ON THE REAL VALUE OF THINGS

No object has "objective" value; the value of things exists only in our heads. Gold or diamonds have no more value than exactly what someone is ready to pay for them. If suddenly most people decided that gold and diamonds were worthless, they would totally lose their value. And, let's be honest: except gemologists and other experts, most mortals are unable to tell cubic zirconia from real diamonds – value is a creation of the mind. Furthermore, the only "quality" of such minerals is their relative scarcity. If someone could produce low-cost gold and diamonds in a laboratory, then their value would be equal to that of any mineral available in abundance, such as iron or copper.

And what about the value of money? The value of money is even more relative and conventional than that of gold and diamonds, for while the latter have some inherent utility due to their practical industrial applications, the former is totally worthless. It can, of course, be argued that the metals from which coins are made can be recycled and given a practical use, but banknotes are just dirty paper!

If you still think that these are just empty words, let me tell you a true story about the value of money:

Sometime in my childhood, while we were still living in Hungary, my grandfather gave me a boxload of old coins and banknotes and an empty album, so that I could start a collection. I still remember how my attention was immediately drawn to the never-ending series of zeros on some of the banknotes he gave me, which had face values of billions, and even trillions, of "pengő," the legal currency in Hungary during the inter-war period in the 20thcentury.

But how could a trillion pengő banknote ever be issued? The answer lies in the events that shook Europe in the first half of the last century.

Without going into detail about the reasons that drew Hungary into a hyperinflation conjuncture, the fact is that the incommensurate territorial and population losses suffered from the Treaty of Trianon signed in the aftermath of the First World War in June 1920 left what remained of Hungary in a direful economic, political, and social situation. In that context, among other measures taken to stabilize the economy, a new currency called "pengő" was introduced in 1927 to replace the existing currency, the highly devaluated korona. In the next fifteen years, the value of this new currency experienced some ups and downs, but in general remained more or less stable for most of the inter-war period, with steady exchange rates of approximately 5 pengő for 1 USD between 1927 and 1941. However, with the onset of the Second World War, the inflation rate began to rise rapidly, and this, together with other factors, led to a sharp depreciation of the pengő. Unsurprisingly, during and immediately after the war the inflation rate continued to grow exponentially, until in the summer of 1946 it reached the record level of ten quadrillion percent (1015 %), which is still the highest inflation rate ever registered in any country in the world.

In an attempt to catch up with the steady hyper-inflationary process, the Hungarian government started to issue new banknotes, increasing their face value by adding more and more zeros, so the country went from having the usual 5, 10, 20, and 50 pengő denominations, to 100, then 1,000, then 10,000, 100,000, 1 million, 1 billion, 10 billion... trillion, quadrillion... and so on all the way to July 1946, when a 100 quintillion (1019) pengő banknote was issued, which is still the banknote with the highest denomination ever issued in the world! Since such long numbers were almost impossible to handle in everyday practice, two super-units were introduced to make these amounts easier to comprehend: the milpengő (for 1 billion pengő) and the bilpengő (for 1 trillion pengő). Finally, a 1-sextillion (1021) pengő banknote, called 1-milliard-bilpengő, was still printed in 1946, but was never issued as legal tender.

These interminable numbers might not mean too much in abstract, so to give the reader an idea of the real market value of the pengő, in August 1945 one kilo of bread cost 6 pengő; in November the price rose from 80 to 135 pengő; in December from 310 to 550; in January 1946 from 700 to 7,000; in May from 8,000,000 to 360,000,000; until in June 1946, people had to disburse the astronomical sum of 5,850,000,000 pengő to buy a much-craved loaf of bread!

The price of bread is a good indicator of the real value of these multi-trillion pengő notes: absolutely nothing!

You simply couldn't buy food with pengő banknotes, even if you had a truckload of them. In a country where people were suffering from hunger and deprivation the real economy was mostly based on barter: If you wanted some eggs you had to offer something useful in exchange, such as lard, milk, grain, firewood, or building materials. In fact, most essential items could only be obtained on the black market, where people would laugh in your face if you tried to trade a dirty piece of paper for something you could actually eat. In the last weeks before the introduction of a new currency, the forint, in August 1946, people used the pengő notes to kindle their stoves, kept them "just in case," or just threw them away...

I still keep some of the banknotes that my grandfather gave me, and I take a good look at them once in a while to remind me that the only difference between monopoly notes and real ones is that grown-ups take the latter seriously.

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