In the beginning there was a caveman named Krog who lived in a hut down by the river. Often Krog would evaluate his life and conclude he had everything he could need—for his essentials were only air, water, food, and shelter. Air was easy because it was all around. Water was good since he had the river. Food was a pain because it took an average of 10 hours per week to hunt and grow. And because his hut was already built, it only took a few hours per week to maintain. He was happy.
But living in this self-made paradise made Krog lonely. One day he went into town and found himself a mate. They instantly fell in love and were married. Then Mrs. Krog moved in.
After the first year, Krog asked what she thought of their slice of heaven and sweetie replied, “Well everything is nice and all, but ever since the wedding we’ve gained bushels of weight so maybe we should start wearing clothes.” Krog took one look at his burgeoning belly and went off to plant cotton and build a weave—thereby added clothing to his basic needs. After the second year, Krog asked again. And sweetie started with, “Well everything is nice and all, but it sure would be great to have a soft comfortable bed to sleep on along with a few tables and maybe a really funky couch.” So off Krog went to invent the furniture industry. After the third year Krog thought, do I really want to know? But asked anyway, which could have been a mistake because on this very day sweetie was in a bad mood. She said, “Well I’m kinda sorta happy, but I’m tired of going down to the river to get water so why don’t you build me a direct pipe. And while you’re at it, it would be nice to have some light around here because every time I get up in the night, I’m always tripping over s#!$. And hey, what about some heat—I’m frigging freezing!”
Now Krog had a problem, a big problem. He’d already added loads of hours to his work week by inventing clothing and furniture—how could he possibly provide more. And then to him an idea did occur.
Specialization of labour
Krog went to town to present a new plan to the townsfolk. “I say rather than all farming and building and maintaining our own homes, how about we specialize and just do one thing or the other? This way we’ll attain greater outputs, which will afford us a higher standard of living.” Then after selling everyone on the idea, Krog suggested that instead of using this excess to build bigger homes and grow more food, they use it to produce more necessary goods like clothing and furniture (which he showed and the women went wild). “Furthermore, if we invent a little technology we’ll have even more labour capacity, which will allow us to run a water company, an electric company, and to explore for natural gas to yield heat.”
His presentation went so well they went on to invent things like money and punch clocks, and every townsperson signed up for a forty-hour work week. Triumphantly, Krog walked home. But there was an inherent problem with his brainchild—specialization of labour. Sure it increased outputs, thereby affording everyone a better standard of living, but it took away people’s ability to simply provide for themselves. Plus it committed everyone to public work.
Why we work
(Here we’re talking about public work, not making your bed in the morning.) We work for two reasons: to make money to provide for ourselves and to play our part within society by providing for others. The first is obvious but the second is theoretical. I work for you and you work for me, and together we both get more. It’s actually quite beautiful (and really was a good idea). You spend eight hours a day working for others in return for the benefits of others working for you.
Whether it’s eating, watching TV, or sitting on the sofa, almost everything that sustains you is the product of other human’s labour. The entire economy is built around people providing goods and services for each other, which means every piece of raw material and every labour hour spent is eventually for the benefit of some one.
Command economy
Getting back to Krog, things started out smooth but as time went by there were two problems:
- Deciding what everyone should do
- Ensuring everyone had a job so they could derive income
The first problem became evident when people discovered they had too many carpenters and not enough plumbers. Sure everyone’s trim looked nice but the toilets were backing up. So they added administration to ensure we’d have enough of everything. This was called a command economy and its purpose was to ensure everyone was performing a job and drawing a wage.
Market economy
As time went by this administration became impossible to maintain and there were labour surpluses and shortages. Plus many were getting upset that everyone was being paid the same. Some argued their jobs were harder so they deserved more.
At the next town hall there was so much shouting and complaining that the convener, Sir Adam, yelled, “scr#@ it!” and declared we’d be better off managing our own affairs. He suggested a market based system where people work wherever they like and wages act as an attraction to occupations where they are needed and a deterrent from those already full. This idea was quite revolutionary so everyone said, “Okay, let’s try it.”
New problems
Shortly after adopting this new strategy, labour surpluses and shortages subsided along with the complaining about how we were paid. But two new problems arose:
- The division of strong and weak
- Private enterprise
Krog’s original idea was for everyone to be better off. But what happened was people started being paid for what they produced, not just their time. So if within an eight hour shift one maid cleaned more rooms than another, she got paid more. And this was going on everywhere. As a result, the strong were paid more than the weak and we arrived at a division in living standards.
We also found issues that came with private enterprise. Like companies were put in charge of things like safety standards, some people were making wads of cash, and nobody was sure of what government should do.
Summary
We’ll talk more about these problems later. For now, remember this:
- The economy was invented by a guy named Krog (mostly because of his wife).
- Specialization of labour increases outputs (which affords everyone a higher standard of living) but eliminates the freedom and ability to survive on your own.
- A command economy doesn’t work.
- A market economy solves the problems of a command economy but creates its own. These problems are the division of strong and weak, and the inherent issues of private enterprise (which we’ll discuss next).
- Money is simply the exchange of labour (and it’s all about labour).
- Technology greatly affects outputs.
- Economists mostly strive towards greater outputs (i.e., standard of living). They don’t concern themselves with other parts of society, like what is fair.