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Peter D. Schiff

Andrew Schiff

How an Economy Grows and Why It Crashes Hardcover – April 14, 2010

by Schiff (Author)

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How an Economy Grows and Why it Crashes uses illustration, humor, and accessible storytelling to explain complex topics of economic growth and monetary systems. In it, economic expert and bestselling author of Crash Proof, Peter Schiff teams up with his brother Andrew to apply their signature "take no prisoners" logic to expose the glaring fallacies that have become so ingrained in our country?s economic conversation.

Inspired by How an Economy Grows and Why It Doesn?t?a previously published book by the Schiffs? father Irwin, a widely published economist and activist?How an Economy Grows and Why It Crashes incorporates the spirit of the original while tackling the latest economic issues.With wit and humor, the Schiffs explain the roots of economic growth, the uses of capital, the destructive nature of consumer credit, the source of inflation, the importance of trade, savings, and risk, and many other topical principles of economics.

The tales told here may appear simple of the surface, but they will leave you with a powerful understanding of How an Economy Grows and Why it Crashes.

Print length

256 pages
Language

English
Publisher

Wiley
Publication date

April 14, 2010
Dimensions

6.1 x 0.9 x 8.9 inches
ISBN-10

047052670X
ISBN-13

978-0470526705
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Editorial Reviews

From the Inside Flap

EVER WONDER . . .

Why governments can spend without ever seeming to run out of money?
Why some countries are rich while others are poor?
Whether spending or saving is the best cure for a bad economy?
Where inflation comes from?
Why it's so hard to catch a fish with your bare hands?

HOW AN ECONOMY GROWS AND WHY IT CRASHES

Understanding how all the pieces of an economy fit together can be a daunting task—especially when the experts can't seem to do it. But when you get down to the basics, it is much easier than you may think. How an Economy Grows and Why It Crashes uses illustrations, humor, and accessible storytelling to take economics off its lofty shelf and put it back on the kitchen table where it belongs.

This straightforward story of fish, nets, saving, and lending exposes the gaping holes that lie hidden in our global economic conversation. With wit and humor, the Schiffs explain the roots of economic growth, the importance of trade, savings, and risk, the source of inflation, the effects of interest rates and government stimulus, the destructive nature of consumer credit, and many other economic principles that are so frequently discussed and so poorly understood.

The story may appear simple on the surface but it will leave you with a powerful understanding of How an Economy Grows and Why It Crashes.

From the Back Cover

EVER WONDER . . .

Why governments can spend without ever seeming to run out of money?
Why some countries are rich while others are poor?
Whether spending or saving is the best cure for a bad economy?
Where inflation comes from?
Why it's so hard to catch a fish with your bare hands?

HOW AN ECONOMY GROWS AND WHY IT CRASHES

Understanding how all the pieces of an economy fit together can be a daunting task―especially when the experts can't seem to do it. But when you get down to the basics, it is much easier than you may think. How an Economy Grows and Why It Crashes uses illustrations, humor, and accessible storytelling to take economics off its lofty shelf and put it back on the kitchen table where it belongs.

This straightforward story of fish, nets, saving, and lending exposes the gaping holes that lie hidden in our global economic conversation. With wit and humor, the Schiffs explain the roots of economic growth, the importance of trade, savings, and risk, the source of inflation, the effects of interest rates and government stimulus, the destructive nature of consumer credit, and many other economic principles that are so frequently discussed and so poorly understood.

The story may appear simple on the surface but it will leave you with a powerful understanding of How an Economy Grows and Why It Crashes.

Start reading How an Economy Grows and Why It Crashes on your Kindle in under a minute.

Don't have a Kindle? Get your Kindle here, or download a FREE Kindle Reading App.

Product details

Publisher ‏ : ‎ Wiley; 1st edition (April 14, 2010)
Language ‏ : ‎ English
Hardcover ‏ : ‎ 256 pages
ISBN-10 ‏ : ‎ 047052670X
ISBN-13 ‏ : ‎ 978-0470526705
Item Weight ‏ : ‎ 15.2 ounces
Dimensions ‏ : ‎ 6.1 x 0.9 x 8.9 inches

Best Sellers Rank: #91,958 in Books (See Top 100 in Books)
- #169 in Theory of Economics

Customer Reviews:
772 ratings

Customer reviews

5 star		82%
4 star		12%
3 star		3%
2 star		2%
1 star		1%

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Top reviews from the United States

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Ariadne Haske

I would recommend it.

Reviewed in the United States on July 14, 2018

Verified Purchase

The book is pretty heavily biased towards conservative thinking and as a good liberal this bothers me.

I didn't like the tone but I kept reading because I wanted to see how the economy crashes.

Peter gets it right.

For thousands of years money was tied to tangible things with intrinsic value that couldn't be inflated or deflated on demand.

If you wanted more gold, you had to mine it. If you wanted more cowry shells you needed to find them. This mean that the simple act of saving was a safe thing to do. It was (and still is) physically hard to find more gold.

So when you saved gold, it held value. That value could be lent out. It could be put to use.

Now we have paper money. Most countries left the gold standard around the first world war. Winning a war will convince most any government to make bad choices. The US left the gold standard to try and hurry the end of the Great Depression.

$1 in 1918 is worth about $18 in today's money. Put another way that same dollar put into a shoebox for 100 years has devalued 95%.

$20.67 in 1918 was exchangeable for 1 troy oz of gold. Put this another way, you could have exchanged it for 48 mg of gold and that gold today would be worth $60.

... Why would anyone care though? We have paper money it buys things, right?

The problem as Peter puts it is ... any dollar as soon as it's earned is worth less. Most don't get raises at the pace of inflation. For hundreds of years prices in America were stable, or they fell as things got cheaper and more abundant. Since the supply of money was more or less finite, and since the amount of goods created increased prices fell. That's basic economics.

Prices made sense, because there was only so much money. Penny candy was .. a penny. There were stores called "the five and dime" (0.05 cent and 0.10 cent). Things got cheaper over time. Saving made sense as money was valuable.

Today's money, everything is always more expensive. It's always more expensive because the amount of money circulating is always growing. The amount of money circulating is always growing because the government needs debt because it can't raise taxes to pay for it's outlays.

That money must come from someplace.

Quantitative Easing (today's approved voodoo to print money) is where the central bank (not part of the government) buys government bonds (we agree to pay more dollars in the future for dollars today) in exchange for dollars. When the government can't afford the interest payments the government just issues more bonds which the central bank buys in exchange for more dollars.

Find a picture of the M2 money supply. We are talking oceans of new money, but it isn't printed, most of it is digital.

Since more dollars are circulating, everything is worth less, since everything is priced in dollars.

When everyone has more dollars (supply has grown) prices for things increase.

The 2008 housing crisis was caused by money oversupply. Instead of people saving to buy a house with finite money, too much credit was extended to weak borrowers. Suddenly there was a housing shortage because everyone was buying houses which drove prices up. Since prices were going up so fast, everyone wanted to invest. Since houses became investments (instead of a place to live), house prices became insane. Since there was a sudden housing shortage, builders went into overtime making houses no one really wanted that people purchased anyway, because they were great investments.

The bubble popped when interest rates rose. Interest rates rise when the central bank needs more money. Many of those loans were tied to floating interest rates. Many buyers didn't plan to actually live in their houses, they just wanted to resell them for a profit. Suddenly many buyers decided to default (no downpayment they aren't losing any of their money) The government rewarded people for flipping houses. The government guaranteed loans. Large sections of the housing financial market didn't have ANY risk or ANY incentive to use good judgement.

... Anyway, that's part of the book, or my understanding of it.

I removed a star because parts of it offend my liberal sensitivities, I really want to think we can just print money, be good socialists, tax the rich into oblivion, etc and it looks like there is a way (other countries do a much better job running their governments) but Peter doesn't want to give any solutions to the problems he points out. Most of the book is thinly veiled Libertarian Ayn Rand stuff, but ... parts of the ideology are correct.

Government does have a place but it's obvious sometimes the mistakes it makes are ... really, really bad.

31 people found this helpful

Helpful

Devin Cooper

Peter Schiff’s How an Economy Grows and Why It Crashes

Reviewed in the United States on June 8, 2017

Verified Purchase

Understanding how can economy crashes from the Austrian point of view can be very complicated. You have to know capital theory, what interest rates are, how resources are coordinated, etc. Many people do not have the time to learn all of this.

Peter Schiff’s book tries to take these complicated theories and teaches his readers through a short story about the progression of a small island economy. Peter’s book is an updated version of his father’s book How an Economy Grows and Why It Doesn’t by adding recent events and characters to the story.

The book introduces us to a little bit of history of the science of economics in the last hundred years. Peter talks about the early Austrians and the rise of Keynesianism in the 1930s as a counter to the Great Depression. Keynesianism became the dominant paradigm and has plagued economics and the world since.

Once Upon a Time

The story starts with three islanders – Able, Baker, and Charlie. They were in dire poverty. The only resource they can gather is fish, and only one per day since they are using their bare hands (just enough to survive in this story). Since they consumed everything they caught, there were no savings in case something bad had happened.

But they wanted more for their lives than spending the entire day catching one fish. Able came up with an idea to create a fish catcher, but in order to create this device, he must sacrifice a day and become on the verge of starvation to try and produce this net since there are no savings. When he created this net, his productivity doubled as he is now able to catch two fish per day.

Throughout the book, Peter slips in economic ideas by explaining what the islanders are doing and sums up these ideas at the end of each chapter. For example, when Able created the net, he had to sacrifice eating a fish for a day, which meant he underconsumed, in order to create a net, or a capital good.

As the story progresses, as there are now savings thanks to Able’s invention of the net, economic expansion accelerates. Able is able to do more than just fish because he now has a net. As they continue to save and create capital goods, their lives become better.

The story continues with the explanation of other economic theories, such as the interest rate and what they do, why banks are created, how trade expands, the division of labor, and finally, how governments inflate the currency and drive interest rates lower to create an economic boom with an inevitable crash.

Epilogue

The story ends and Peter shifts to the modern day, as he explains how the bursting of the dot-com bubble and George Bush and Alan Greenspan’s heavy intervention into the market has fueled the bubble for the housing bubble and created the crash. He continues to describe how the government, instead of learning from the lessons of the past, keeps trying the same thing that caused the last crisis. When Obama came to office, he did the same thing Bush did, which was to stimulate the economy in order to make it look good for re-election. So if you really want to understand the cause of recessions in an easy and fun manner, Peter Schiff’s book will tell you a good story.

26 people found this helpful

Helpful

Ian Derrington

Good performance, interesting, but highly flawed.

Reviewed in the United States on October 23, 2018

Verified Purchase

A simple example of the underlying flaws in their logic is the flawed assumption that 'gold has inherent value'. Whereas a fish, that is used to feed a person and keep them alive has direct intrinsic value, gold does not. So a vast majority of their allegorical tale falls flat. And while some of the humor was appreciated some of it detracted from the points that the author was trying to make. Entertaining? Yes. Educational? To a degree. Completely Reasonable? Not quite.
Downgrading from 3 to 2 stars as it continues to get more ridiculous in simplification. While The simplification is useful to demonstrate a conceptual Idea but does so at the expense of sacrificing the facts of reality. The tool goes towards viewpoint of a classical
conservative economist that doesn't hold.

8 people found this helpful

Helpful

Merry

Not that useful

Reviewed in the United States on April 7, 2020

Verified Purchase

The authors try to prove that the economy is not that complicated: that small-scale, closed-circuit economics are the same as national or global economics.

To prove this, the authors start off with a simple parable of a small-scale economy... and immediately transition to talking about international economics and modern banking. As an adult reader expecting a book that even children could understand, I was shocked and annoyed at how fast the book blew through difficult, confounding subjects.

As for the parable, it becomes awkward and confused as it is forced into complicated situations without adequate explanation. By the second half of the book, the authors are just talking full-fledged economics, and then replacing each instance of the word "dollar," "gold," or "labor" (it isn't clear which) with the word "fish."

The book's purpose is to simplify modern economics into relatable terms. It fails.

3 people found this helpful

Helpful

Top reviews from other countries

Farlsborough

A brave attempt but they don't quite pull it off

Reviewed in the United Kingdom on November 16, 2015

Verified Purchase

Whilst I enjoyed this book, I ended up a bit underwhelmed. What I would really have loved is to be able to buy a copy of the original inspiration by Irwin Schiff; maintaining a comic book style throughout would have been more consistent.

As it is, you get an easy to understand introduction to freemarket economics (capital, risk, investment etc.) although this could have gone further (no mention of opportunity costs). After this first part (which I suspect is a summary of some of the key points in Irwin's book) the Schiff's try - and fail, sadly - to explain in broad strokes the errors of government intervention that led to the recent economic crash.

Whilst a brave attempt, the stretching of the analogy wears thin; I know almost nothing about economics, yet I found myself wishing to hear the correct terms and explanations rather than trying to imagine what the various fish-themed inventions equate to.

Another problem is that, in an effort to be true to what they obviously believe to be a clear chain of events, the beautiful clarity and logic of the choices available to Able, Baker and Charlie at the beginning of the book disintegrates into "and then this happened, and then this happened... (Because it just did)." It was always going to be hard to combine a fictional, exemplary take with the messy reality of life. The new characters come thick and fast, making decisions that the reader struggles to understand as quickly needed in this rapidly paced book.

Overall, if you had a bright 14-15 year old and wanted them to grasp freemarket economics before falling down the well of obligatory socialism that seems to accompany youth, you could do a lot worse. But for an adult, the combination of simplistic cartoons and an attempt to make the analogy fit every desired message becomes a frustration.

One person found this helpful

KAM

Clear and understandable - not like economics at all

Reviewed in the United Kingdom on November 27, 2010

Verified Purchase

If you've ever been baffled by economic theory then take heart. The reason is probably that the person explaining it didn't really understand what was going on either.

Yes, there is a lot of complexity in the details and many tomes on economics would have you wade through graphs, calculus and statistics until your ears bled and yet never give you a birds eye view of what an economy actually is.

Peter Schiff is a man who, in 2006 (and even before that), was forecasting with great accuracy, the recent/current financial crisis while loftier economists scoffed at his warnings.

This book offers a clear and understandable overview of what an economy is, what makes it grow and what can go wrong. It does this by relating the tale of a fictional island, whose main natural resource is fish, and follows the development of its economy from its inhabitants first attempts at wealth creation through to the islands rise to inter-island trade dominance and subsequent fall.

Despite being a 200+ page book about economics it is easily read within a day and, surprisingly for so easy a read, will leave you feeling much wiser. In fact you'll probably finish with the thought "surely economics can't be that easy?". It may take you a bit more time to realize that it is, and that the complexity offered up by some economists is merely a smokescreen for their own lack of understanding (after all, how many of them saw the recent troubles coming?).

4 people found this helpful

VBKing

The basics of an economy everyone needs to know

Reviewed in the United Kingdom on April 30, 2011

Verified Purchase

What Peter Schiff has told in this book, is something I used to think deeply about as a child. It is regarding the basics on how the economy governs. I remember in my youth thinking how some nations become wealthy and others poor, what determines wealth, where do business' get their money from (or where does the first person get his money from) etc.
These were basic questions that I used to ponder over as a child, and as I got older, I learnt new stuff (e.g. macroeconomics) but my questions as a child remained unanswered. That was until I finished reading this book.

Essentially, Peter Schiff tells a story, initially in it's primitive stages which gets complexed as you read further. It starts with 3 characters Able, Baker and Charlie who, in the beginning, have no other time except catching one fish a day, eating it, resting and sleeping. It states that through sacrifice and innovation, their standard of living increases (e.g. building a net that can catch two fishes). Thereafter, the story becomes complex with the introduction of banks, paper money, foreign nations etc but nevertheless, remains an extremely exciting read and understandable.

If there is one thing I have realised is that all this wealth (i.e. the wealth of nations) comes about by lowering the cost of food (in this case the fish i.e. being able to catch more than one fish a day). I have realised that this is key to the success of standard of living (i.e. this is what creates the factories, the manufacturing industry, the tourism etc). This statement seems quite simple, yet something that is not first thought of given the complex economical system that we live in. Whilst I don't think the book states that clearly within the text, it gave me a sense of satisfaction that if I learnt just this from the book it would have been sufficient and a worthwhile read. I'm happily to say, that fortunately it touches on many more topics.

Nevertheless, the wonderful tale presented by Peter Schiff captivates the reader to keep reading more. You can quite comfortably read this book within a few days even if you set aside a couple of hours at the end of a busy working day.

4 people found this helpful

P.

I will read that book to my kids

Reviewed in the United Kingdom on February 9, 2020

Verified Purchase

Great book that reminds us of the core principles on which an economy is build and highlights the irresponsible policies short-sighted politicians supported by central banks have been implementing since the early 2000s. This book is public good, I wish that was the narrative media would broadcast.

I_Like_Juice

Fantastic read, fantastic intro to financial market

Reviewed in the United Kingdom on December 20, 2010

Verified Purchase

This book is a fantastic introduction to how the markets work, how US economy has evolved, how it relates to china and clearly explains what makes the market work, and MOST importantly , using a story of a country called Usonia.... very cleverly written, humorous, with illustrations. The author managed to turn a boring topic into a book that i couldnt put down as soon as i got one.

I have never studied finance and didnt know how the markets worked. This works as a fantastic intro to the markets, although if you are looking for an indepth guide, i dont think its for you.

HIghly recommended as an intro, great read.

5/5

One person found this helpful

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