How An Economy Grows and Why It Doesn’t: Timeless Economic Lessons For Everyone

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The American economic landscape is filled with complex theories and intricate practices. However, understanding these concepts doesn’t always require an economics degree. Sometimes, the simplest stories can capture the essence of complex economic ideas. Such is the case with Irwin Schiff’s classic educational comic from the 1980s, “How an Economy Grows and Why It Doesn’t“(Free Download). Schiff’s comic tells the tale of three islanders — Able, Baker, and Charlie — surviving on fish they catch with their bare hands. Their existence represents the raw state of an economy, with fish embodying consumer goods and their labor representing a crucial factor of production. However, with low productivity, they hover on the brink of survival.

The comic’s pivotal moment arises when Able dreams of bettering his life. He conceives of a net — a symbol of a capital good — to enhance his fishing productivity. However, creating this net necessitates a sacrifice, as it requires a day he would not fish, representing a significant economic principle: delayed consumption or saving.
Here, Schiff introduces an economic trade-off. Able must decide between low productivity but immediate rewards (hand fishing) and higher productivity but delayed gratification (net fishing). This decision hinges on Able’s “time preference,” an economic term reflecting an individual’s willingness to delay immediate consumption for future benefits.

Delayed Gratification

Despite the immediate hardship, Able decides to build the net, revealing a low-time preference and an ability to delay gratification for a larger reward. The result is a dramatic increase in his productivity. His newfound surplus allows him to innovate further, using spare time to create more tools, and initiating a “Cycle of Growth.”

This cycle represents an essential economic principle: saving (delaying consumption) enables the creation of capital goods, boosting productivity, leading to more saving and further growth. The comic illustrates how this virtuous cycle can lift individuals and, by extension, economies out of poverty and towards increased wealth and stability.

However, Able’s newfound wealth doesn’t go unnoticed. Schiff uses other islanders’ reactions to highlight societal attitudes that can impede economic growth. For instance, one islander suggests that Able should evenly distribute his wealth, mirroring the economic ethos of egalitarianism. This attitude discourages saving and interrupts the Cycle of Growth. Another islander threatens to plunder Able’s resources, symbolizing state-imposed taxes that could stifle economic development.

These societal pressures introduce another layer of complexity to the narrative. The comic underscores that accumulating wealth isn’t merely a personal achievement but benefits the community. Able can rent out his net or loan his surplus fish, providing access to capital goods that others might not have, thus increasing their productivity and living standards.

Impacting The Economy

As the comic points out, saving and capital accumulation drive economic growth, benefiting not just the individual saver but the entire community. In Schiff’s view, actions like progressive taxation and wealth redistribution can derail this growth by discouraging saving and capital accumulation.
In this way, Schiff’s simple comic lays bare the economic mechanisms at the heart of a thriving market economy.

As economist Ludwig von Mises once wrote, the capital accumulation we enjoy today rests on the saving and preparatory work of earlier generations.

As economist Ludwig von Mises once wrote, the capital accumulation we enjoy today rests on earlier generations’ saving and preparatory work.
The choices we make now — to consume or save, innovate or maintain the status quo — can significantly impact our economic future. Through its unassuming characters and straightforward narrative, Schiff’s comic offers profound insights into these choices and their broader societal implications.

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