Confidence: The Core of Economic Policy in Argentina

The art of modern national economic policy, it is argued, boils down to cultivating investor and consumer confidence. While economists might see this as an oversimplification, it holds central relevance for Argentina. Confidence, by definition, is a subjective feeling about individuals or institutions, not easily won through calculated actions but built over years of integrity.

Francis Fukuyama noted in his 1995 book "Trust" that a society's inherent level of confidence is a key cultural characteristic shaping its well-being and competitiveness. Therefore, restoring the value of trust is paramount for societal development. In Argentina, confidence levels are particularly decisive during election years, with its erosion causing significant economic distortions and contributing to the downfall of incumbent governments.

The subjective nature of confidence, essential in economics, is addressed by the Austrian school. Unlike classical and Marxist economics, which viewed value as objective and tied to production costs, the Austrian school shifted focus to individual decision-making. They posit that value is subjective, determined by market forces reflecting consumer preferences. This perspective acknowledges that economics, being dependent on human behavior, is not an exact science.

This subjectivity extends to money. While governments control the money supply through issuance, the demand for money rests on individuals' subjective preferences. This demand, directly linked to societal confidence in the economic outlook, cannot be managed by the government. The interplay of money supply and demand significantly impacts inflation. President Milei's assertion, echoing Milton Friedman, that inflation is a monetary phenomenon caused by excess money supply or falling demand, or both, aligns with this view.