November 27, 2014

Gilligan, The Skipper, and the Federal Reserve

Now here’s another tale of our castaways.

Imagine if life on the island were different. Instead of seven stranded castaways, there were only four: Gilligan, the Skipper, Mr. Howell, and Ben Bernanke.

Besides non-existent ratings without Ginger and Mary Ann, some other things would be different. Imagine that there was only one thing to buy on the island, coconuts. Now, of course, this takes a willing suspension of disbelief, because we know that these four people would need more than just coconuts to survive. They would need clothing and shelter and might want other comforts that the island might conceivably provide. They would all provide different services to each other and trade them for the services of their fellow castaways. But in this example, the only thing that they trade for are coconuts.

Mr. Howell owns the coconut orchard, which produces 100 coconuts per year. Mr. Bernanke is in charge of the currency, the Island Reserve Notes (IRNs). In order to purchase the only available product for sale on the island, one must use IRNs. Barter or the use of other commodities to make this purchase is prohibited. Each coconut costs 1 IRN.

Gilligan and the The Skipper each perform different services for each other and the other two which they trade for these paper notes in order to buy coconuts. At a given point in time, Gilligan and The Skipper each have 50 IRNs.

There are a few things that are true. The first is  that the IRNs held by Gilligan and the Skipper have no value of their own. Their value is wholly derived from the coconuts that they can buy with the IRNs. Neither do the ISNs have any value off the island. Back in civilization, the currency is not recognized, although if a mainlander were to acquire some IRNs, he would be able to purchase coconuts with them if he ever found himself stranded on the island.

Secondly, Gillligan and the Skipper are equally wealthy, not because they both have the same amount of IRNs, which don’t have any intrinsic value, but because they are both able to buy an equal quantity of the available products. They are each able to buy one half of all coconuts produced in one year in Mr. Howell’s orchard. In other words, each has the same purchasing power in the island economy.

Now, suppose Mr. Bernanke decided to print 5 additional IRNs and give them to the Skipper. The Skipper would immediately be wealthier, as his  purchasing power has now increased by 10 percent. He can now buy 55 coconuts instead of 50. But where did this new purchasing power come from? Was it really created out of thin air just by printing additional IRNs?

Mr. Bernanke might say yes. However, there are still only 100 coconuts available to purchase. Since there is no way for Mr. Howell’s orchard to produce more than 100 coconuts during the current year, it would seem that Gilligan can still buy 50 coconuts, the Skipper can likewise buy 50 and his 5 additional IRNs are worthless until there are more coconuts available to purchase. How can the Skipper take advantage of the additional IRNs?

Obviously, there is only one way. Rather than trading 1 IRN for each coconut, the Skipper will now offer Mr. Howell more than $1.00 IRN per coconut. While he may offer different prices at different times, depending upon how hungry he is, let’s say that the average price he offers Mr. Howell over the year is $1.05. This is the new market price, which Gilligan has to pay as well. Mr. Howell certainly isn’t going to sell coconuts to Gilligan at 1 IRN apiece when he can get 1.05 from the Skipper. So, with Gilligan and the Skipper each paying on average 1.05 per coconut, the Skipper is now able to buy 52.4 coconuts, while Gilligan can only buy 47.6.

What we have seen is a transfer of wealth. The Skipper is now 2.4 coconuts wealthier. However, this new purchasing power was not magically created simply by printing the 5 extra IRNs. It was transferred from Gilligan, who can now afford only 47.6 coconuts, even though he has the same amount of IRNs that he had before. No one snuck into Gilligan’s hut and removed any of his money. He still has the exact same amount. But he has been robbed nonetheless. Regardless of how laudable the reasons given for printing the new IRNs and giving them to the Skipper – to stimulate the economy, create new jobs, etc. – it was nevertheless accomplished through theft.

It should also be noted that no additional wealth has been created. The total number of coconuts that Gilligan and the Skipper are able to purchase is still 100. The wealth has simply been redistributed from Gilligan to the Skipper. Imagine if this were to go on for decades. At some point, the Skipper would be fabulously wealthy and Gilligan would be destitute.

Now, the only reason that this theft is possible is the law that forces Gilligan to use the IRNs. If he were able to pick bananas and offer them in trade for the coconuts, he might be able to produce enough in bananas to buy more coconuts than the Skipper. Only the power invested in Mr. Bernanke allows him to transfer wealth and it is the only power he has. He doesn’t produce a single coconut himself. He simply decides how those coconuts are going to be distributed.

One might also argue that the Skipper might invest the extra 5 IRNs in capital goods and thus expand production on the island. It is possible. However, it is less likely that the Skipper is going to make wise decisions on what capital goods to invest in with purchasing power that was stolen from someone else than with money he saved himself. After all, if he decides to invest in a scheme that doesn’t pan out, he can go back to Mr. Bernanke and get more IRNs. In reality, these funds are loaned to the Skipper and he must pay them back with interest. However, he is really getting an involuntary loan from Gilligan and using Gilligan’s purchasing power to acquire capital goods. Each time he does, he becomes wealthier and Gilligan becomes poorer. Adding insult to injury, the Skipper gets to retain ownership of the new capital goods and keep all of the profits from the investment – with the cost of the investment provided by Gilligan!

Eventually, production might expand, but it will have expanded far less than if the Skipper had been forced to accumulate his capital by consuming less coconuts. This would put downward pressure on the price of coconuts, making Gilligan wealthier while the Skipper became wealthier still once he realized a return on his investment.

Of course, no economy is this simple. There is never only one product or service to purchase in any economy. Neither have we accounted for the coconuts that Mr. Howell consumes, nor for the presence of Ginger, Mary Ann, the professor, or Mrs. Howell, who could all conceivably produce other products or services to offer each other in the island economy.

However, even if there were seven castaways – or 300 million – the principle would remain the same. There would be some finite amount of wealth that all of their efforts combined could produce. All other factors being equal, printing new IRNs and distributing them unequally among the inhabitants would produce the same increase in prices and the same redistribution of wealth.

The only honest way to expand production would be for some of the islanders to save some of their earnings and invest them in capital goods. This would have the effect of raising the overall wealth of the island and any disparity in individual wealth would be the result of those individuals producing more for the other islanders to consume, not from redistribution through the production of new paper currency.  Moreover, since production could only be expanded by real savings, instead of by a privilege granted by Mr. Bernanke, they would all have an equal opportunity to save themselves and compete with those producing more. All of these factors would tend to make income disparity decrease, instead of increase as it does under the IRN System.

There is only one question that remains. Why does Gilligan allow the IRN System to continue?

Tom Mullen is the author of A Return to Common Sense: Reawakening Liberty in the Inhabitants of America.

Comments

  1. Sherry says:

    Thank you, this one is a keeper. Have you ever seen “Chick Tracks”? This story would be a great vehicle to develop into a “Chick Track” on the economics of the FED. A picture is worth a thousand words. A comic book presentation should be something the Ron Paulies could come up with to bring animation to this story. This would be an excellent vehicle to educate the general population without requiring more from them than they are able to give.

  2. This is very true by simple basic math except some of the math is entirely made up, just like the IRN.

    Lets say Gilligan comes up with this awesome idea and says I tell you what skipper I have this fabulous oscillating fan I designed and I will sit, hold it, swing it an keep you cool in this heat. The skippers looks at the idea and says, you know what I will give it a try, how much? one IRN for one hour of cooling and the skipper agrees, tests the idea and says this is great I must have more and Gilligan goes no problem another IRN and the skipper goes man this is down right fantastic I must have more and Gilligan again goes one more IRN. So Gilligan is diverting the IRN by what? Demand of an experience, since the experience supersedes the market share by demand competing with coconuts. Of Course Bernanke comes along and says I will buy the fan from you for 100 IRN, he doesn’t have any so he prints them up, Gilligan asks where did you get these and Bernanke says I made them. Gilligan says well why would I want these if you just printed them up and Bernanke turns and says because this is wealth and power and the control of the world, Gilligan scratches his head and says well I don’t want to control the world I just want people to like my idea. O don’t worry Bernanke says we are shelving that idea and you will be wealthy enough to run the whole island. Gilligan goes ya whoooo I accept and the law is born. The acceptance of the ignorance of Bernanke wins versus the achievement of creativity and imagination because funny math is far more attractive than some great experience, who wants those?

    The focus, the idea some other passed along and rather than testing and assuring ourselves comes acceptance without discovery and wealth the only focus of the land. Since wealth is only defined in monetary exchanges versus the demand of great achievements many like to experience we see the limits set upon us by a few who cannot see past a limited idea. When acceptance becomes the rage does this magnify.

    Look what we have in this nation, and abundance of debt, the largest poor idea of all and look who it is that holds the wealth of such a debt, the Bernanke’s of the world that came up with the stupid idea in the first place all for control of an island to play authority over, AWESOME!

    A Ponzi scheme is still a Ponzi scheme no matter how many ideas you attach to it in the end what is the final result? Power, the abuse of authority, a false picture and finally as usual self destruction. Heck we should keep practicing that, I mean who wants to go past that limitation since it has failed this many centuries. All the books and all the teachers and all the economists in the world can attempt to fix a bad Idea but until someone admits its a bad idea no good idea will be born. If nothing else we have proven that acceptance outweighs all intelligence because no verification is needed, just the act to accept it is something.

  3. Claire M says:

    I’ll be reading this one to the kids! We need to start using competing currencies– something like e-credits, for example. The less the dollar is worth, the more the underground economy will grow… We recently bartered $700 worth of my husband’s drawings for $700 worth of music recording services from a friend. No dollars were used, no taxes were paid, and we all got what we wanted– a little Gilligan’s Island economy of sorts– minus the Ben Bernanke :-)

    If what we did is illegal, then isn’t it also illegal for us to trade “date” nights with other parents? Child care is work, after all… In fact, let’s say I knit a sweater or make a dress for myself: according to the IRS, since I am adding value to the yarn or fabric I used, I should technically declare that surplus value as income, and pay taxes on it, shouldn’t I?

    If you look at work this way, you can see that the whole idea of income tax is absurd. People make things or do things for other people, and get goods and services in return. There is no reason or warrant for the state to intrude into any voluntary transaction between willing individuals. I think we will keep on bartering our services until the IRS comes knocking, and if they do I suppose we will have our day in court.

    • Very good example Claire, there is no reason some authority should be able to choose what your currency is when you realize where true value lives, where we get its demands and so on so those creating the value may in turn create the currencies of exchange as well the acts of exchange. Of course those not creating anything of exchange would think otherwise, how will survive without you?

      I could write a book on how the act of stealing began for the survival of the useless or those not producing a thing to represent exchange or exchange with.

      I do a lot of exchange with others without Bernanke as well or what I call informed choice.
      Another great example is when you look at how much it takes to keep Government alive an entity that provides nothing of value to exchange yet is spends abundances beyond it means. This only leaves without question what happens when you do not have to provide for yourself and expect others to do it for you, thus the thief is born.

      Reminds me a of a banking cartel or something.

Trackbacks

  1. [...] As I’ve explained before, the expansion of money and credit really redistributes wealth from the holders of existing currency units to whoever receives the new money. When an individual “redistributes wealth”Article source: http://www.huffingtonpost.com/tom-mullen/how-the-fed-steals-for-th_b_1343283.html [...]

  2. [...] As I’ve explained before, the expansion of money and credit really redistributes wealth from the holders of existing currency units to whoever receives the new money. When an individual “redistributes wealth” without the consent of its current owner, most people call it “stealing.” Now, the Occupy movement may not have a problem with that if it results in less disparity between rich and poor. However, that’s not what the Federal Reserve System is all about. The Fed steals for the 1%. [...]

  3. [...] As I’ve explained before, the expansion of money and credit really redistributes wealth from the holders of existing currency units to whoever receives the new money. When an individual “redistributes wealth” without the consent of its current owner, most people call it “stealing.” Now, the Occupy movement may not have a problem with that if it results in less disparity between rich and poor. However, that’s not what the Federal Reserve System is all about. The Fed steals for the 1%. [...]

  4. [...] As I’ve explained before, the expansion of money and credit really redistributes wealth from the holders of existing currency units to whoever receives the new money. When an individual “redistributes wealth” without the consent of its current owner, most people call it “stealing.” Now, the Occupy movement may not have a problem with that if it results in less disparity between rich and poor. However, that’s not what the Federal Reserve System is all about. The Fed steals for the 1%. [...]

  5. [...] As I’ve explained before, the expansion of money and credit really redistributes wealth from the holders of existing currency units to whoever receives the new money. When an individual “redistributes wealth” without the consent of its current owner, most people call it “stealing.” Now, the Occupy movement may not have a problem with that if it results in less disparity between rich and poor. However, that’s not what the Federal Reserve System is all about. The Fed steals for the 1%. [...]

  6. [...] As I’ve explained before, the expansion of money and credit really redistributes wealth from the holders of existing currency units to whoever receives the new money. When an individual “redistributes wealth” without the consent of its current owner, most people call it “stealing.” Now, the Occupy movement may not have a problem with that if it results in less disparity between rich and poor. However, that’s not what the Federal Reserve System is all about. The Fed steals for the 1%. [...]

  7. [...] As I’ve explained before, the expansion of money and credit really redistributes wealth from the holders of existing currency units to whoever receives the new money. When an individual “redistributes wealth” without the consent of its current owner, most people call it “stealing.” Now, the Occupy movement may not have a problem with that if it results in less disparity between rich and poor. However, that’s not what the Federal Reserve System is all about. The Fed steals for the 1%. [...]

  8. [...] out of thin air, the purchasing power is not. The purchasing power has to come from somewhere. As I’ve explained before, the expansion of money and credit really redistributes wealth from the holders of existing [...]

  9. [...] As I’ve explained before, the expansion of money and credit really redistributes wealth from the holders of existing currency units to whoever receives the new money. When an individual “redistributes wealth” without the consent of its current owner, most people call it “stealing.” Now, the Occupy movement may not have a problem with that if it results in less disparity between rich and poor. However, that’s not what the Federal Reserve System is all about. The Fed steals for the 1%. [...]

  10. [...] As I’ve explained before, the expansion of money and credit really redistributes wealth from the holders of existing currency units to whoever receives the new money. When an individual “redistributes wealth” without the consent of its current owner, most people call it “stealing.” Now, the Occupy movement may not have a problem with that if it results in less disparity between rich and poor. However, that’s not what the Federal Reserve System is all about. The Fed steals for the 1%. [...]