The Economy That Got Away

In 1985, Irwin Schiff wrote in what has become a classic book, How an Economy Grows and Why It Doesn’t, a pictorial introduction to basic economics. It sells used on Amazon for $100. Schiff is best known for books like The Federal Mafia and How Anyone Can Stop Paying Income Taxes. The government disagrees with Mr. Schiff regarding the latter book, and he sits in jail with a scheduled release date after he turns 89 years old.

Mr. Schiff’s sons, Peter and Andrew, listened carefully to their father’s wisdom and have produced a fun and informative book inspired by their father’s work.

How an Economy Grows and Why It Crashes tells a number of simple tales that pack serious economic wisdom. As the authors explain in their introduction, on family car rides, while stuck in traffic, Irwin would tell his boys funny stories containing basic economic lessons. These stories served as the genesis for his 1985 How an Economy Grows and now for the brothers’ more recent version.

Both books start with three men (Able, Baker, and Charlie) on an island fishing. The three men are fishing by hand, and it is all they can do to feed themselves. Able gets the idea to create a fishing device that will allow him to do something besides fish all day. He sacrifices some fishing time to create a net.

At first, the other two laugh at Able, but not for long. Soon, they understand that Able’s net allows him to catch a couple days’ worth of food in a couple hours. Now he has time to do other things. The time sacrificed making the net (going hungry in the process) paid off. Finding more efficient ways to make things people want is what makes economies and prosperity grow.

Each chapter includes a “Reality Check” and a “Takeaway” further explaining the economic principles illustrated in the story. Some readers may not think a complex economy like ours can be explained with simple tales and funny cartoons. However, the fish story becomes more complicated by Chapter 5, “Prosperity Loves Company.” The division of labor begins to take hold. For instance, the village strongman realizes he should specialize in fish delivery, rather than continue to fish inefficiently.

Fish become the island’s currency. Productivity skyrockets. People begin to trade their time and talents for wages. A loan market develops. The result is deflation. Prices come down. And while Ben Bernanke has nightmares about lower prices, the Schiff brothers tell us falling prices are good.

Productivity makes it possible for working-class people to afford all sorts of goods previous generations never dreamed of. No one but the richest could afford flat-screen TVs, computers, and smartphones when they first came out. Now everyone has them. Imagine how prosperous we would be if the Fed weren’t conjuring up dollars by the billions every day.

There is no government on the island, and everything is going along swimmingly. Then the Schiffs’ tale goes awry. They contend, “As simple societies grow more complex, there inevitably arises the need for some central authority.” The typical socialist or fascist might contend the same thing for the economy.

The republic the authors are so wild about quickly does what governments do — it grows through violence. All sorts of bad distortions beset the island. “Fishflation” is born when the fish backing the Fish Reserve notes become smaller. Fish Reserve Bank chairman Ally Greenfin theorizes that fishflation is caused by cost-price-fish-push.

This fishy stimulus leads to “the hut glut.” Sushi Mae and Fishy Mac are created to help everyone afford a hut. Islanders wanting to attend Charlie Surf’s University obtain Sushi Mae loans. When the soundness of Finnie and Fishy are questioned, Sen. Cod comes to their rescue.

Inevitably, “The Fish Hit the Fan” in this fishy boom and bust. Fish Reserve notes begin a death spiral toward Davy Jones’ locker when the Sinopians, the Bongobians, and the Dervishes quit buying. In the end, the islanders must return to the sea and fish again.

Explaining the dire condition of the U.S. economy and dollar has been Peter Schiff’s speciality, with books like Crash Proof, Crash Proof 2.0, and The Real Crash. He has been financial television’s go-to bear since he predicted the 2008 housing crash.

This book is how his dad taught the boys economics. If it worked for Irwin, it will work for you. Continue the Schiff family tradition. Teach your kids or grandkids economics the fun way, with How an Economy Grows and Why It Crashes.


Doug French

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