Introduction
How an Economy Grows and Why it Crashes is written by Irwin and Peter Schiff. The book uses satire and humor to convey the practices and basics of an economy. In this report, I will give a summary of the lessons each chapter teaches.
Chapter 1
The first lesson is about innovation. Able was sick of being underproductive by only catching one fish a day. So he made a net and was able to catch two fish a day. At this rate, Able had a bit of leisure time without having to worry about going hungry.
Chapter 2
The second chapter is about risk. As Able was the one making the most fish, the other two islanders, (Baker, and Charlie) tried to convince him to share the wealth. But Able was hesitant at first. Then the two came up with the idea that while they would build their nets, Able would lend them one fish so they wouldn’t go hungry. And as soon as they could start catching fish again, they would give Able two fish back. So 100% profit.
Chapter 3
Now that Baker and Charlie are loaning fish from Able, they have to be very cautious on how they handle the loan. For example, Baker and Charlie may not be able to produce nets and pay their loans. The point is that business loans that do not succeed waste savings and diminish productivity. And as a result, a loaner will have trouble getting interest back.
Chapter 4
This chapter is about economic expansion. Now that the three are able to catch fish at a decent rate, they could now spend time doing anything they want. Able began working on leaf clothing. Charlie built huts. And Baker had ideas of better transportation. Then Able had the idea of going industrial and catching fish without having to do it by hand. So the three worked together to build an automatic fish catcher.
Chapter 5
Now that the three ate basically swimming in fish, they could spend time surfing. This is considered an extreme luxury amongst many islanders. Word spread out, and other islanders came to the three’s island. And because they had they had enough fish, economic diversity was allowed. And thus, the service industry was born. But because some service providers didn’t want other services as payment, money was needed. And because fish is used and eaten by everybody, it was the island’s currency.
Chapter 6
Since the island’s economy was growing rapidly, it would only be natural for thieves to come along. The islanders had to keep their fish inside and protect it themselves. Until one islander named Max Goodbank came along. He had the idea of a storage facility that could house people’s fish. But if he just charged them for storing it, he knows he would lose profit. So he came up with the idea of interest.
Chapter 7
Bongobia. An island which had a lot of bongos. And a few miles away from Bongobia, was Dervishia. An island with a large amount of sunscreen. These two domestic products have little value in the respecting islands. However, in Dervishia bongos were scarce and valued high. And in Bongobia, sunscreen is also valued high. So once the two islands made contact, they began trading one resource for the other. Establishing a symbiotic relation.
Chapter 8
With crime and invasions being rampant recently, the islanders needed some kind of leadership. But giving power, is dangerous and could end disastrously. So after, an election of 12 senators including a senator-in-chief. And in order to maintain peace, a constitution was created to assure the government didn’t become power hungry. And under this new reign, the humble island was dubbed The Republic of Usonia.
Chapter 9
There was a man named Franky Deep who realized that people like getting stuff for free and hated paying taxes. So if we could find a way to make it seem he’s giving something to them for free, he could gain their support. And after a bad monsoon, Franky saw an opportunity. After he got elected, Franky had the idea of making a “fish reserve note” and decrease the quality of a real fish with a fake fish. He did this by claiming that the people’s fish are contaminated and need to be recalled.
Chapter 10
As most would expect, the addition of reserve notes did not go so well. Given that fish were used as real money, prices for everything had to go up to keep pace with the diminished value of natural fish. Creating the problem of “Fishflation.” Although, no one could agree on why this happens. Up until a man named Ally Greenfin argued that high employment and a strong economy create a greater demand for fish and force prices to shoot up.
Chapter 11
This chapter shows a mutually beneficial relationship between two countries. The island of Sinopia is an autocracy and the people who catch fish don’t actually own it. Fortunately, the king of Sinopia realized that with the current system, the island would go nowhere. But once the king heard that the island of Usonia had an actual economy with reserve notes, he had the idea of having a transoceanic relationship with Usonia.
Chapter 12
Chapter 13
The Bongobians leader Chuch DeBongo was fed up with the concept of reserve notes. And in retaliation, he wanted all the notes his people had turned into real fish. The Usonian government couldn’t keep up with the Bongobians withdrawals and fish got noticeably smaller and smaller. With the “fish standard” breaking, Usonia’s people lost hope in the note.
Chapter 14
Usonia is nearing a state of economic crisis. And all the government seems to do is make it worse. And their next target? Houses. Huts specifically. Huts can now be loaned like money can be loaned.
Chapter 15
As most would predict, the idea of loaning houses failed. And with prices no longer rising, there was no fish equity. Thus creating a hut rut. The equivalent of a real life housing bubble.
Chapter 16
Seeing that Usonian economy was deteriorating, the senator-in-chief Barry Ocuda devised new policies in an attempt to fix the economy. The first policy was giving more help to new hut buyers. He told the engineers of the island to build a new lighthouse, even though the engineers told him it was completely unnecessary. Ocuda then made the decision to replace the donkey with the llama. Once Ocuda’s senatorial rally began, he was ready to spend new printed reserve notes. There was just one problem. The island was out of fish.
Chapter 17
While Ocuda was waiting for his new programs to prosper on Usonia, a distant island had a hut crisis. Pigterranian was an island known for its beautiful beaches, low unemployment, and early retirement.
Chapter 18
Now that the island was dependent on quantitive fish, it was only a matter of time before the QF program disappeared. And once that happens, price bubbles will deflate.
Chapter 19
In the distance, the inhabitants of Sinopia were frustrated with the fact that they continually work and save. But never spend. Let alone have any leisure time. One of the peasants managed to get a word in with the king, and managed to convince him to stop using reserve notes and only trade in fish.
Conclusion
In conclusion, the book proves that a free market economy is superior to a centrally planned economy.
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