My oldest daughter loves to read. As soon as she is done reading one book, she immediately moves to the next. Actually, oftentimes she doesn't wait to be finished with one before she starts another. I have to marvel at her ability to keep track of multiple stories as she puts down the book she is reading in the living room and then heads to her bedroom in order to pick up where she left off in whatever book she has stashed in there. So, books are obviously an easy gift idea whenever Christmas or her birthday is approaching. Last Christmas I decided to get her a book that would properly introduce her to one of my favorite subjects: Economics.
Now, I know that sounds like a boring Christmas gift for a 10 year old. In fact, I was prepared for her to show no interest in it. But I figured that one day she would be ready for it and, even if she never wanted to read it, I still had two other children who might like it someday. Besides, this idea didn't come out of the blue. Last summer, as we were sitting outside and enjoying the weather, the topic of conversation turned to economics (as it often does when I am a participant). She said that she would like to know more about economics and I mentioned that I heard Whatever Happened to Penny Candy by Richard J. Maybury was a great way for children to learn about the subject. She liked the title and said she wished I would buy that book. So, I called her bluff.
When she opened the book on Christmas Day, she didn't look all that excited. That was okay. I had prepared for that (lack of) reaction. I wasn't going to try and shove it down her throat. I would just lay back and wait for an opportunity to present itself. A couple of months later, it did. Or, it would be more apt to say she did. She had begun reading it on her own and right at the beginning she found Shel Silverstein's hilarious poem "Smart". She was so impressed by it, that she copied it down word for word to put up in her room. She brought the book downstairs so that I could read the poem. From there we began reading the book together. At the end of each chapter, I would ask if she wanted to read another or if she wanted to put it away for another time. More often than not, she chose the former.
What I found was that not only did the book make basic economic principles clear to a 4th grader, it was also engaging for adults. The book focuses on the dangers of debasing a currency and describes the unavoidable consequences of doing so. Maybury tells how the law of Supply & Demand says that as the amount of any good increases, its value decreases. He then explains that money is not free from this law. The more dollars that are created, the less the dollar in your wallet will buy. He combines this theoretical insight with economic history by using examples from ancient Rome and the Weimar Republic. He even does an outstanding job describing, and then debunking, the wage/price spiral theory of inflation.
The theory says that inflation has its roots in wage increases. He gives the example of a union demanding higher wages. The employer then raises prices in order to pay these wages. Since prices are rising, more laborers demand more wage increases. Which causes employers to raises prices again and we are caught in a deadly, but natural, spiral of inflation. The problem with this theory is that it completely ignores a crucial question: Where is all the money to pay these increasing costs and prices coming from? The answer: The printing press. If the Federal Reserve wasn't busy creating money out of thin air, it would do no good for laborers or employers to ask for more money that isn't there. This theory presents an outlook of the world that is exactly backwards. In reality, consumers determine prices by their willingness to pay a certain price. The entrepreneur must make his costs conform to the market's price, or else go bankrupt. He cannot simply dictate the price to his customers, at least not if he wants to stay in business.
There are many more lessons in this little book, and my daughter and I had a great time discovering them. And even if she never reads another economics book, she probably already knows more than her teacher. I will enthusiastically recommend this book to anyone looking to learn more, or teach their children, about inflation. And it's also good to learn the little rule the author encourages you to keep in mind whenever you hear about a new government welfare or economic policy. TANSTAAFL (There Ain't No Such Thing As A Free Lunch).
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