How an Economy Grows and Why it Doesn’t: A Review
A Book by Irwin Schiff
I often cop a lot of flack for claiming that the fundamental laws of economics, like the laws of physics, are immutable. I stand by this statement because the basic principles of economics are based on scientific logic. The only reason they are so poorly understood is because they are made deliberately confusing by those who benefit from your ignorance.
Economics is routinely cloaked in technical jargon and obscure terminology. I am a huge fan of any work that can explain these principles simply and make them accessible. For this reason I maintain that Irwin Schiff’s ‘How an Economy Grows and Why it Doesn’t‘ is the single best book on economics ever written. It was adapted recently by Irwin’s son, Peter Schiff, and re-titled ‘How an Economy Grows and Why it Crashes.’
I’m a greater fan of the original work by Irwin Schiff, with its emphasis on simplicity. The story is an allegory. It is presented as a children’s picture book. The fundamental role of savings, inflation and capital formation are presented clearly. Economics makes perfect sense after reading this book. There can be no confusion about its fundamental operations and laws.
The Allegory
We start from the earliest possible point with an economy. There are three men stuck on a deserted island: Able, Baker and Charlie. They are living a life of subsistence. They fish. Whatever they catch, they eat. They catch just enough to live, with their bare hands. There is no savings, no capital, no investment and no credit.
Able is struck with inspiration one day. He has the idea for a ‘net’. He becomes the first entrepreneur. He sacrifices eating one day (underconsumption). Instead, he spends the day building the net. The risk he takes is rewarded. He is successful and the island now has its first piece of capital. This allows Able time to