“Let us imagine a man who is naked and alone on a tropical island.
If he spends all his time just trying to get enough to eat, his condition can scarcely be expected to improve; he will live in that savage state until he drops dead.
But if he is able to save a little time from his daily maintenance, he may prosper. He might, for example, apply an hour a day to building a shelter, planting a garden, or making better hunting tools. Little by little, he might greatly improve his living standard, for each incremental improvement releases more time with which to make even more progress. Once he has completed his home, he might turn to his garden, which would provide more food in a fraction of time. Or, better fishing hooks might also produce more fish in less time.
If however, he were merely to dig holes and then fill them in, or pile up rocks pointlessly, how would he be any better off? Or, imagine that there are two such men on an island and that the two of them go to war. Instead of planting papayas, they build catapults to throw rocks at each other’s gardens, thereby reducing yields. They would each be fully employed, no doubt, and each richer in defense capability; but the idea that war would make their economies more prosperous is preposterous.
It is obvious that two elements are essential to material progress – saving and applying the savings to some useful enterprise.
…Let us return to our island. After a time, a third man washes up on shore. The three decide to specialize, to divide the labor between them so that they will be more efficient and more productive. One gathers coconuts. The other fishes. The third plants banana trees.
The coconut gatherer and the fisherman exchange their products with each other. But what about the banana planter? It will take a couple of years before his bananas are ready to eat; how will he survive?The other two men recognize the benefit of what he is doing and look forward to eating bananas. They decided to give him coconuts and fish … with the understanding that they will get paid back in bananas when they were ready.
To effect this transaction, the banana planter issues “money” equal to his entire crop. It is understood that these little shells may be exchanged against his bananas, and thus do the other two men begin amassing their fortunes, feeling wealthier each time they acquire another shell.
But what if the banana planter decides to double the supply of money? What would be the point of it? The fish and coconut suppliers might think they were getting richer—but there would still be only many bananas, no more.”
Financial Reckoning Day P. 239