Pseudo-historical reflections on economics and business.
Everyone I know eats a lot of food every day. Almost none of them grow, hunt, or gather much food themselves. Why do the relatively few farmers give all of them food? Why can I get enough food to supply my needs and wants from standing in front of a group of teenagers and talking to them about how to make diverting little games on computers? This post discusses these questions from a pseudo-historical level. I say pseudo- because I know of no history like what follows…
Farming is not easy work, but it is easier with good tools; so a farmer might agree to give a smith a portion of each harvest in return for the smith making the farmer good tools to work with. The toolsmith’s job is likewise made easier with a good supply of iron and coal, so the smith passes some of that food on to the miners who gather those materials. The miner’s job becomes easier if they can spend less time getting the ore and coal to the smiths, so they are willing to give some of their grain to roadbuilders to simplify that stage of their work.
Farming has a few more important characteristics besides being hard. It is unreliable, weather and pests being what they are; stockpiling good harvests to cover bad is useful, but food only lasts so long. Since crop failure is often regional, a more satisfying model is to have those whose crops did well share with those whose crops did poorly. But since you are sharing with distant people, who’s to say if this sharing is really deserved or not? A better model is IOUs: I give you my crops in return for a promissory note or IOU that I can return to you in later years for your crops. Ideally, though, I can trade IOUs with other people which makes them like money. We pick something rare, identifiable, and durable (like gold, for instance) and use it as the universal IOU.
As soon as money of some kind exists we start to realize that Norfolk had a bumper crop of apples but didn’t get many pears and most people in Norfolk will gladly trade several apples for a pear. In Suffolk, on the other hand, pears are plentiful and apples are sparse. An enterprising person can trade some money for a 100 apples in Norfolk, take them to Suffolk and get 200 pears in return, take those back to Norfolk and get 400 apples, and then trade all of that back into money. Thus is born merchants and business generally.
Then arises another problem. Remember those roads the miners paid for? The merchants are using them without paying the miners! So the road builders set up blockades and charge tolls for use of the roads, and the merchants decide they can get a better deal if they build their own roads instead, and the farmers start taking down roads that pass through their farming land, and people get mad and blood is spilled…. This of course causes people to trade their farmer IOUs for weapons, but it also results in groups of people deciding to pay a few fighters to represent them in these conflicts. This is tricky, though, since the group that pays the fighters need to agree on what the fighters fight for, and so people go to meetings and have debates and eventually people realize they’d rather give food, or now more often money, to someone they trust to handle the meetings and debates and decide what the fighters are paid to do. And thus politicians and police are born.
One day the politicians are sitting together, trying to hash out which road is the one they won’t fight, and they realize that this sure would be easier if they could pay for a road directly. So they go to the farmers and merchants and miners and pitch this idea. They are given the extra money, but once thy have it they think “why build a road? We’ve got all the money we’ll ever need” and they run away. The people they deserted get upset and make a new government but this time they make it more carefully with different people to hold onto the money, to decide what the money is used for, and to fight people who use it incorrectly. Thus the fighters turn into police and laws start to appear, as do departments of transportation and agriculture and revenue.
Then someone kills a dragon and has oh! so much gold from its horde, and a merchant realizes this and charges that person a lot for what they want to buy, because the gold is there. Other merchants notice this and do the same, and soon the amount of gold the merchants expect increases so much that the money the farmers had saved up for when they had a bad year is worth a lot less than it they thought it was when they accepted it as a form of IOU. Eventually people get sufficiently upset by this that they ask the government to fix it and currency is created. Currency is a universal IOU by law, and since you can’t mine it or get it from dragons you don’t have to worry about the same problems you face when your money is gold. We only wanted gold in the first place because it was durable and in limited supply and we had agreed on it as the universal IOU. Currency has all of these properties by law, and given the disproportionate number of weapons in the hands of police the law is about as reliable as our personal safety so would something more reliable even matter? Currency wins the day.
Through all of these developments there are more and more people who are all being supported by farmers. Some of that is possible because the excess of one region one year can be effectively transported to where it is needed; some it possible because better tools are available than before; but the pressure to make more food in growing. Some of the farmers know a few really clever toolsmiths and agree to give them some money—not for tools now, but for thinking up better tools eventually. Research and development is thus born, and despite a few false starts farming productivity increases drastically. This means that the farmers have both food and time to spare, so they start offering food to people to entertain them. They always valued nice things, but now they can afford to feed people who spend their entire lives becoming really good at writing novels and acting out plays and making amazingly soft beds and so on.
By now the system is getting so large no one person knows it all. Tool designers realize they could do so much more if they only had better metals, so they give some of their money to fund metallurgy researchers. Actors realize they can have larger audiences in big halls with stage lights and faces that stand out, so architects and lighting techs and cosmetics get money as well. People accused of crimes or wishing to change laws start to pay for smooth-talking people to represent them. And so on.
As this progresses, more and more things turn out to be like roads and currency, things that are best handled centrally by the government. There’s roads, and money, and policing; there’s all the extra rules that appear to prevent abuses; but there are others things as well. Research turns out to be best funded by government, largely because the path that takes us from from ruminating on the nature of air to being able to produce ammonium fertilizers that vastly increase crop yields is too long and too hard to predict for any one person to think that funding the first thinker is worthwhile. Education becomes government-funded for a similar reason: a well-educated workforce is far more valuable overall than is an education to any one person’s parents.
Business also expands rapidly. The more complicated the system gets, the more room there is for finding someone who is willing to sell low and someone else willing to buy high. As processes start needing lots of parts there also becomes a need for someone to manage all the intricacies of supply chains, getting the right parts to the right person at the right time. As more people get involved the task of managing interactions also become worth paying someone to do. As the options increase, informing people that new and improved innovations exist becomes a task in itself, and once advertisers exist it is a short step to realizing that false advertisement is possible and problematic, thus giving rise to a tight relationship between business and law.
As farm productivity grows and the number of “spare” people increases, intangible products become more and more common. People want to eat, of course. And they want to be comfortable and entertained, sure. But they also want to live forever and feel good about themselves. Medicine can absorb as much money as is available and, in the end, it is all available unless providing an inheritance is intrinsically valued. Fashion starts to appear as a way of creating a sense of personal status, appealing to the “good about themselves” desire; charities appeal to the same desire in their own way. The desire to belong and be pleased gives rise to cliques and clubs and parties and narcotics, and with them all more business and more law.
Meanwhile, government-funded research goes wherever it wishes and stumbles across the quaint idea of counting machines which become thinking machines which become computers which become the largest boost to just about every field’s productivity ever. There’s more food and less people required to do the same tasks meaning there’s yet more “spare” people to work on more things even farther removed from the farms…
All of which leads to a world where there is so much food that I can spend two weeks telling a few teenagers about computers and in return be given enough money to feed myself for a year. A world where you have the leisure to read this blog post and the money to pay the hundreds of people involved in creating the incredibly complex device on which you are accessing it.
Such a complex world… and I haven’t even mentioned investment, or insurance, or any of a wide range of other topics. Isn’t it amazing it all works? Amazing, and yet in a strange way, almost inevitable given arable land and an early start at an honest government.