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Gilligan, The Skipper, and the Federal Reserve

Now here's another tale of our castaways.

Imagine if life on the island were different. Instead of seven stranded castaways, there were only four: Gilligan, the Skipper, Mr. Howell, and Ben Bernanke.

Besides non-existent ratings without Ginger and Mary Ann, some other things would be different. Imagine that there was only one thing to buy on the island, coconuts. Now, of course, this takes a willing suspension of disbelief, because we know that these four people would need more than just coconuts to survive. They would need clothing and shelter and might want other comforts that the island might conceivably provide. They would all provide different services to each other and trade them for the services of their fellow castaways. But in this example, the only thing that they trade for are coconuts.

Mr. Howell owns the coconut orchard, which produces 100 coconuts per year. Mr. Bernanke is in charge of the currency, the Island Reserve Notes (IRNs). In order to purchase the only available product for sale on the island, one must use IRNs. Barter or the use of other commodities to make this purchase is prohibited. Each coconut costs 1 IRN.

Gilligan and the The Skipper each perform different services for each other and the other two which they trade for these paper notes in order to buy coconuts. At a given point in time, Gilligan and The Skipper each have 50 IRNs.

There are a few things that are true. The first is that the IRNs held by Gilligan and the Skipper have no value of their own. Their value is wholly derived from the coconuts that they can buy with the IRNs. Neither do the ISNs have any value off the island. Back in civilization, the currency is not recognized, although if a mainlander were to acquire some IRNs, he would be able to purchase coconuts with them if he ever found himself stranded on the island.

Secondly, Gillligan and the Skipper are equally wealthy, not because they both have the same amount of IRNs, which don't have any intrinsic value, but because they are both able to buy an equal quantity of the available products. They are each able to buy one half of all coconuts produced in one year in Mr. Howell's orchard. In other words, each has the same purchasing power in the island economy.

Now, suppose Mr. Bernanke decided to print 5 additional IRNs and give them to the Skipper. The Skipper would immediately be wealthier, as his purchasing power has now increased by 10 percent. He can now buy 55 coconuts instead of 50. But where did this new purchasing power come from? Was it really created out of thin air just by printing additional IRNs?

Mr. Bernanke might say yes. However, there are still only 100 coconuts available to purchase. Since there is no way for Mr. Howell's orchard to produce more than 100 coconuts during the current year, it would seem that Gilligan can still buy 50 coconuts, the Skipper can likewise buy 50 and his 5 additional IRNs are worthless until there are more coconuts available to purchase. How can the Skipper take advantage of the additional IRNs?

Obviously, there is only one way. Rather than trading 1 IRN for each coconut, the Skipper will now offer Mr. Howell more than $1.00 IRN per coconut. While he may offer different prices at different times, depending upon how hungry he is, let's say that the average price he offers Mr. Howell over the year is $1.05. This is the new market price, which Gilligan has to pay as well. Mr. Howell certainly isn't going to sell coconuts to Gilligan at 1 IRN apiece when he can get 1.05 from the Skipper. So, with Gilligan and the Skipper each paying on average 1.05 per coconut, the Skipper is now able to buy 52.4 coconuts, while Gilligan can only buy 47.6.

What we have seen is a transfer of wealth. The Skipper is now 2.4 coconuts wealthier. However, this new purchasing power was not magically created simply by printing the 5 extra IRNs. It was transferred from Gilligan, who can now afford only 47.6 coconuts, even though he has the same amount of IRNs that he had before. No one snuck into Gilligan's hut and removed any of his money. He still has the exact same amount. But he has been robbed nonetheless. Regardless of how laudable the reasons given for printing the new IRNs and giving them to the Skipper - to stimulate the economy, create new jobs, etc. - it was nevertheless accomplished through theft.

It should also be noted that no additional wealth has been created. The total number of coconuts that Gilligan and the Skipper are able to purchase is still 100. The wealth has simply been redistributed from Gilligan to the Skipper. Imagine if this were to go on for decades. At some point, the Skipper would be fabulously wealthy and Gilligan would be destitute.

Now, the only reason that this theft is possible is the law that forces Gilligan to use the IRNs. If he were able to pick bananas and offer them in trade for the coconuts, he might be able to produce enough in bananas to buy more coconuts than the Skipper. Only the power invested in Mr. Bernanke allows him to transfer wealth and it is the only power he has. He doesn't produce a single coconut himself. He simply decides how those coconuts are going to be distributed.

One might also argue that the Skipper might invest the extra 5 IRNs in capital goods and thus expand production on the island. It is possible. However, it is less likely that the Skipper is going to make wise decisions on what capital goods to invest in with purchasing power that was stolen from someone else than with money he saved himself. After all, if he decides to invest in a scheme that doesn't pan out, he can go back to Mr. Bernanke and get more IRNs. In reality, these funds are loaned to the Skipper and he must pay them back with interest. However, he is really getting an involuntary loan from Gilligan and using Gilligan's purchasing power to acquire capital goods. Each time he does, he becomes wealthier and Gilligan becomes poorer. Adding insult to injury, the Skipper gets to retain ownership of the new capital goods and keep all of the profits from the investment – with the cost of the investment provided by Gilligan!

Eventually, production might expand, but it will have expanded far less than if the Skipper had been forced to accumulate his capital by consuming less coconuts. This would put downward pressure on the price of coconuts, making Gilligan wealthier while the Skipper became wealthier still once he realized a return on his investment.

Of course, no economy is this simple. There is never only one product or service to purchase in any economy. Neither have we accounted for the coconuts that Mr. Howell consumes, nor for the presence of Ginger, Mary Ann, the professor, or Mrs. Howell, who could all conceivably produce other products or services to offer each other in the island economy.

However, even if there were seven castaways - or 300 million - the principle would remain the same. There would be some finite amount of wealth that all of their efforts combined could produce. All other factors being equal, printing new IRNs and distributing them unequally among the inhabitants would produce the same increase in prices and the same redistribution of wealth.

The only honest way to expand production would be for some of the islanders to save some of their earnings and invest them in capital goods. This would have the effect of raising the overall wealth of the island and any disparity in individual wealth would be the result of those individuals producing more for the other islanders to consume, not from redistribution through the production of new paper currency. Moreover, since production could only be expanded by real savings, instead of by a privilege granted by Mr. Bernanke, they would all have an equal opportunity to save themselves and compete with those producing more. All of these factors would tend to make income disparity decrease, instead of increase as it does under the IRN System.

There is only one question that remains. Why does Gilligan allow the IRN System to continue?

Tom Mullen is the author of A Return to Common Sense: Reawakening Liberty in the Inhabitants of America.



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It should be noted

that the use of IRN's is mandated, not a normal market solution to exchange.
Who gave the power to Bernanke in the first place?
I say they exile Mr. Bernanke and do business in the way that best benefits the three of them!

This is an excellent

This is an excellent explanation of how fiat money allows governments and central banks to steal wealth, and to transfer wealth. Every American should read this and see what has been done to them.

Today's dollar is worth about 3 cents of the 1913 dollar. The other 97 cents have been stolen. That's what inflation is - stealing.

Mr. Mullen has done a masterful job in explaining a subject that many Americans seem to have difficulty grasping.

FIAT MONEY

BUMP

Ez

Fiat money on Gilligan's Island

I learned all I needed about fiat money from one of the real episodes of the show.
A Latin American dictator got exiled to the island. He attempted to set up his own banana republic there with Gilligan as the puppet leader.
At one point, the dictator, who was the only one with a loaded pistol, called Mr. Howle in to get his advice on setting up a money system. Mr. Howle told him in order to set up a money system, you need some amount of precious metals like gold or silver to back it, and there was not any such store of value on the island.
The dictator replied "We have tree bark and my signature." Mr. Howle laughed, "Tree bark and your signature. That's preposterous." The dictator responded by pointing the pistol at Mr. Howle's head. Shocked and frightened, Mr. Howle said, "Suddenly, the idea is very posterous."
There you have it. The essence of fiat money.

[F]orce can only settle questions of power, not of right. - Clyde N. Wilson

I remember that episode . . .

With Gilligan the puppet president, giving a speech to the roaring crowd below the balcony, saying: "I promise you this, that, and the other thing!" which caused the crowd to go nuts with fanatic devotion. lol.

Gilligan's Island - The Little Dictator episode is on-line

It can be viewed here. Seeing the scene described above again, it is even better than I remembered it. It is quite a dig at fiat currency. The implication is it is inherently corrupt and only a criminal third world dictatorship would use money created on a printing press. The scene takes place six minutes into the show. http://www.thewb.com/shows/gilligans-island/the-little-dicta...

[F]orce can only settle questions of power, not of right. - Clyde N. Wilson

Gilligan's picture

Here's a link direct link to the fiat money segment!

The writer's of Gilligan's Island know more about monetary policy than anyone who has run our country since 1913:

http://youtu.be/YlZOSGZnDtM

Google is government.

excellent!

excellent!

I think this story has a lot of potential!

You should write a book:

"The Creature From Gilligan's Island."

Gilligan allows the IRN system to continue

because he was always so skinny from lack of proper coconut nutrition that he was too weak to attack even Mr. Howell, much less the mighty coconut-headed Bernanke, and stood no chance whatsoever against the dragonian pus-gutted fat cat Skipper.

His only chance is to Occupy the island and demand his own hammock in the shade and FREE coconuts served to him by the as yet non-existent Ginger and Mary Ann.

sheesh. it's so obvious...

Extremism in the cause of Liberty is no vice.

Skipper can STILL buy 50, not 55

9th paragraph: Skipper has 55 IRNS divided by 1.1/coconut means he can still buy 50. Mr Howell has 100 times 1.1 IRN or 110 IRNs worth of coconuts, so he will have 5 unsold and Gilligan will go hungry.

If you are not OUTRAGED, you're not paying attention!

Math error

What will happen is the price will be set to clear the market. You have 105 IRN divided by 100 coconuts. The price will be 1.05 IRN per coconut. This will let the skipper with 55 IRN buy 52.4 coconuts and Gilligam buy 47.2 coconuts.

Tom Mullen's picture

Thank you Xthe17th and Trout 007

For pointing out my error and correcting it, respectively!

Yes, the market will always clear. The price paid per coconut will fluctuate, and would likely average more like $1.03 or $1.05, with Skipper getting more coconuts than Gilligan. I'll correct the numbers.

Forgive me - I often write these after midnight. :)

It would be nice if they created no more IRNs

and allowed the currency to appreciate as production increases, so people could buy more with the money they have in their pockets. Alas, inflation helps the rich and deflation hurts the rich, so you can see why Bernanke will never allow deflation to occur.

Gilligan and the Gold Standard

Suppose the story is exactly the same except that each IRN is backed by physical gold.

Howell owns the only land on the island that produces coconuts, but Bernanke owns the only land on the island with a gold mine. Each IRN is backed by 100 pounds of physical gold, held in reserve in a cave.

Bernanke mines 500 more pounds of gold, prints five more gold-backed IRNs, and gives them to the Skipper. There are still only 100 coconuts so now the Skipper can offer 1.1 IRNs (exchangeable for 1.1 pounds of gold) and the same thing happens as before, with the Skipper now having more coconut purchasing power and Gilligan having less.

The one question that remains is the same question as before: why does Gilligan allow the [gold-backed] IRN system to continue?

Well of course in real life he doesn't. If they are unable to get off the island, the coconuts have large intrinsic value (necessary for staying alive) and the gold has little intrinsic value (but more than a fiat IRN, since you can make pretty things with gold!).

But why would GIlligan work for anything other than coconuts? The coconuts themselves become the medium of exchange, and one coconut can probably buy you all the gold you can carry in the island economy. More than that if Bernanke gets hungry enough.

Obviously this situation continues until the Professor builds a computer out of rocks and twigs, and invents bitcoins.

Remember when

You used to be able to get a whole bushel of coconuts for one IRN.

clarification

I like this analogy, but was wondering why we consider the opportunity for the Skipper to use his 5 extra IRNs to invest and grow production, but not consider the opportunity of Mr. Howell to use HIS 5 extra IRNs (gained through raising the price of his coconuts) to invest and grow production.

I see the same problem with the suggestion that the Skipper should get his 5 extra IRNs by saving it himself as opposed to getting new money from Mr. B. When the Skipper saves, Mr. Howell is forced to lower the price of coconuts and subsequently the production of goods suffers.

Not in any way trying to stand up for the FED, just trying to grasp the analogy better.

Tom Mullen's picture

willing suspension of disbelief

Mr. Howell and Mr. Bernanke are not economic players. I just wanted to isolate Gilligan and the Skipper and show the wealth transfer.

By the way, when the Skipper saves, Mr Howell still sells all of his coconuts, just at a lower price. That and the savings allows the Skipper to build a banana picker, and all of society gets wealthier. The employees let go by Mr. Howell get hired by the Skipper to build the picker, etc.

What's important

IMHO, the question should be, where did the 5 extra IRN's come from?! And more importantly the effect they had on Gilligans IRN's!

When Fascism goes to sleep, it checks under the bed for Ron Paul!

very good

Poor Gilligan's IRN's were "devalued"... Just like the Federal Reserve has been doing since 1913!

When Fascism goes to sleep, it checks under the bed for Ron Paul!

proud

Proud to be gilligan, proud to be American. Gilligan should start a revolution in chapter 2.

One world, under government, with power and money for the elite

Just vote for me

And I'll bring home pork, from Washington DC.
We'll soak the other taxpayers, but you'll get yours for free.
We'll build you a mighty welfare state, and it will be your slave,
Offering full coverage from the cradle to the grave...

We'll regulate small businesses, we'll tie them up in knots.
If not for the vigor of the working class, the budget would be shot...

When things go sour, we'll duck the blame, you cannot pin us down: not two Senators, your Congressman, the President, or his Vice, his Cabinet, the Supreme Court or the Pentagon, what a slick bunch of lice.

(intermezzo)

So that's the way the system works, we'll rob the country blind, and blame each others' parties, you'll buy it every time.
The donkey and the elephant will patronize the pest who whimpers for free goodies from the public treasure chest: "New roads! Food stamps! More benefits! Not a single user fee!"
Don't call it socialism, we say democracy.
Just watch the action on the floor, it's sure to make you ill -- those lying scheming congressmen, there on Capitol Hill!

(thanking Schwartz for the metre)

dynamite anthrax supreme court white house tea party jihad
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West of 89
a novel of another america
https://www.smashwords.com/books/view/161155#longdescr