Hello. Here’s a story I wrote last week for my 13 & 11 year old kids to help them understand Austrian business cycle theory. I sent a copy to Walter E Williams who responded within the hour, “Nice.” I was thrilled! Hope you enjoy it and your journey throught this awesome web site that is mises.org!
The Three Little Pigs and the Federal Reserve Crisis
In their later years, they bought a yacht and sailed the seven seas. The three little pigs each had a bag of gold coins to spend at the various ports of call. The good life. No wolves, no Federal Reserve, no worries. Or so they thought…
One dark and stormy night, they were shipwrecked on a deserted tropical island. They spluttered ashore each with their coin purses clutched greedily…
ONE YEAR LATER…
No one came to rescue them and after some trial and some error, they had established a common sense division of labor: each pig specialized in doing one thing so their combined output was more than if each had to do everything for himself. And they were able to trade with each other using their gold coins. It wasn t what you d call the good life anymore, but it was pretty good and it worked. Here is how: One pig cut down trees and fashioned them into good square lengths of lumber stored flat in his lumber shed. He became the Lumberpig and worked day and night making one good square-cut length of lumber every month (he only had one simple stone tool). Another pig, the Fisherpig, specialized in fishing from a small raft and offering fresh seafood for sale on the beach every day before lunch and surfing all afternoon. The third pig used a small bucket that had washed ashore to go back and forth to the spring in the middle of the island to collect water for sale to his brothers. They started calling him Bucketpig, or Buck for short. Buck would often join Fisherpig in the evening for drinks and fish feasts on the beach in front of a roaring fire of lumber pieces. All work and no play made Lumberpig a dull pig although he had saved up a respectable pile of lumber. Not huge, but respectable.
THE CAPITALIST PIGS DREAM…
Like many a businessman over drinks after work, Buck and Fisherpig would brag and tell lies to each other about the expansion plans they had and how they were going to hit it big. The truth was, they did each have a pretty good plan: Fisherpig was planning to plow his savings into new lumber to build a fishing boat with oars and a mast so he could get out to where the big hauls were. That way he could be finished getting a daily supply of fish for the island in the morning and start a tool making business on the side. For his part, Buck had in fact already drawn up plans for a simple lumber aqueduct to bring water in from the spring. He then would be free to work on his wind power idea (he was planning to stay specialized in Utilities). Each dreaming pig just needed 100 lengths of lumber. Each pig just had one problem: Lumberpig charged 1 coin per length and each pig only had about 50 coins in their piggy bank in a good month.
“Who could ever seriously save 100 coins anyway? Ah well,” they each thought before going to sleep, "at least dreaming is
free.
FREE MONEY! REAL OR A MIRAGE?
One evening, their stories spent, Fisherpig and Buck gazed in silence over the blue green span of the lagoon. Something caught their eye. Do you see what I see Buck? Buck was already up on his hind trotters and half-way there.
“It s a treasure box washed ashore and filled with 200 gold coins!!..If you promise not to tell Lumberpig, I ll split it with you 50/50.”
“Sure. You and I have just inflated the island’s money supply.”
“Yeah! I just love inflation, don t you? Especially when you get the new money first and nobody else knows about it!”
They laughed and feasted deep into the night. Each secretly planning to rise early the next morning to start working on their dreams! Dreams that would unfortunately turn into nightmares because of the treasure box’s evil inflation that they didn t yet understand.
LUMBERPIG STARTS SELLING OUT OF INVENTORY
Day and night weren’t enough time anymore for Lumberpig to keep up his inventory levels. In the past few months both his brothers had been placing about four times the usual volume of lumber orders. More money was good all right, but what he hadn’t told them was that at this rate, he was running out of lumber! He kept his lumber shed locked up and no one knew the actual respectable quantity he usually had in inventory but him. Truth was, it was normally only about 100 lengths. And as hard as he worked, he couldn’t work fast enough to make more than one length a month. He was down to 20 lengths left and stared up at the ceiling at night,
“What should I do? Fisherpig and Buck are each buying about 2 lengths a month. How many surfboards and bonfires do they need? In less than six months I ll be out of stock!!” He thought of raising his prices. “Hm mm. That would stop frivolous buying wouldn t it? Then the pig who needed the lumber most would pay the higher price, right? Sounds fair and even more extra money for me would be nice. No. I can t do that. I m not a greedy pig. I ll leave my prices where they are .maybe things will work out somehow if …but…Zzz.” And he fell asleep.
Meanwhile, Buck and Fisherpig were each 40% done on their respective projects and going full steam. Little did they know, that in 5 months, Lumberpig was going to hit them with news that would have the impact of a 2x4 between the eyes.
FREE MONEY WASN T REAL AFTER ALL. IT WAS A MIRAGE. IT DIDN T CREATE NEW RESOURCES IT WAS EVIL INFLATION EVIL INFLATION THAT CONFUSED CAPITALIST PIGS INTO STARTING PROJECTS THAT COULD NEVER BE FINISHED
“Sorry Buck. Sorry Fisherpig. See for yourself,” Lumberpig opened the shed door wide. “The lumber is all gone. I m sold out.”
“AGGHHHH!!! NO!!!” said Fisherpig. “I m ruined! I used the raft lumber in my new boat construction that is only half done! Now I have nothing to fish with to make a living!! And Lumberpig, you made it worse! Why didn’t you raise your prices right away to stop one of our projects sooner – especially Buck’s harebrained water slide!! So much extra WASTE!! – just because you couldn’t bring yourself to be greedy!!!..If only that phony inflation box had never appeared!!!”, he sobbed.
“I m hungry,” said Buck thoughtfully. “And you know what? I screwed up too. I’ve built a water bridge to nowhere. And, Fisherpig, you know what s funny about all this? If we hadn’t been fooled by that box of inflation, you and I could have pooled our savings and actually completed one of our projects.”
There was no fire on the beach that night. Not even a meager fish dinner. And three thirsty little pigs. Later they burned the inflation box to keep warm for a while.
THE END
Rev.1 Feb.24/09