Evolution and Inflation

By TAN Kee Wee

(MediaCorp 938LIVE’s Money Talks, Thursday, 10 July 2008, 7.45 am and 7.20 pm)

A 150 years ago this month, an idea, more radical than Karl Marx’s theory of capitalism, was set loose onto this world.

It happened in July 1858, when members of the Linnean Society met in London to hear about a new theory which has caused more offence and trouble than any other in history.

I’m referring to the theory of natural selection, which is widely attributed to Charles Darwin. Put simply, it says that in the natural world, the fittest will survive and will eventually evolve into new species.

Take for instance, the dinosaurs. Many believe that sudden changes in the earth’s climate some 65 millions years ago led to their extinction. But their story does not end there.

Since the 1970s, new findings point to the view that dinosaurs were not completely wiped out. It is possible, that a branch of the dinosaur family tree survived and evolved into the beautiful birds we see around us.

Today the world is threatened by inflation. If it leads to hyperinflation, which can be defined as inflation of more than 50%, it can be as devastating to the global economy as climate changes to dinosaurs.

I’s easy for the Singapore motorist to think that this week’s rise in ERP rates, of up to 100 percent, is a clear case of hyperinflation. But this is nothing compared to the 9 million percent inflation rate registered in Zimbabwe today.

Just after the First World War, Germany went through one of the worst cases of hyperinflation. At its peak in 1923, prices rose as high as 3 billion percent. That’s equivalent to prices doubling every 49 hours.

So bad was inflation that workers were paid three times a day. And they were given half-hour breaks to rush to the shops with their bags of money to buy something, anything, before the paper money they held halved in value, yet again.

Germans in the lower-income groups were not the only ones who suffered. The middle class also suffered. This is because inflation wiped out their savings. The poor were spared this fate because they had no savings.

In the later stages of hyperinflation, people would abandon the money economy and turn to bartering. To survive, Germans living in cities exchanged their prized possessions with farmers, for the basic necessities of life.

Stories were rife of farm houses stuffed with grand pianos and elegant furniture. These were handed over by the city dwellers, in exchange for a chicken or a dozen eggs. In the end, the German economy collapsed.

Today’s inflation has not caused any economy to collapse yet. But rising prices are changing our lifestyles and the way we do business. Those big petrol-guzzling SUVs will soon be replaced by more petrol-sipping mini cars. Like the ancestors of birds, whether we survive or not depend on how fast we adapt.

Certainly, in this painful process, some of us will survive and come out looking even better. But, it will be at the expense of others.

Charles Darwin in his book “The Origin of Species” tells us that we tend to forget that, the beautiful birds singing around us live on insects and seeds. They are therefore constantly destroying other life forms. In turn, these birds, or their nestlings, are destroyed by other beasts of prey.

Darwin would have told us that the global economy is no different from nature. As he wrote “all nature is war”.