Central Bank Insurance

“Without that sense of security which property gives, the land would still be uncultivated.”
– Francois Quesnay

“There were at least one million people marching in the streets,” said Alejandro.

“No,” said Juan, “it was not anywhere close to that number. I don’t think there were more than 600,000.”

When I had driven past the center of town earlier that afternoon, around five, there were only a few thousand. “Where’s the rest of the demonstration?” I asked.

“Oh,” Enrique replied, “this is Argentina. Everything starts later here. People won’t really start gathering till eight.” Small pockets of people had started gathering on every street corner, banging their pots and gathering their neighbors as they made their way to the center of town. A trickle soon became a large stream and then a massive river. All across Argentina, demonstrations were held protesting the policies of President Cristina Kirchner. The local press proclaimed the crowd in Buenos Aires to be 700,000+, protesting the increased authoritarianism and policies that are clearly hurting the economy.

“As rich as an Argentine” was a saying at the beginning of the last century. And indeed Argentina was one of the richest countries in the world in the early 1900s. It has been a long, slow decay since that time. There have been many upheavals and sea changes. Once, in the early 1990s, Argentina saw hyperinflation, destroying the value of savings. Prices rose by a factor of 20 billion in Argentina from 1975 to 1991. Inflation was eventually contained by fixing the exchange rate, but by 2000 there was serious economic disruption, with bank runs and the eventual collapse of the dollar peg.

Some argue that the economic and political crisis was worse than before the peg was put in place. By the end of 2002, the economy had contracted by 20% since 1998. Over the course of two years, output fell by more than 15%, the Argentine peso lost three-quarters of its value, and registered unemployment exceeded 25%. Income poverty in Argentina grew from an already high 35.4% in October 2001 to a peak of 54.3% in October 2002. To say things were volatile is an understatement: Argentina had five presidents in two weeks.

Chaos? The destruction of wealth? No doubt. But as I sat down in a very fashionable restaurant in the historic and beautiful Recoleta district, in the midst of one of the largest demonstrations in Argentine history, the contrast of the recent past with the wealth I saw around me was thought-provoking. I thought back to my first visit to Argentina, just after their period of hyperinflation in 1992. It’s hard not to notice the impressive buildings that have been erected since then. And I had just come from Salta province, where agriculture holds sway and the commodity price boom is in full force.

For the last two weeks I’ve been in Brazil, Uruguay, and Argentina. In this week’s letter I offer a few impressions gathered on this trip, as we meditate on what French physiocrats have to tell us about true wealth.

Central Bank Insurance

“If you want to enjoy life, go to Buenos Aires. If you want to do business, go to Sao Paulo,” the saying goes. It is hard to get an impression of a country by going to a city of 20 million people. It is like visiting New York City and thinking you can understand the United States. But I never fail to enjoy myself in Brazil. While it is…