Economic Geography, Currency Devaluation, and Venezuela’s Economy
Economic Geography as a Human Science
Economic geography, a branch of geography, particularly human geography, is dedicated to the study of various types of economic activities and their relationship to the exploitation of natural resources throughout the world. In simplistic terms, it is the part of geography dedicated to knowing how people live, their relationships with the spatial distribution of resources, and the production and consumption of goods and services.
Theories of economic geography were largely based on neoclassical economic policy, which assumed that the market system was a rational and effective provider of resources and wealth. The political, social, and cultural problems associated with the distribution of resources and wealth were ignored. Spatial patterns derived from neoclassical economic policy included many theories on the location of industries, patterns of agricultural land use, settlement patterns, and transport networks. These theories defended actions to achieve profit maximization by individuals and others, taking advantage of geometry and physics to predict geographic patterns. Some earlier models were developed at this time. Among these are the model of agricultural land use, established in 1820, that of Alfred Weber’s industrial settlement, established in the early twentieth century, and models for the location of settlements, as defined in the 1930s by geographer Walter Christaller and economist August Lösch (which gave rise to the central place theory), both German.
Devaluation of Currency
Just as things have a value, the currencies of countries (pesos, dollars, reals, sterling, etc.) also have a certain value. The change in value of a coin, depending on whether it increases or decreases in comparison with other foreign currency, is called revaluation or devaluation, respectively. Revaluation occurs when a currency of a country increases its value compared to other foreign currencies, while devaluation occurs when a country’s currency decreases in value compared to other foreign currencies. This is why the concept of devaluation is completely opposite of appreciation.
The devaluation of a currency can have many causes. However, it usually happens because there is a low demand for the local currency or there is more demand than supply of foreign currency. This can occur because of a lack of confidence in the local economy, its stability, in the same currency, etc.
In countries with a controlled exchange market, devaluation is a decision that is taken by the government as a result of, or to address, a specific economic situation. However, the currency of a country whose exchange rate is completely free is devalued when the market has a demand exceeding the supply of foreign exchange. Under this exchange rate regime, devaluation is known as depreciation.
What Causes a Devaluation?
One of the immediate consequences of a devaluation is the higher cost of imports. As the domestic currency has a lower value against foreign currency, it takes more money to import both goods and services.
Because we perceive money remains the same, but this money has lost value at the international level, in our personal economy, devaluation is reflected in increased prices for imported clothing and footwear, food products from abroad, travel, telephony services, among others.
Is There a Positive Side to a Devaluation?
Oddly enough, not everything is negative in a devaluation. As the national currency has less value, it can support exports: foreign countries tend to prefer to trade with countries whose currency is devalued. Taking advantage of the increase in exports may be beneficial for the country.
Advantages and Disadvantages of Currency Devaluation
Advantages:
- Undoubtedly, it corrects imbalances in the balance of payments and, most importantly, avoids possible differences in the same as the relationship between buying and selling currencies.
- Avoids reducing or even depletion of monetary reserves.
- Avoids capital flight or transfers of wealth to foreign countries.
- It is a basic measure to ensure that any process of economic development or planning, however modest it may be.
Disadvantages:
- Possible existence of a black market currency outside official control.
- Restrictions on freedom of enterprise that could no longer freely move their capital abroad.
- Most affected by a devaluation are those employees and retirees, since with the same salaries and assets, they cannot buy the same thing so far due to an expected increase in consumer prices.
- A less valuable currency makes imports more expensive.
Economy Sectors
1st Sector
Responsible for exploiting the mineral products or natural resources of the country, also operates several crops and plant species. It includes the following activities: agriculture, fishing, forestry, livestock, and mining.
2nd Sector
In the secondary sector, economic activity is carried out that aims to produce goods and services necessary to society through industrial processing of raw materials. Currently, the most developed countries consider the industry as the infrastructure that ensures economic progress, science, and technology. Industry is the secondary type of activity, and there are two types of industry: base industry and light industry.
3rd Sector
In the tertiary sector, economic activity takes place of purchase and sale, exchange of goods and services consumption (export and import) for each member of society. The world economy has reached levels of development where the tertiary sector has become very important. Its activity is the trade, export, and import of mineral products.
Venezuela: Agriculture and Oil
From 1830 to 1935, Venezuela’s economy rested on the production and export of agricultural products, especially coffee and cocoa. It had a predominantly rural society, with a sparse population and slow growth as a result of wars and a high mortality rate, with certain social classes. Within this period of Venezuela’s agriculture, an event occurred that came to change the country’s history, giving way to another nation, as was the appearance of oil.
Oil was discovered in Venezuela at the time of the dictatorship of Juan Vicente Gómez. In 1911, the first and great hunt for oil in Venezuela started, but it was in 1914 when the first well was drilled in Mene Grande (Zulia), called Sumac 1. In 1917, the first shipment of Venezuelan oil was exported, totaling 21,194 tonnes. It was not until the year 1922 when the world really saw the Venezuelan subsoil wealth of the well blowout in the Barroso 2 Davis field, near Cabimas (Zulia). This well pitched for nine days, running uncontrollably over 100,000 barrels of oil. The real oil boom began, causing rampant competition among oil companies to acquire concessions in Venezuela. This economic activity, at first, was used by the tyrannical regime of Juan Vicente Gómez to become stronger because, with the extensive resources increasingly obtained from oil exploration, the government strengthened the repressive forces, equipped the army with better weapons, and developed greater control of the country.