Students in the class had been intrigued by the latest scorecard from Zimbabwe: Inflation running officially at 2.2 million percent, but according to independent economists, at 10 million percent per annum; a loaf of bread selling at Z$ 100 billion; official exchange rate at Z$ 1 million per US $, but at the curb market at Z$ 100 billion per US $; issue of a high denomination currency note at Z$ 100 billion for circulation.

Students wanted to know how an economy could even function under these conditions forgetting about its sustainability. It gave us an opportunity to discuss the economics of despotism and its impact on a nation.

“Political despots are essentially economic despots as well,” I said. “It means they would grab every opportunity to steal en masse from the people to sustain their support base. The more they expropriate, the stronger the support they could marshal. So, the despot’s power base is maintained and sustained by more and more robbing of people.”

“But, don’t they exhaust the resource base one day?” a student asked. I directed this question to the class. “It’s a society of thieves,” a girl answered the question. “The society gets polarised into two classes -- thieves who rob wealth and honest workers who create wealth. Thieves will thrive as long as honest workers would work and produce something for thieves to rob. But, in that society, there’s no incentive for honest workers to continue working honestly and all of them become thieves. It happens in accordance with a celebrated economic law called Gresham’s Law”

“What’s this law? We haven’t heard of it,” another student queried. The same girl explained it. “Lord Gresham was an advisor to Queen Victoria who had been advised by someone that she could cut the cost of minting coins by using a cheaper metal instead of gold. This is known as debasing currency. Then Lord Gresham pointed out that if she did so, people would not have incentive to use gold coins because the cheap metal coin too could do the same job. So gold coins, once they get into the hands of people, would not come back to circulation, because they’re hoarded by people. So, Gresham said that bad money, placed alongside with good money, would drive out good money.This is the Gresham’s Law.”

“Now of course economists use it as a general law,” I further elaborated on the point made by the female student. “It could happen anywhere when we allow inferior quality people to enjoy the benefits which have to be attained by hard work by quality people. For instance, in a work-place, if mediocre people are also promoted along with good quality people, there’s no incentive for quality people to work hard, because by being mediocre workers, they still can get the same promotions. So, economists say bad workers drive out good workers and at the end you have only bad workers in the work-place. In an economy, when thieves can grab wealth from honest workers, Gresham’s Law operates and thieves would drive out honest people. Eventually, you end up with an economy infested only by thieves. Since no one produces in this economy and everyone wants to rob from others who produce, the economy collapses.”
“How does the despot manage to overcome the public outcry when he starts his robbing initially?” another student wanted to know.

The same female student who earlier explained the thieves’ world in terms of Gresham’s Law, answered again. “It’s simple. At first the despot starts his robbing at local level and he would get a local supporter to grab the land belonging to a local landowner and distributes it among his supporters. He justifies his land grabbing on the ground of public service like making the land available for a playground.
Their, loss is one and gainers are more. The loser’s voice is silenced by threats and intimidation by majority gainers. The rule of law is also not permitted to operate and the loser has no relief even under the judicial system. This is exactly how it started in Zimbabwe. Property rights in that society is skewed. Party supporters have property rights, but not others.”

“But in Zimbabwe, despite inflation at 10 million percent per annum, the ruler doesn’t appear to have lost his power base as demonstrated by the recent elections. How has this miracle happened?” another student asked.

“High inflation and government controls allow the ruling party to make money. Economists call it ‘rent earning’ or earning incomes without making effective contribution. Zimbabwe provides ample opportunities for rent earning. For instance, its official exchange rate is Z$ 1 million per US$. But in the unofficial market, one US dollar fetches as high as 100 billion Zimbabwe dollars. It’s now reported from that country that the limited amount of foreign exchange available is issued to party men at the official rate by the government. They in turn sell the same at the unofficial market at Z$ 100 billion per US$ and make a good fortune. So economic hardships also give opportunities to make fortunes and keep the support base intact” I explained.

“But, wouldn’t there be an end to this plundering?” a student asked. “Yes, there will be,” I said. “But, by that time the economy would have fallen to such a depth that, like the worms in a rotten mango would die along with the end of the edible pulps in the mango, the despot and his supporters would also perish. Then, the new leaders would have a hard time to rebuild the economy.”