputs:
Unfortunately, the prices we paid always seemed to
increase a lot faster than the prices we could charge. Everybody claimed that
their prices (or salary, wages, pension, or whatever) were defasados
(literally: out of phase) meaning they lagged behind inflation. This, of
course, called for a reajuste para contrabalançar os aumentos—an
adjustment to offset the increases. Which, in turn... well, you get the idea.
Wage and price controls, and the constant gaming of the
system to avoid them.
Once a year, a pay increase was decreed. That, of
course, was o aumento or o reajuste, depending on which side of the fence you
were on. However, during the year workers usually demanded an extra increase.
Since at times the government tried to control inflation by putting a lid on
wage increases (o arrocho—the squeeze), such an increase was plainly
illegal, so workers and their employers usually agreed on an antecipação
(advance) or a pay increase that would be deducted from the official increase
to be decreed. Later on, pay hikes above inflation rates were allowed if
productivity increased. So, workers began to demand their produtividade,
which does not mean productivity, but a pay increase attributed to an alleged
increase in productivity....]). Occasionally prices were congelados (frozen),
in which case goods would disappear from the market
(desabastecimento—literally lack of supply) and could only be bought at
higher-than-official prices (com ágio). To evade controls and freezes,
some products appeared under slightly new guises, a practice referred to as
maquiagem (make-up).
The failure of the inflating money to serve as a useful
unit of economic calculation, and the search for alternatives:
Indexation was introduced as a cure for inflation, but
it failed mainly because it was habit-forming. Inflation rates accelerated
and we had to index practically everything: salaries, installments, rent.
This was done by pegging prices to something the price of which was widely
publicized. For instance, Treasury Bonds. Treasury Bond par values were
indexed and most people could tell you what the day’s value was. Those
Bonds were called Obrigações Reajustáveis do Tesouro
Nacional (ORTN) - and all prices were quoted in ORTN terms. Many translators,
for instance, charged 1 ORTN per standard page. Salaries were also quoted in
terms of ORTN, of course. Household help was paid in ORTN. ORTN values were
translated (convertidos) into ordinary currency at the time of payment. Of
course, most people never saw an ORTN, we used ordinary money, and the
indices were just “money of account.��? I am not mentioning
the name of the actual currency unit in use, for we had half a dozen
different units during the period.
With time, the ORTN was replaced by the Obrigação do Tesouro
Nacional (OTN), and that in turn (mis)begot otenizar (to quote using the OTN
as a unit).
Informally, prices were also quoted in dollars. Since there were stringent
exchange controls, most people had never seen a greenback, but almost
everybody knew how much it was worth. Exchange controls brought the black
market with them. This is referred to as o black and black-market dealers are
called doleiros.
Ever greater amounts of energy and time devoted to the
management of cash and the resulting disruption of productive commerce:
Cash management became all-important. Businesses kept
enormous cash balances which were reinvested every day. This was often considered
a better use of money than investing in production and was referred to as
ciranda financeira. Ciranda financeira could perhaps be translated as
financial merry-go-round, although ciranda is a dance in a circle. It did
very little good to the economy.
The eroding power of inflation was so strong, that nobody could afford to
wait for payments. Traditionally, wholesalers sold 30 d.f.m. (30 dias fora o
mês), which means 30 days, not counting the current month. In other
words, if a retailer bought, say, cooking oil from a wholesaler on April 10,
the bill was expected to be settled on May 31. This was gradually reduced to
one week after delivery. Banks offered 7-day collection services. Checks were
(and still are) cleared within 48-72 hours. Although inflation is now very
low, we have kept this healthy custom. My clients still settle my bills
within two weeks at most, to the envy of many colleagues abroad who must wait
a couple months for a check.
Robert Blumen
Robert Blumen is an independent
software developer based in San Francisco, California
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