A BRIEF ESSAY ON ECONOMICS
What is an economy? An economy is people. People trading goods and services with people. Pretty simple, huh? It really is. It’s not as complicated as some might have us think. In fact, making things ‘complicated’ is often the best way undermine an economy. Another way to undermine an economy is secrecy. More on that later, but first, let’s define ‘economy’.
You have an orange orchard and I have an apple orchard. At the end of the week we both had a good crop. So we get together and decide to trade. You trade six of your oranges for six of my apples. We have created an economy. This can go on with our friend who has a strawberry patch or our friend that repairs and makes shoes. We have built an economy. We decide the ‘quality’ and ‘value’ of our products. And based on these two factors, we decide what is ‘fair’ when we trade our beautiful apples for beautiful oranges and vice versa. As long as you continue producing fine oranges and I continue producing fine apples, we are both happy at the end of every week because our families get to sample the best of both worlds. No government intervention, no taxes, no brokers fees, no licensing or permits, no reports or recordkeeping, no stockholders or shares to keep tabs on. Life is simple.
Now one week, a nasty bug gets into your crop (and I didn’t plant it there). But what results is that you’re crop that week is looking somewhat skimpy, while mine is still beautiful and fine. Hence, ‘supply and demand’. Well now this week, six apples for six oranges just will not do. This is not ‘fair’. So we negotiate and decide for this week you will give me two of your skimpy oranges for every one of my apples. We’re both still happy because at least you got a few good apples and for the week, I got quite a few oranges skimpy as they might be. Life is still simple. We are still a strong economy and we still trade fairly and we are all still happy (although you will be much happier when you get rid of those darn bugs).
Life is good. Now here comes the complication part along with the extortion. John Carpetbagger shows up in town one day and tells you he can get rid of your bugs for you, but you have to give him one of every six of your oranges every week he treats your crops. Now you only have five oranges to trade with me. I get less orange’s and you get less apples, but your oranges look better, even though now they may be tainted with a toxic pesticide. Soon the mayor of the town realizes John Carpetbagger is picking up a bundle of oranges every week for treating your crops with a chemical. In his unselfish intent to protect all the growers, he passes a law that requires both of us to give him at least one of our apples or oranges every week so he can protect us and certify John Carpetbagger’s shady treatment methods. At the same time he requires John Carpetbagger to provide him with at least one orange a week so he can be certified and licensed, assuring all the growers that everything is safe.
Now John Carpetbagger asks you for two oranges a week instead of one so he can pay the mayor. So now you give the mayor one orange a week and you give John Carpetbagger two oranges a week and we only end up trading three oranges for three apples every week. Did John Carpetbagger plant that harmful insect in your orchard? We don’t know. But suddenly the following week the nasty insects show up in my orchard, too. The mayor is happy though, because all he has to do is print out a few pieces of paper and sign them and he gets three oranges and three apples every week. John Carpetbagger is happy because all he has to do is spray our crops and give the mayor one apple and one orange every week, but he gets to keep two for himself. After all, John Carpetbagger has to give his manufacturer either one apple or orange every week to get his toxic insect killer. Eventually if we’re smart, we’ll figure out who the manufacturer is, cut a deal and cut John Carpetbagger completely out of the picture. But the mayor still wants his extra apple and orange every week. So the mayor tells us we still have to give him an extra apple or orange for buying it directly from the manufacturer and using it on our crops. He still gets two apples and two oranges every week, even though he only has to print up a few forms and sign them once.
But the mayor is still not happy. He now has a growing family and has to expand his storage facility to store all of the apples, oranges, and strawberries he gets every week. So he creates a new law. He tells us we cannot directly trade apples and oranges with each other and we cannot trade directly with the manufacturer. In order for him to keep track of how many apples and oranges we have, and how many we trade with the manufacturer, he tell us we can now only use his new paper money that he is printing just for us to make things easier. So now the mayor gets to decide how many of his paper ‘notes’ we get for each apple and orange. So we begin trading with the mayor’s new paper ‘notes’. He was giving us one paper note for each apple or orange.
But now he has grandkids, and has a fruit distribution company on the side, and he tells us he will only give us one paper ‘note’ that he prints for every two apples or oranges. That is an example of an economy now complicated and extorted. You have less oranges. I have less apples. John Carpetbagger now runs the mayor’s fruit business and the mayor will soon become governor.
I hope I’ve answered the question ‘what is an economy’ for you in terms anyone can understand. Next time I’ll explain how stocks and bonds work. It’s all just apples and oranges!