Since it was illegal to own foreign currency, a popular solution was to buy and store grain alcohol, on the assumption that no conceivable change in political system would ever make booze lose its value.

The approach had two main drawbacks - you needed a fair amount of space to store large quantities of ethanol, and you had to safeguard the storage room against the depredations of local aficionados.

People started hoarding dollars and those that had commodities did very well. There was a very brisk black market trade in foreign currencies.

My father purchased a small car, at the begining of the currency crash and frove it into the ground on the terrible riural roads and then sold it 5 years later. He made a $30 profit on the deal because car prices had gone up so dramatically.

We did fine, because we got paid in dollars, but the people around us really suffered.

Before my father was born, his family lived in Germany and because they had their wealth in US dollars, they were spared the trauma of the German hyperinflation of the 20s. Many of the people he knew growing up had been wiped out by that period.

What a mess. It could happen here.

All of it was of course illegal, but the government wasn't too keen to penalise such behaviour. At least I don't remember anyone getting caught.

It is likely that things were different in 70s and even before that, because rules relaxed a bit in the 80s.

Except for the United States in the 1920s.

This was occurring as recently as last year all over the world when commodity/food prices spiked. Anywhere you see black markets, you can find rationing and price fixing nearby.

I was in North Korea back in August, and bought one of each denomination as a souvenir. Guess they're going to be more valuable now.

Foreigners are not allowed to spend the North Korean won within the country. Instead, you pay in RMB, EUR, USD at locations approved to take foreign currency -- so we couldn't just go buy stuff at the same stores as the locals. Now I'm wondering how much of that foreign currency makes it back to the central government, given this news.

Read about it last night. The first stock market bubble. Far out... one Ken Layesque figure named John Law took over the entire French economy with his pyramid scheme, giving France its first paper money, for a while.

Actually I'm currently in Germany so I was quite surprised by that. Seems it was quite some time ago, though. Sorry, my fault :|

"It also reported instances of wealthy people from cities rushing to rural areas on Monday in hopes of buying commodities with the old currency before people in those areas heard about the exchange process."

As an example, here's Juche, the official state ideology, summed up in an exchange:

Peasant: "I am hungry. I need bread".

Soldier (part of the supposed "revolutionary" class): points gun at peasant. "Are you hungry now?"

Peasant: gulp "No".

Stalinism to its logical conclusion.

Yeah, I guess they'll get shot.

Also, the mention of "closed-circuit system that feeds into speakers in homes and on streets but can't be monitored outside the country" reminds me so much of Brave New World/1984/Big Brother stuff.

My first thought was "How wicked!" Second thought was "Hey, but we have those thingies in Russia too!"

There is a wired radio system in Russia, established way back in the Soviet era, which transmits three radio channels. Simple receiver can consist basically of a loudspeaker and variable resistor as a volume knob, while more complicated receiver can receive one of 3 channels. There's a simple receiver on the wall next to me as I write this. Interestingly, I couldn't find any pictures of my exact model, so here's my (lame) attempt: http://www.flickr.com/photos/22022497@N04/4154137046/ There's another, 3-channel one, of the latest incarnation (late 80's or early 90's) in the kitchen. When my dad bought it, I remember everyone coming to our house thinking it's a VCR, so that should say something of its size and form factor. It still sits up there near the ceiling mainly because of its large luminiscent clock on the front panel. We don't turn these radios on except maybe twice a year out of curiosity :)

These things fit the description "closed-circuit system that... can't be monitored outside the country" if by that you mean "wired"

Also, an obvious hack to monitor this "close-circuit" system: just attach a satellite transmitter to the output of a receiver.

Even cheaper: make a web radio out of one of these. Wait, you need internet access to do that...

One of my earliest childhood memories is falling asleep to one of these things.

That was all over the mainstream U.S. news not that long ago, even.

Poor? Maybe in terms of GDP. But certainly not powerless.

Nuclear war has no winners.

On the upside, North Korea isn't suicidal, and it's not like China was going to stop giving them aid anyway, so it probably makes little practical difference anyway.

North Korea claims to be a democratic country, however the government is clearly not elected democratically at all so the acts of of the government can hardly be called "legal". The government of North Korea isn't fairly elected and is probably in power against its citizens' will. The only way they can remain in power is by the application of violence.

Of course, it is still a good idea for North Koreans to do whatever their governemnt calls "legal" given that they have to power to enforce it. But the fact that I have the power to mug the neighbour kid and I call it legal doesn't make it legal.

You're mixing up terminology. Legal/illegal and right/wrong are separate concepts. Legal/illegal is a system of cause and effect: The law says, "If you do X, and we can prove it to this extent, we will do Y to you." Or, "If you fail to X, and we can prove it to this extent, we will do Y to you."

Law does not make something right/wrong. For instance, alcohol is more dangerous to both the individual and society than THC - the active ingredient in marijuana and hashish. Alcohol in moderately large quantities is a poison, whereas THC isn't, it's more chemically addictive and tolerance building, it impairs judgment very similarly to marijuana but has a quality of making people think their judgment isn't as impaired as it is, and is more prone to causing aggressive/violent behavior than THC. In no sane world is alcohol relatively unrestricted and THC is completely prohibited. (For the record, I don't drink or use any recreational drugs) In the United Sates, the law says alcohol is relatively unrestricted and THC is almost completely prohibited. That doesn't get to rightness/wrongness, it just specifies cause and effect.

So law - it's not a right/wrong thing. Is what North Korea did just now wrong? By most people's ethics, oh hell yes it's terrible. But it's legal, because it was signed into law by a body with the capacity to enforce it in its jurisdiction.

Citation? Perhaps sociologists or philosophers accept that, but governments certainly don't. If they did, North Korea wouldn't be generally recognized as an independent country. Since it is, and since the current government there is generally recognized as such, it's legal.

(and don't tell me the UK has no constitution - it has no unified, codified constitution, but it sure as hell has one)

Comrade Kim Il Sung elucidated the fundamental principles of nation building and State activities, established the best State and social system, the best mode of politics and system and methods of administering society, and laid solid foundations for the prosperity of the socialist motherland and for the continuation and consummation of the revolutionary cause of Juche. Regarding “The people are my God” as his maxim, Comrade Kim Il Sung always mixed with the people, devoted his whole life for them and turned the whole of society into a large family which is united in one mind by taking care of the people and leading them through his noble benevolent politics. The great leader Comrade Kim Il Sung is the sun of the nation and the lodestar of national reunification.

Here's another:

As a veteran statesman in the world, Comrade Kim Il Sung opened up the new era of independence, carried out energetic activities for the strengthening and development of the socialist movement and the non-aligned movement as well as for world peace and for friendship among the peoples and made an imperishable contribution to the cause of human independence. Comrade Kim Il Sung was a genius in ideology and theory, a master of leadership, an ever-victorious iron-willed brilliant commander, a great revolutionary and politician and a great man.

And one more for the road:

Article 4. The sovereignty of the Democratic People’s Republic of Korea resides in the workers, peasants, working intellectuals and all other working people. The working people exercise power through their representative organs―the Supreme People’s Assembly and local People’s Assemblies at all levels.

Note that this last one is phrased as a statement of fact, and not as an imperative given to the government. That is to say, "North Korea's government is derived from the public", and _not_ "North Korea's government should be derived from the public".

I will concede that these snippets are taken from the 1972 constitution, which has since been revised a couple of times. However, given the addition of an article declaring Kim Jong-Il to be Supreme Leader in the 2009 constitution, I suspect what the North Korean government is doing is entirely legal, unless you are suggesting that they are somehow bound by (e.g.) the U.S. constitution.

EDIT:

Ooh, here's another good one:

Article 11. The Democratic People’s Republic of Korea shall conduct all activities under the leadership of the Workers’ Party of Korea.

So, it would actually be illegal for the current government to not be the current government. They are legally obligated by their constitution to maintain the dictatorship.

    PART I OF THE CONSTITUTION ACT, 1982(80)

    Assented to March 29th, 1982

    PART I
    CANADIAN CHARTER OF RIGHTS AND FREEDOMS
    Whereas Canada is founded upon principles that recognize the supremacy of God and the rule of law:

    ...

No, you don't have the power. You think you do, until you realise that society actually has the power to stop you, and you are powerLESS to resist. You will find society is typically happy for you to have powers over nothing but your own person and property (an oxymoronic presumption, I know, but adequate), but unfairly try to exert any power over another person and you will find a functional society will tend to react against you and rapidly demonstrate why you are deemed to have implicitly relinquished the power you're now claiming to have, by mere fact of being in your society's jurisdiction.

Especially dictatorships often had and have some kind of law that allows the dictator to do anything. You could call it rule of law minus one. One person who is exempted from the rule of law is enough to bring the whole system down. Strange, how fickle the rule of law seems to be.

When we recently slashed a few zeros from our currency (denomination i believe it's called) they were afraid that the same thing would happen again.

"The absence of information in official media adds to the unusual circumstances of the action. North Korea has reissued currency four times previously, all with great fanfare and explanation to the outside world."

All investments, CDs, savings accounts in excess of around U$1000 were "frozen".

It didn't affect the masses, who didn't have bank accounts anyway. But the middle-class was screwed.

But he did do some things right, like starting the process of opening Brazil's economy, which in the 80's was more closed than those of the communist bloc. I wouldn't ever think of supporting him, though.

The only currency this wouldn't work on is actual gold, silver, etc.

You can have wild fluctuations in the supply of magic, shiny rocks -- it has happened before, and it will happen again. For example, when Spain discovered that they could kill people and take their rocks more efficiently than they could mine their own rocks. It also happens on the microeconomic level, a phenomenon known as a Magic Shiny Rock Rush.

When the supply of magic, shiny rocks increases suddenly, the amount of magic, shiny rocks you need to buy things also increases.

EDIT: In response to replies the above should read "govt's in check short of using force"

More subtle variations on this: "We require you to pay us in shiny magic rocks, but we will only pay you in crispy paper.", "Our coins are made out of shiny magic rocks... but, haha, there is less magic in them now! Too bad you're not an alchemist and will never notice!", "These paper entitle you to shiny magic rocks. We're lying, but you don't know that.", etc, etc, etc.

(The Israel Museum once had an exhibit on money which included a series of ancient coins, struck from exactly the same mold over a number of years. The oldest one was something like 90% gold and the most recent was something like 1%.)

By contrast, if a supermarket cashier gives me a handful of coins in change and I want to know which are 90% gold, which are 95%, and which are 99%, what am I supposed to do? Carry an analytic balance into the grocery store? That would make me real popular with everyone standing behind me in line....

Normally, in an economy that is growing in productivity, your purchasing power should be growing, not merely staying the same. If your productivity increases by 3% per year, then you should be able to buy 3% more goods and services every year (assuming you work the same hours).

If the supply of money does not change, then increases in productivity will be reflected in lower prices. If you made 100 widgets last year for $100 ($1/widget), and this year you made 103 widgets because you got better at it (productivity increase), the price of your widgets would be $100/103widgets = $.97/widget if people spent the same amount of money or portion of their income on widgets. Your goods would be cheaper for customers, or, put another way, your customers would be a little richer in widgets. If others in the economy experienced the same productivity growth, you would also be richer. The $100 you made producing widgets would buy you more of other people's goods. Your standard of living depends on your own productivity and everyone else's. If your productivity is average, and the average is growing, then your standard of living should be growing too.

Thus, if the money supply were relatively constant as it would be under a gold standard, prices should naturally fall as productivity increases, while wages should be constant (assuming no population change).

When the money supply is growing, it is a lot harder to make these calculations and know what your money should be worth. This is an irritation at the personal, consumer level, you don't know exactly how much the government is screwing you, but at the macro level, it causes bubbles. When people don't know the value of money, they spend unwisely, paying too much for a thing. The housing bubble was caused because people thought that money was worth less than it was. (They can be forgiven for this mistake because it was reasonable. If money were worth more, why were the banks selling it so cheaply?) As a result, they overpaid for houses and builders built too many of them. By the time the mistake was discovered, there were too many houses on the market and their prices dropped suddenly.

...which would be a bad thing, because if the purchasing power of your money grows even when it's parked under your mattress, it's a lot harder for entrepreneurs to attract investment.

I would agree that the Fed has been too loose with the money supply over the past twenty years or so, and that this appears to be a structural problem with the central banks; George Cooper makes a good case in The Origin of Financial Crises. But I don't think the solution lies in a return to the gold standard.

A gold standard also solves inflation, but fundamentally and non-policically, by limiting money to the supply of gold.

The purpose of the Fed is to inflate the money supply for the benefit of the government, the banks, and borrowers who want artificially low interest rates at the expense of everyone else who uses money. If the Fed did not inflate, it would be no different from a gold standard, and in fact, when the Fed corrects inflation, it does so by reducing the production of new money as under a gold standard.

That’s not how I define inflation, and I don’t think it’s how most people (even economists) define it. I define inflation as stuff getting more expensive.

If you define “inflation” as “increase in the money supply” and “value” as “value denominated in the mass of shiny rocks”, then yes, a gold standard prevents inflation and stabilizes the value of money. But this is a tautology, not an argument.

Certainly, one can turn to science and make objective statements about both mass and purity. But unless you have melting facilities and deal in raw metal (rather than stamped coins) there is no advantage in this. As a hypothetical sovereign individual, you'll lose out when trying to trade raw metal because without the word of an independent (and government-licensed) assayer the buyer will discount the value of your lump'o'gold to allow for the possible unreliability of your claims about purity and weight. Most people don't have the facilities to assay precious metals themselves, so they rely on a third party to certify such claims; the implied social contract stamped into a coin or ingot has much greater value than the actual metal itself.

Please, look into some history of money. currency abuse is not a recent phenomenon by any means.

The government can take away your house or any possessions you couldn't hide, ban trading of popular commodities (like foreign currencies; this drastically reduces liquidity), or, as a measure of last resort, kill you.

Former socialist countries have seen all of these after WWII.

You might find it instructive to examine the history of ancient Rome around the time of Nero and Caligula. If you find history books dry reading, get a copy of 'I, Claudius' which presents the history of that period in narrative form and is both educational and entertaining.

This is not to say that opposition to a tyrannical government is hopeless - indeed, history with littered with examples of such leading to revolution. But currency alone is a weak check on a determined oppressor. And (as we are sadly reminded by news from Africa on a regular basis) revolutions often result only in a change of players, but the game remains the same.

There is a continuum of choices of money in terms of preservation of value with the safest being the dealing directly in gold, next, dealing with private guarantees (the market "guarantees" value), government guaranteed (the guarantee is political action), and finally, government-issued fiat. The further down the continuum, the harder it's to determine devaluation and stop it.

In other words, gold-backed currency would be completely ineffective at restraining a meat-grinder like North Korea, which is what this thread was supposed to be about.

Really? The majority of the American people believe that the top two economic priorities of our nation are to perpetuate endless war and give all the rest of the money to international bankers? I reject your premise and find it has no merit.

The American people elected President Obama. Did you not see his speech about Afghanistan last night? He contradicts the endless war notion directly. I've looked it up for you: (23:00 to 25:00) http://www.youtube.com/watch?v=oZLVqhsLgIw

PEOPLE ! The most important thing in your life is your close ones.

http://www.nytimes.com/2009/04/19/business/economy/19view.ht...

"Within hours of the stunning announcement, massive lines had formed in the bitter, early-morning cold, waiting for banks to open. "People are afraid," says Vladimir Kuzmichov, a retired engineer nervously fingering his cash notes outside a Moscow bank. The Soviet state bank had just proclaimed that all 50- and 100-ruble notes would be banned and saving accounts would be partly frozen. Each person could exchange up to 1,000 rubles, the equivalent of less than four months' average pay, for small-denomination notes."

http://www.businessweek.com/archives/1991/b319837.arc.htm

Can we just buy the country and let the leaders go into exile?

In this case, they're capping as well at $40. If you had $10 you will still have only $9, but if you had $100 (or $1000 or a million) you will only have $40. That's it. That's not just taxing wealth, it's taking all the wealth away.

PS: Ignoring the intangibles.

It's taking the liquidity away. People can no longer trade amongst themselves; they can only "trade" with the government.

My point is that North Koreans, like anyone else in the world, communist or capitalist, have very little of their value in the form of paper currency. Whether it be goats, rice, gold, stock, bank accounts, etc.. They may value themselves based on a nationally recognized currency (the won?), but that doesn't mean that most of their value is in the form of liquid cash.

The theory of currency recognizes the value of a currency based on its level of trust (to be paid back). Soo in a country like North Korea (ESPECIALLY), citizens probably rarely maintain their worth in the form of paper currency. Because they don't trust it (whether they consciously realize it or not). If Americans don't trust the US dollar, you can imagine that North Koreans don't trust their own currency. Educated or not, brain washed or not, that's common sense.

Another example. I personally trust the American dollar very much. But how much do I have in the form of liquid cash? About $50 in my wallet. The rest of my worth is in assets, stock, savings, 401k, car, tv, intellect, etc. Just not liquid cash. So if America changed currencies all of the sudden, I'd say, "Rats, I just lost $50."

Sooo, again, my point is that this probably doesn't change much for North Koreans. Especially since most of them probably have very little personal wealth anyway (paper cash or other forms of value).

Heavens.