OK, let’s now spend a few pages to build a simple example society in order to illustrate how the groups introduced in the previous pages (1, 2) interact and affect the economy. Just to make things easier, we will assume that our ideal society uses pure gold as a medium of exchange (money) and that new gold is only mined in proportion to the increase in population. In other words; the average amount of gold per citizen stays fixed through time.
At the beginning of time, everyone in our ideal economy works as value creators in the “essentials” category discussed on a previous page. They use primitive production methods to get food and water and build shelter and trade these three commodities among each other using the fixed amount of gold that they have. At this early stage in the economy, a single loaf of bread costs 1 ounce of gold (around $1600 at present). This sounds crazy, but remember that bread really is the only thing that these poor people can actually buy with their fixed amount of gold. Prices always reflect the relationship between the amount of money and the amount of goods and services in the system. If the amount of money is fixed and there are very few goods and services in the system, prices will naturally be high.
Let’s now say that some innovative farmer convinces some of his friends to support him for a few weeks while he works on building the first primitive plough. After this period of highly virtuous under-consumption, the society now has this wonderful new device capable of tripling the grain harvest. Therefore, only third of the people that were producing grain are now needed to provide for the needs of society, freeing up the other two thirds to pursue alternative occupations.
These people now choose to become healers and law enforcers, protecting the value already created by this society. Due to their noble efforts, the society now produces value much more efficiently, freeing up even more time for all workers. The new healers and law enforcers also have to be paid for their services, but this is no problem because the price of bread has now fallen to only half an ounce of gold (because the farmers have improved their production methods and can now churn out thrice as much grain with the same amount of effort), granting everyone some leftover gold with which to pay for these additional services.
Not long after that, the society gets its first efficiency enhancers (described here) in the form of shopkeepers. These people spend all of their time collecting the produce from the farmers at a central location and distributing it to the public. The shopkeeper does not create any real value, but allows the farmers to use much less time selling their wares and much more time doing what they do best: farming. The resulting increase in productivity means that the price of bread falls to only a quarter of an ounce of gold and everyone has some extra gold with which to pay the shopkeeper for his valuable service.
More efficiency enhancing innovations follow and this wonderful system of specialization of labor ultimately makes the society is so efficient that the bread price drops to one tenth of an ounce – a full ten times less than it was initially. Because there is not much else to buy, people now only have to work for three or four hours a day in order to meet their basic needs. As the farmers shorten their working days, their production declines and the price of bread returns to a quarter of an ounce of gold, but this is OK since everyone can now meet their basic needs with only three or four hours of labour per day. Initially everyone is happy, but it is not long before people realize that they don’t have the faintest idea what to do with all of their free time.
Finally, a visionary entrepreneur realizes that he can take advantage of this widespread boredom and proceeds to build a primitive version of Hollywood. He writes funny stories and hires actors to play out these stories on stage. People love this and immediately start paying him and his actors lots of gold. In order to earn this extra gold, however, people now have to work longer hours again. The natural result is that everyone eventually returns to 8 hour working days, enhancing their daily production and reducing prices accordingly. It is not long before the price of bread is back at one tenth of an ounce of gold and people have more than enough surplus to pay the actors. The introduction of entertainers therefore forced everyone to work longer hours, but gave them a fun way in which to spend their free time.
At this stage, our idyllic little society has everything it needs. Everyone contributes in some way, be it to produce basic value, to preserve basic value, to increase the efficiency of production of basic value or to entertain those producing and preserving the basic value. The large increases in production and distribution efficiency has caused the price of basic consumables like bread to plummet, allowing the society to spend ever increasing percentages of its fixed sum of gold on other things such as medical services and entertainment.
This society is happy. It has everything a primitive human being can ever want. But, as we all know (and will discuss on the next page), there are rarely any happy endings out there in the real world…