How an economy grows and why it crashes

I think this is truly the best book I have ever read.

The story starts with an island where there are 3 people living with an economic productivity of 3 fishes per day (1 each). Gradually productivity increases when one of them figures out how to catch more fish (2 per day) through a fish net. Thus, he makes capital in the form of savings, because each of them only consumes one fish per day. This gives him a capacity to give loans and also invest time in other productive areas. Through more inventions (larger nets, etc), the island economy grows and some can save enough fish to shift their line of work from manufacturing to services. Immigrants come in, increasing the demand for manufactured goods and services. The book subtly talks about how government policies, that favor certain kinds of loans, disturb the cause and effect of the loaning process which doesn't help the economy grow and invest money in areas which are in demand. It also talks about the fact that reduction in prices is not necessarily bad for the community. These are roughly the first three chapters. The island grows more and more to form a government and it is hilarious how they describe fishflation (read inflation) AND hyper-inflation. It also refers to the printing of currency as the worst thing ever happening to the economy and the fact that dollar is able to hold its value (inspite of trade and government deficits), because it is a form of currency in international trade.

I highly recommend this book. It leaves you with a better understanding of the economic principles.