ACCOUNTING FOR INFLATION
All currencies are heading down the road to worthlessness, some more rapidly than others. Many businessmen, however, have been commercially successful in highly inflationary environments. As long as increases in corporate revenue compensate for the ravages of inflation, one can prosper where others may not survive. Businessmen can more easily manage cash flow and monetary assets when inflation rates are low and interest rates substantially compensate for the loss of purchasing power. Cash can be held as cash. Games do not have to be played with inventories, receivables, payables, bank loans, and currency conversions to protect a company from erosion of the purchasing power of its monetary assets.
The simple reaction to avoid doing business in highly inflationary environments is understandable. A special financial acumen is necessary to stay ahead of inflation surging at several hundred percent per year. A company that decides to avoid the pitfalls of operating in highly inflationary economies restricts its activities to those areas where business is conducted in relatively stable currencies. There is a much larger market, in terms of population, called the third world. It is obvious by the size of third world economies that many businessmen and companies have learned to cope, and apparently to thrive, in less than desirable monetary environments.
A cursory examination of consumer price indices listed in the International Financial Statistics, published by the International Monetary Fund, shows that the rate of inflation is unique to a nation and varies with the times. Inflation was more subdued among the industrialized nations in the 1980s than it was in the