Economics by reading stories｜Kojima Economics

💡About the author

Peter. SchiffPeter D. Schiff.
He is a stockbroker, writer, and former senator, who accurately predicted the financial turmoil in 2008, and a supporter of the Austrian School of Economics . Author of the bestsellers "The Great Crash of the Dollar " and " This is the way to get rich in the next decade "

Andrew. Schiff Andrew J. Schiff
He is also the public relations director and senior spokesperson of Euro Pacific Capital Corporation. Well versed in media relations and financial PR, he speaks in seminars and TV shows promoting the concepts of free market capitalism and limited government.

📝What is this little island story about?

Use simple graphic stories to explain the fundamentals and development of economics. From the stories, you can learn the meaning of nearly 80 related terms about economics. The content is easy to understand, and the illustrations are also interesting. For those who are frustrated by the academic terminology of understanding, and want to understand economics, this book is very worthwhile and must not be missed.

👄Talk about the story

 Because the content story is huge, the fragment story is condensed and simplified to narrate.

🎣The impact of assets and innovation

The story is told on a small island. There are three people on the island, and each of them can only catch one fish with their bare hands every day, which is just enough to maintain their functions for one day. Until one person, "Ai Bo", had a new idea ( innovation ), and braved the time of not catching fish for a day on an empty stomach, and went to weave a fishing net ( assets ). If the net is woven successfully, he can catch two fish a day. It was starvation for one day, but Aber succeeded in using the fishing net to work for two days. After one day of work, Able can be used to do other things he wants to do or improve his assets (fishing machines) to increase production efficiency. (catch catch).

• Invention and innovation can not only improve production efficiency, but also accumulate savings, further resist risks and increase redundant time applications. If Able catches fish with a net and the other two catch fish with his bare hands, after working continuously for a week and deducting the requirement of one fish per day, Able still maintains a stockpile of 7 fish, and the other two have no fish left. Table Able has 7 days of food and clothing, which can be used to do what he is interested in or improve/accumulate assets to increase production efficiency or lease more assets to others.

 The reason why the rich get richer and richer is different from the reality that the bottom earns a fixed salary through labor and does not know how to save and make good use of assets.

📈How borrowing drives economic growth

The two saw that Able's fishing net was easy to use, and wanted to borrow it for use, but Able thought that if he borrowed a fishing net, in addition to his own lack of fishing nets, there was a risk of damage to the fishing net. After the three finally coordinated, Able would make up for it. The fish was lent to two people so that they would not go hungry during the making of their nets. After the two people’s nets were completed, they would have to return more of the fish that they had borrowed to Aberbee. More time to develop other facilities, living more and more rich, and attracting other island residents to come, and then through the same way of borrowing (fish) to promote the overall economic capacity of the island.

• A good lending relationship, the lender obtains benefits (interest) from it, and the borrower creates/accumulates assets through borrowed funds, both parties benefit and drive a positive cycle of productivity.

🏦The purpose of the bank

With the improvement of the overall productivity of the island and the prosperity of the people, there are too many fish stocks in the home, and there are a few unscrupulous people who sneak in and steal fish in the middle of the night. A visionary capitalist established a bank and provided two functions: user It will be deposited in the bank, the bank will keep it for you and will pay the interest to the user; the user can borrow from the bank if there is a need, but the interest must be paid regularly.

• For depositors: there is a place to help you keep the fish, and you can get the interest, you can go directly to the bank to get the fish when you need it.
• For borrowers: When there is a demand for fish goods and there is not enough quantity on hand, it is a good way to borrow money from a bank.
• For banks: Earn remuneration through the interest difference between borrowers (received) and depositors (disbursement), but there are three business priorities that should be paid special attention to.
  ①.Storage of user's inventory: The inventory of the bank is reduced due to an accident (theft, fire...), and there will be no corresponding amount of fish for the user to withdraw, which may cause a major event of run/withdrawal.
  ②. Borrower's credit review: If the borrower fails to repay the loan, it will become a bad debt (the problem in point 1 above is formed), so the borrower will be required to provide an explanation of the purpose of receiving the money, and if necessary, it must provide collateral. In the story, if the loan is used for entertainment and consumption, it will not pass, even if it is used for venture capital, it must be carefully evaluated to avoid bank losses.
  ③. Precise adjustment of interest rates: When productivity is booming and users have a lot of fish reserves, banks reduce interest rates, which can reduce interest payments and encourage users to borrow more. When productivity is weak and users save less fish, banks raise interest rates, which can attract users to save more and increase banks' interest income.

🤔What's so special about this book?

In addition to explaining economics through stories, this book also mentions Peter Schiff , one of the authors of the book, who is a supporter of the " Austrian School of Economics ".

It is different from the theory of Keynesian economics : it is believed that the government needs to intervene in the economy in a timely manner in order to effectively recover the economy from the Great Depression. For example, the Great Depression of the global economy in 1930, the financial turmoil in 2008 in modern times, and the epidemic turmoil in 2020; the United States has adopted a fiscal policy of expanding government spending (QE) to stimulate economic growth, even if a fiscal deficit is caused, as long as When the economy recovers, the deficit problem can be solved.
The advantages of this theory can promote economic recovery and growth in a short period of time, but it has relative disadvantages. Not only is the currency depreciation caused by the issuance of currency, it will lead to inflation, and it will lead to a wider gap between the rich and the poor.

 ❗ The government injects a lot of funds into the financial market to stimulate the economy. If there is no supporting fiscal policy to increase the basic income of the people, it is like giving money directly to the people for consumption and application. Although the public has more money, the poor People can only use consumption to live, while the rich use wealth management to increase their assets; low-income households without assets still have no money in the end, resulting in a greater gap between the rich and the poor in society.

The Austrian School of Economics maintains that the market should be free, and the government should not interfere with market freedom. For example, the monetary system should be a product and system created by people's transaction needs, not deliberately designed to have currency, and all systems are formed by people's continuous interaction with each other over a long period of time. (sort of like evolutionary theory), so even if the economy is in the Great Depression environment, through the free economy will eventually return to equilibrium, but the relative time will be longer and more painful.

Roughly speaking, the Austrian School of Economics believes that the economic and social system should be the continuous interaction of individuals and individuals, and ultimately form the common participation of all people, rather than through people such as the government to formulate rules that everyone must abide by; so from this book. Regarding the application of Keynesian theory and policy, you can see that the author opposes and does not support it🤣

 📌 Due to the fact that economic theories are quite diverse and complex, the above is only a personal understanding and simplified explanation. Please forgive me if there are any mistakes. Interested parties have a lot of information on the Internet to verify

Regarding the subjective value of the Austrian School of Economics: It doesn't matter to the person at the well that a glass of water is poured out, at this time the glass of water is only useful and has no value, but to the desert traveler, the last glass of water left in the kettle, With it, such as Ganquan jade, without it, you will suffer from thirst, and this glass of water will have value. Therefore, the market price forms this value according to the utility and scarcity of the target.

From this point of view, Bitcoin (cryptocurrency) may be regarded as a supporter of the Austrian School of Economics. Unlike fiat currency, which depends on the country's credit endorsement, there are too many intervening factors, which are determined by the non-free market. The decentralized nature of the currency, a completely free currency market, and the promotion of its value depends on the choice of the believers and individuals of the currency.

I am a Talf house, sharing my life experience, learning, reading and other experiences through text. Keep it for yourself and for those who are interested, thank you for reading.

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