Monday, March 08, 2010

How an Economy Grows and Why It Doesn't (by Irwin Schiff)

A splendid cartoon story-book by The Duke's imprisoned father:

YouTube version:

Scribd version:
Irwin Schiff - How an Economy Grows and Why It Doesn't


Gekko said...

I nearly fell off my seat when a work colleague sent that to me and asked what I thought of it!
He said he liked the first bit but that "they guy lost it" when he was talking about govt.

Jack Maturin said...

Such are the powers of many years of indoctrination in the state re-education system.

What your friend is suffering from is cognitive dissonance. All his life he has had the following equation beaten into his skull, morning noon, and night, by whatever the NZ equivalent of Guardian readers is:

Government = Good

Therefore, whenever you later see anything which contradicts this (such as the second half of this child's cartoon book) then the equation above holds.


Q1. Is this good or bad, and please explain your answer? A man in a basement prints up money and then takes it down to the bank and pays off his own loans with it.

A1. This is bad. What that man is doing is indirectly stealing from everyone else, because he is diluting the value of everyone else's money. He is getting the main benefit. The bank which accepts this money, and then spends it, is getting a secondary benefit, because it can now make more loans. Eventually, those at the end of the chain of this, will all have been forced to subsidise the lifestyle of the man in the basement, by paying higher money prices for everything, due to the increased amount of currency. He has done nothing to deserve the goods he bought with the loans, which he has paid off with counterfeit money. He is a crook.

So far, so good. Even your friend would be able to figure all of the above out. Now let's try that again and insert the word government, at specific places.

Q2. Is this good or bad, and please explain your answer? A government man under government orders in a government basement prints up government money and then takes it down to the government bank and pays off government loans with it.

Even now, after ten years of steeping myself in Austrianism, I am struggling to answer this one correctly. There is just something about the word 'government' which starts twisting it. This is because I spent my entire formative educational experience within the clutches of the state, and this is what I WANT to answer.

A2. This is good, because the government needs to ensure it has a healthy income stream to support public spending. If public spending were to be cut, then the economic repercussions would be enormous. It could possibly even lead to a deflationary spiral, which would lead to economic meltdown. Also, as the government needs to keep its spending levels up, to support the economy, but the private sector needs investment capital, it should not raise taxes to keep its spending up in difficult times. It should therefore monetize its debt and provide liquidity by engaging in open market fiscal operations to ensure the aggregate demand for money remains constant within its economic sphere of influence.

All of the above fracking bilge is necessary to maintain the equation, Government = Good. Because if I applied answer A1 to question Q2, instead of answer A2, then I would break this equation.

The breaking of this equation could possibly break my mind.

Therefore, feel pity for your friend, rather than disdain. You need to re-educate him gently. Try Murray Rothbard's 'The Mystery of Banking' next. Maybe that might shift it?