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On Finance: Building an Economy Chapter 1
In order to help understand the economy it is helpful to have built one from scratch. This will help disprove some conceptions people have about the economy as well as prove others.
The first step in building our brand new economy is to start with people. In this case we’ll use a small village of 4 people. In this case their names are Mary, Patricia, James, and John — the two most common name for each gender.
The second step is to introduce a form of money into our little village. We’ll call our money the dollar and use the symbol “$” in front of the number as a short hand. Hopefully this won’t confuse anyone. Mostly we’ll do this so that I’m less likely to make a mistake since I am already pretty used to these conventions. Let us be clear, however, that this is not the US dollar we’re talking about as these four people had the sense to leave the country long before the recent political campaigns started. As a result they can enjoy watching TV without getting aggravated every 15 minutes. At any rate, let’s start the community off with $10,000. This is enough money to play with while keeping the numbers small enough that my simple math skills can keep mistakes to a minimum.
The third step is to distribute the money to the individuals in the community. To be absolutely fair we’ll distribute it in equal shares to each individuals. That means each will receive $2,500. They received this strange stack of “dollars” in the mail from someone who said they were there to help… hmmm.
So, Mary, Patricia, James, and John each have $2,500 sitting in the corner of whatever it is each person is living in. They haven’t used any of the new-found money. Their lives are no different than before, although for some reason each feels a little better at having “socked away” some cash. The odd thing is they have no idea why they feel better as there isn’t anything to use it for yet — that is in Chapter 2.
Posted by Paul Gernhardt on Wednesday, October 29, 2008