Economics Lesson by Gary North as reprinted in Lew Rockwell

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 It is the month of August on the shores of the Black Sea. It is raining, and the little town looks totally deserted. It is tough times, everybody is in debt, and everybody lives on credit. Suddenly, a rich tourist comes to town.

He enters the only hotel, lays a 100 Euro note on the reception counter, and goes to inspect the rooms upstairs in order to pick one.

The hotel proprietor takes the 100 Euro note and runs to pay his debt to the butcher. The Butcher takes the 100 Euro note, and runs to pay his debt to the pig grower.

The pig grower takes the 100 Euro note, and runs to pay his debt to the supplier of his feed and fuel.

The supplier of feed and fuel takes the 100 Euro note and runs to pay his debt to the town’s prostitute that in these hard times, gave her “services” on credit.

The hooker runs to the hotel, and pays off her debt with the 100 Euro note to the hotel proprietor to pay for the rooms that she rented when she brought her clients there.

The hotel proprietor then lays the 100 Euro note back on the counter so that the rich tourist will not suspect anything.

At that moment, the rich tourist comes down after inspecting the rooms, and takes his 100 Euro note, after saying that he did not like any of the rooms, and leaves town.

No one earned anything. However, the whole town is now without debt, and looks to the future with a lot more optimism.

And that, ladies and gentlemen, is how the United States Government is doing business today.

Old Friend of Grandpa says:

I do not agree on this one. That is an idealized scenario, beginning with the hotel operator spending a deposit that he should not have.

Here’s another article on velocity:

Grandpa says: Yes, it makes perfect sense. In Economics 101 you learn about the ‘velocity of money’ theory and that is why the stimulus package has worked pretty well so far and, in the end, for the most part, won’t cost “future generations” anything.

In the original version, the $100 was on his counter when the tourist cancelled, but in my revised version, I had the tourist TAKE the room. When you do that and pay, the money belongs to the hotel and it was discretionary whether the hotel keeper made a refund or not.

He was a nice fellow in my fictional story so he did in this case. Truth is, in Barcelona, Spain I just had a similar case in real life!

It took some twenty-five emails plus two letters and a few calls until finally, two months later, I got credit for my never used room.

But that wasn’t the point of the story. And finally, it isn’t about what you think. Maybe you think the USA shouldn’t spend the TARP money. Others feel that FDR’s, “pump priming” as it was called is what ended the great depression in 1938.

If Obama’s program works, that is all that matters. IMO.

Maybe it will, maybe it won’t, but as of 2011, the stock market is booming and although unemployment is still too high, job creation is up and it seems to be working so far.

PTs don’t set up standards of morality for others. It is just “no force, frauds, or violence” that is to be used by PTs vs. others. I also urge avoidance of confrontations. I oughtta know the PT Rules; I made them up myself.

We don’t complain about politicians, we just watch what they do. We must attempt to survive and prosper in spite of their mistakes, blunders, or occasionally good moves.

Post your comments, thoughts, related personal experiences, corrections or questions below.

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