Argentina’s political rulers learn nothing from past mistakes

National socialist political actions have been the ruination of Argentina. The Peronist political party is a parasite which has attached itself to the Argentine nation and continually eats away at the economic life of the people. Argentina, like Venezuela, is an extreme case of the political pathology which affects even as vibrant a society as America.

The nation of Argentina has been bankrupt since shortly after inception of the rule of the Peronist political party, the Partido Justicialista 1 in 1946. The desperate state of Argentine national finances has been evidenced by successive hyperinflations, repudiation of bonded indebtedness, and confiscation of the savings of its citizens. 2

All were caused by the same thing—the attempt to make good on political promises of benefits to be paid for by extracting property from producers to transfer to consumers. As Andrew Galambos  said, even a child knows that you cannot eat bread that has not been baked. 3 Argentina’s Peronist rulers have never understood that. Production must precede consumption. Without production there is nothing to consume. When a political state plunders producers to benefit consumers, production falls and along with it consumption also falls.

In Argentina, the state tried to tax producers more in order to pay for the benefits it was doling out to its beneficiaries. That didn’t work because production fell. Then the state pretended to make payment with an avalanche of money created by the printing press. This excessive money creation devalued previously issued money by causing inflation in producer and consumer prices to make up for the monetary inflation. Undeterred, the state created still more phony money, and this was the cause of the hyperinflations.

When taxes and inflation did not produce enough money to continue paying benefits the state borrowed by issuing bonds, and when even the borrowing failed to finance continued distribution of benefits in the form of money, the state confiscated the bank accounts and the retirement savings of those citizens who had been able to accumulate property in  bank accounts and retirement accounts. This is all recorded in detail by Chilean-born economist and historian Mauricio Rojas, in his book The Sorrows of Carmencita: Argentina’s Crisis in a Historical Perspective (2002). 4

The people of Argentina could enjoy a far higher standard of living but for its political rulers. The country has ample natural resources including petroleum and fertile agricultural lands. Now the Argentine state wants to accelerate its tax revenues by pushing farmers to sell valuable crops before the farmers want to sell. We quote hereafter, with occasional comment, from a recent article in The Wall Street Journal. 5

“Farmers across this country’s breadbasket have battled President Cristina Kirchner’s  populist government for years.

“Now their record-setting soy crop is helping to prop up their nemesis, by bringing in the international reserves vital to help her government avoid another currency crisis. On Wednesday, the Central Bank said the crop would help it to maintain its current $28 billion level of reserves by year’s end.

“The irony doesn’t escape the growers. ‘One out of every three trucks we load goes straight to the government,’ said Carlos Bunge, a farmer and descendant of the family that founded a major German-Argentine grain-trading company 130 years ago. ‘You feel like you’re feeding a monster.’

“With the harvest in full swing and continuing through July, soybean shipments have earned more than $8 billion and are expected to reach a record $29 billion, according to official data and analyst projections. The oilseed, Argentina’s most profitable grain, makes up about a third of the country’s exports by value.

“For Argentina, the money couldn’t come at a better time, as the country faces a slowing economy, the highest inflation rate in Latin America after Venezuela and an acute shortage of foreign reserves, with little access to international financial markets since its 2001 default [on Argentine government bonds, the largest default on sovereign debt in world history].

“Mrs. Kirchner’s government has been urging the farmers—against their will—to sell their beans more quickly to help Argentina avoid a repeat of January’s damaging run on currency. . . But the growers—who say they resent what they call excessive taxes and regulation—are resisting. Growers are selling part of their crop to pay bills after the Kirchner administration . . . ended government-subsidized loans to farmers . . . [T]he farmers want to retain the rest as long as they can to hedge against inflation and what they expect to be a weakening peso, as well as to reap higher postharvest prices.

“‘Grain is like cash under the mattress,’ said one farmer, Francisco Santillan, strolling across a patch of the 5,600 acres of farmland he manages outside Pergamino. ‘We don’t use banks. We use silos.’ . . . [Note: Argentines have experienced the state’s direct confiscation of bank accounts and indirect confiscation of money in banks due to high inflation.]

“In 2008, when Mrs. Kirchner’s late husband and predecessor Néstor Kirchner tried raising export taxes for soybeans from 35% to a floating rate reaching 50%, farmers in the Pampa revolted, shutting down the grain and beef trade and blocking highways. Argentina’s congress then voted down the tax plan.

“Kirchner administration officials continue to spar with the farmers, accusing them of being coup plotters and oligarchs. Mrs. Kirchner says the growers have been blessed with wealth and profits—an abundance that must be shared with Argentina’s poor. . . [Comment: The massive numbers of Argentines living below the state’s own official  poverty line are a direct result of the perpetual attacks on producers and production by the Argentine state, which seeks to avoid accountability by blaming poverty on greedy individuals, as indicated by the foregoing reference to farmers who are accused of being coup plotters and wealthy oligarchs.]

“The Kirchners periodically halted corn, wheat and beef exports to stem high prices for the local market. But they never restricted exports of soybeans—used mostly as animal feed but also for tofu, cooking oils and soy sauce and are rarely consumed by Argentines.

“That policy led many farmers here to shift exclusively to soybeans over the past decade, even though experienced farmers say a crop rotation is essential to keeping soils healthy. ‘You grow other crops to rotate and protect the soil,’ said Jorge Balsells, a farmer. ‘But it means you take a loss.’ Another grower, Nestor Marchessotti, said, ‘We’d starve to death, if it weren’t for soy.’ [Comment: They lose money on other crops due to state intervention, i.e., price controls on crops produced for the domestic market.]

“. . . Morgan Stanley said recently that Argentina’s reserves could fall to $22 billion by January—from nearly $53 billion in early 2011 . . . unless the government takes further measures to cut government budget deficits and lift interest rates.

“That is where the soybean harvest would help. Argentina’s grain exports, mainly soybeans, could result in $3 billion in added reserves in the second quarter, said Casey Reckman, a Credit Suisse analyst, in New York.

“As he maneuvered his four-wheel-drive vehicle on a dirt track running through his 130-acre farm recently, Mr. Bunge said he grudgingly planned to sell more of his crop now than he would like to due to a lack of credit to pay his bills. He said, ‘It’s very hard to think long term.'” [Comment: Coercion interferes with the ability of entrepreneurs to plan for the long term. It takes every bit of their entrepreneurial skill just to survive in the present under a coercive national socialist state.]

Summary of this news report:

  • The Argentine state imposes a 35% export tax on soybeans.
  • Argentine farmers have a bumper crop of soybeans.
  • The state says sell it all now, we need the tax money now.
  • The farmers say no, because you take one out of every three truckloads we send to market. We would rather not sell it all now, because it just accelerates tax on our valuable asset. We would rather store the product for future sale because it is far better than money in the bank which you can steal as you have before.

Argentina’s National Socialism

The name “Partido Justicialistia” epitomizes the policies of the Peronist party: to bring about supposed social justice by taking from more productive and affluent Argentines to transfer the property taken to the greater number of less productive and less affluent and, not incidentally, to perpetuate the party in power by winning the gratitude and votes of the recipients of this largesse.

The 35% export tax on soybeans illustrates operation of justicialismo: the state will not wait to tax the profits of exporters after those profits are earned in foreign trade. It taxes the exporters before they can even earn profits by export.

A tax on exports also amounts to a tax on imports. That is because to import from abroad Argentines must earn foreign money to buy foreign-produced goods. 6 The export tax confiscates money that could have been earned in foreign trade. This has the effect of making imports scarcer and thereby raising  their prices.

The tax-engendered rise in the price of imports means fewer imported goods can come into Argentina. Absent state coercion Argentines would have more foreign currency to pay for and import foreign-made goods. Access to some foreign-made goods is desirable in every country. The people of Argentina cannot produce everything they would like to acquire; no country can do that, not even the United States of America.

The multiplication of similar policies to a great number is the explanation for the poverty of Argentina.

 

 

 

Notes:

  1. Justice Party in English
  2. See discussion of Argentine inflations in the chapter entitled “Money” in this website, at http://www.capitalismtheliberalrevolution.com/chapter/money/ under heading “State Money Monopoly—A brief history of state money fiascos.”
  3. This blog is a part of the website and book inspired by, and produced as a record of the illuminating lectures of astrophysicist and philosopher Andrew J. Galambos (1924-1997).
  4. Published originally in Spanish under the title Historia de la Crisis Argentina
  5. “Argentine Farmers Reap Discontent: Soy Growers Complain Their Record Crop Is Propping Up a Hostile Government; ‘Feeding a Monster,’” by Shane Romig, The Wall Street Journal, May 29, 2014, http://online.wsj.com/articles/argentine-farmers-reap-discontent-1401325992?KEYWORDS=Argentine+farmers+discontent+Shane+Romig
  6. French philosopher Frédéric Bastiat (1801-1850) expounded this idea in his essay “That which is seen and that which is unseen.” Renowned American economic historian and journalist Henry Hazlitt (1894-1993) expanded Bastiat’s concept into one of the best, if not the best, introductory books on economics ever written, Economics in One Lesson (2nd ed.1979).
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