a financial fable

in the early 2000’s I came across a reference to an old donald duck comic book as an explanation of the causes and effects of inflation and wealth redistribution. the story is titled “a financial fable”, and it still gives me a clear mental picture that helps to think about the unintended side effects of money creation and redistribution, or at least a visual metaphor to get a grasp on the dynamics of th situation.

for an extended summary, read here.

a tornado hits scrooge’s money bin (located on his farm), picking up all the money and dropping it on the nearby town. the people are overjoyed at this sudden windfall, and over the course of a few days fall out of their normal patterns of life, quitting their jobs, abandoning their stores and homes. they say things like “I’m going to see the world!”. while this is happening, scrooge, donald, and his nephews all continue to work on the farm. scrooge is not upset about the money. in a few days, the people in the town realize that something is wrong. they can’t leave to go see the world because no one is working at the train station, or the gas station. they can’t get food because the grocery store is closed. eventually they realize that scrooge has a food available and they go to the farm. since the demand for food is so high, and all the people bidding for the food are now millionaires, the prices are astronomical. scrooge gets a million dollars for an egg. before long, scrooge has regained his scattered money.

I see the analogy as the tornado to the use of stimulus check, extended unemployment, rent moratoria, and money printing in general. the idea being that people are getting a fair amount of money directly given to them, and no longer feel entitled to do something in exchange for that money. goods and services gradually start to disappear. eventually scrooges will emerge, people who are producing things, wealth as opposed to money, and they will be able to charge whatever they want for their goods.