Why does an economy exist

Voyager2002

Well, there is no such thing as an economy: it is an abstraction to enable us to think about all the people producing and exchanging goods and services; the government and banks managing the money supply...

As for why people behave in this way: historically it has been about power. When human beings were hunter-gatherers our societies were fairly equal, and on the whole our standard of living and quality of life were superior to those enjoyed by most people after the switch agriculture until the relatively recent past. However, once we switched to farming sufficient surplus food was produced to make possible the emergence of an aristocracy, who broadly directed the division of labour so that weapons and other goods would be produced to suit their purposes. It was only very much later that a market economy emerged, with jewellers (for example) producing what they thought that they would be able to sell to anonymous buyers as opposed to what their feudal lord ordered them to produce.

chewmylegoff

Generali wrote: »

I've been reading a few things here and there and I was wondering why people think an economy exists, i.e. a bunch of people working together and exchanging stuff and having a monetary system.

I think the answer is:

#5: Because dogs need ISAs.

Generali

chewmylegoff wrote: »

I think the answer is:

#5: Because dogs need ISAs.

Sorry, I should have said apart from ISAs for dogs obviously. That is self evident.

Was that a Green Party or SNP policy? I forgot.

padington

Thrugelmir wrote: »

Everyday you and I go fishing using rods. We spend 14 hours fishing and only catch enough fish to feed ourselves for a single day.

So I go on reduced rations for a few days. Rather than fishing I spend my time making a fishing net.

Once the net is finished I go fishing. In 14 hours in a single day I can catch enough fish to feed us both for a day. This frees up your time.

I'm not a builder however you are. So while I'm fishing for both us. You can build a wooden house for us to live in.

Once the house is finished. You return to fishing. While I build a bigger and better fishing net.

The fishing net results in the both of us being able to catch enough fish in a single day to feed us for a week.

We now have 12 days of time available. So we use to build a canoe. We do an additional days fishing. Load the catch in the canoe and paddle over to Eire. Where we exchange the fish for a deep freezer.

The deep freezer means that we store our fish for longer periods.

The story continues............

As more complex relationships are understood and formed, more energy is allowed to be freed to explore the relationships of other things. The essential driving force of the universe.

More healthy complex relationships that are built, less energy is required to maintain the individual parts.

It's not just us that drives this energy, the universe can do it and did it and does it on its own. Not just through blind evolutionary drift but something else.

Just as our brains are gifted with templates at birth, the basic ones
( like what a human look like etc ), just enough to allow us to learn new relationships and see new patterns and save new templates to memory. So was the universe gifted with early templates passed on from a universe before that.

Every atom, having a secret guiding force to encourage new relationships. Everything building towards creating more meaning and a greater understanding, so freeing up more energy to create more understanding and creating more relationships, building an ever more complex and concious universe.

Universal Big bangs of consciousness being born, populating,
learning, forever moving towards the understanding of everything including itself.

Now and again forming very special complex creatures that enjoy their own Big Bang in their own little universe between their own ears ...

antrobus

Generali wrote: »

Sorry, I should have said apart from ISAs for dogs obviously. That is self evident.

Was that a Green Party or SNP policy? I forgot.

SNP.

Green Party policy is to abolish all ISAs. Including those for dogs.

P.S. But the answer still remains; Theory of Comparative Advantage.

CLAPTON

antrobus wrote: »

SNP.

Green Party policy is to abolish all ISAs. Including those for dogs.

P.S. But the answer still remains; Theory of Comparative Advantage.

comparative advantage is not necessary for a thriving economy to exist

antrobus

CLAPTON wrote: »

comparative advantage is not necessary for a thriving economy to exist

Unless there is comparative advantage there is no reason to have an economy at all. The question was why we have a "bunch of people working together and exchanging stuff and having a monetary system". And the answer is; comparative advantage. That's the reason why we are not all subsistence farmers one failed harvest away from starvation.

P.S. It is the theory of comparative advantage. Not the hypothesis or a speculation. It's a "well-substantiated explanation of some aspect of the natural world".

System

I think it's having some kind of medium of exchange that really marks the moment when an economy begins. Barter alone is a kind of economy, especially when people begin bartering for things beyond their needs but store them for future bartering, but the advantages, and the potential for problems, really come in once there is a currency that takes on a life of its own.

I once helped run a local LETS system where people exchanged goods and services in return for artificial credits. It worked reasonably well, until the organisers started paying admin people in imaginary credits that they created out of thin air. There was a stubborn refusal to admit that this would cause inflation, which in due course it did. Everybody had hundreds of units they couldn't spend because the supply of "money" exceeded the supply of goods, those rare things that were for sale reached inflated prices because people were desperate to offload worthless units, and it all collapsed with a lot of ill-feeling.

That was a badly-run economy for you. It needed responsible bankers and an intelligent chancellor.

antrobus

Clifford_Pope wrote: »

I think it's having some kind of medium of exchange that really marks the moment when an economy begins. Barter alone is a kind of economy, especially when people begin bartering for things beyond their needs but store them for future bartering, but the advantages, and the potential for problems, really come in once there is a currency that takes on a life of its own.....

The invention of money makes the exchange process (or trade, if you like) much more efficient. So you get more of it, and comparative advantage will drive an increase in material wealth.

However, money isn't a necessary precondition of an economy. The Incas, for example, had no money but a functioning economy. Of course, once they came into contact with an alternative society that had a functioning money based economy, they quickly folded.

Inventing a medium of exchange gives any society the ability to exploit comparative advantage and get richer, and so afford bigger and better guns. You can then beat the carp out of any of your neighbours who haven't done the same.

Clifford_Pope wrote: »

...I once helped run a local LETS system where people exchanged goods and services in return for artificial credits. It worked reasonably well, until the organisers started paying admin people in imaginary credits that they created out of thin air. There was a stubborn refusal to admit that this would cause inflation, which in due course it did. Everybody had hundreds of units they couldn't spend because the supply of "money" exceeded the supply of goods, those rare things that were for sale reached inflated prices because people were desperate to offload worthless units, and it all collapsed with a lot of ill-feeling.

That was a badly-run economy for you. It needed responsible bankers and an intelligent chancellor.

That's the thing about money. It's such a useful idea that people keep re-inventing it, often without any comprehension that they are simply re-inventing it.

CLAPTON

antrobus wrote: »

Unless there is comparative advantage there is no reason to have an economy at all. The question was why we have a "bunch of people working together and exchanging stuff and having a monetary system". And the answer is; comparative advantage. That's the reason why we are not all subsistence farmers one failed harvest away from starvation.

P.S. It is the theory of comparative advantage. Not the hypothesis or a speculation. It's a "well-substantiated explanation of some aspect of the natural world".

assuming an 'economy' involved the idea of exchange of goods and services (with or without money), then one an easily envisage economies that don't encompass comparative advantage but simple preference.

so I may prefer to build fishing boats rather than fish even though I may be equally good at both : similarly people may be willing to give me fish in exchange for boats even though they may be equally proficient at both

there is a benefits to all parties in that they 'enjoy' their work better but that is not an economic advantage and does no necessary increase total 'income'.

of course over a period of time it might well be that greater practice and specialised tools may introduce comparative advantage but it is not essential for an 'economy' to exist.

one can of course easily envisage economies there specialisation reduces overall income but affects the distribution of goods and services e.g in a slave society or a warrior based society.