Shortage-Driven Inflation: Causes, Effects, And Modes Of Manifestation In The Socialist Romanian Economy

The illusion cultivated by the doctrinaires of the socialist system was the belief that they could resolve the problem of economic disequilibrium [7]. In reality, the issue extended far beyond the imbalance of the economy; it involved the rewriting of all governing laws, including economic ones. The socialists lived under the conviction that their world was perfect—so perfect that it stood above individuals and their actions. History has shown that this was nothing more than a naïve and misguided form of arrogance. Hayek describes this mechanism of dictatorial conceit in his work The Fatal Conceit: The Errors of Socialism [10]. The communist authorities undertook a rapid and superficial classification of economic phenomena into “good” and “bad”: the “good” were those perceived as serving their ideological objectives, while the “bad” were those that did not. They imagined a perfectly stable economic system in which phenomena such as inflation and unemployment would not exist. The bureaucrats who governed this system even proclaimed that such issues were specific exclusively to capitalism. Reality would ultimately contradict them. Economic laws continued to operate even in contexts where official legislation sought to prohibit them. The abrupt and forceful collapse of communism stands as evidence that the economy and its laws remain above human intervention. Inflation and its mechanisms of emergence and manifestation were no exception. Inflation silently eroded socialist economies, including that of Romania. Even though price increases were prohibited by law, inflation did not recede. Instead, it manifested in the form of shortage-driven inflation, which is characteristic of shortage economies. This is the focus of our analysis and the central question we seek to address: how was it possible for inflation to continue advancing even when it was explicitly forbidden by legislation?