I know i promised to blame somebody for the problems of free market economy on the previous post, but maybe its a bit early for that just yet, it's not nice pointing fingers, so I'll leave it for later. If you just came across this post, this is the fourth of a series, it's best to read the others to know what I'm talking about, unfortunately, they're rather long...
However I thought of an analogy which may help visualize what pushes an economy to abandon government controlled economy for a free market one. I apologize already for the inaccuracy and extreme simplification of this example. But just bear with me and even if you find it bullshit, you may find it somewhat funny.
Imagine this little country, out in the middle of nowhere called Sousolandia, and it has 3 inhabitants, that's my wife and I, and our dog Waldy. Our country is actually a farm, where we produce tomatoes and oranges, the basis of our nutrition. So we're not rich, but we're honoured. We're well protected from foreigners because we barb-wired the place and we have Waldy.
We are a government controlled economy, my wife is the government and she also controls the main corporation of our country, the food plant, I'm the working class, the middle class and rich when I'm lucky. Waldy is the army. Every year she tells me how much of the land to fill up with tomatoes and then in the rest we let the orange trees grow. She's no big agriculture expert, so she looks roughly at what we've been producing for the last couple of years and gives her best guess, and I just do it, and then we just hope the weather is going to be nice on our tomatoes. So every year we get a crop of tomatoes and oranges which is most of the time plenty for us to eat, and when we have some exceeding we try and sell it to our neighbour.
Oh yes, our neighbour, I forgot about him, he's the only other country we contact with and he's also a farm one day walk away from ours. He produces chickens and beer. When we have exceeding we go there and try to change our oranges and tomatoes for a few chickens. Normally a couple of oranges and a couple of tomatoes are enough to get one chicken. He claims to be a believer in free trade, but the matter of fact is that he then claims that since his cousin is also producing some oranges and tomatoes, he doesn't feel too good about receiving ours, so we often offer him double, which he then happily accepts. So he's effectively taxing us. That's why when he comes around to ask for our products when his cousin fails to deliver, my wife also asks him double. Reciprocation. And those beers? My wife strictly forbids me of having any, she won't have a drunken husband in the house. So I bring along some of my own food to trade secretly for a couple of beers which I smuggle in my pants. The neighbour really rips me off on those beers, but they're worth every orange and tomato I let him have for it.
So our little economy had been going wonderfully for a number of years, everything was smooth, except for the odd year when the weather wouldn't help and we'd hold on to our stomachs over winter. Often if nothing serious happens, systems like this may remain stable for ages. In mathematical terms they are in equilibrium in a local minimum. This means that in the terrain of all possible solutions to have a stable economy we've came to rest in a little snowy tall valley between two high peaks. We found stability, but any push may drive us over one of the peaks on either side and we can find ourselves rolling down the slope in an ever growing snowball.
And that's exactly how we came to be today a free market economy. So let me tell you how that happened.
One fine year, not too long ago, a number of things happened or developed that took our little economy out of balance. We'd been having 5 very mild years in a row, and our production had been running at a good output level. We were happy and confidently planned the new year counting on another wonderful crop, we did not think it necessary to store reserves and clearly this trend of good weather was here to stay for ever. The work itself had no real secrets to me anymore, and I eventually even found myself with lots of spare time on my hand, I'd water the plants in the morning, a couple of strokes on the land to plough after lunch, and then wait for it to grow and the time to pick up the results. In fact I had so much free time that I would often indulge in some of that beer I had stacked away and imprudently appear drunk before my wife. She started suspecting I was getting lazy and irresponsible, and that I had too much time on my hands, on a few occasions she actually caught me totally pissed, my pants wet, snoring away under the orange trees. She got into a rage and saw this as a serious social problem in our country and decided that I was actually under employed. So she thought of a fantastic project to guarantee me full employment, which she thought was her moral duty. I was to build new cupboards for the house, cupboards in every room, even in the cellar, where we don't need cupboards. Well she should know better, after all she's the government.
So I started the challenging task of building cupboards. To do this I had to borrow some tools from the neighbour, which actually was costing us additional food, and I decided I'd cut some of the orange trees for wood, and I had to clear some of the tomatoes for space to have the workshop. And I worked a lot on those cupboards, I hardly had any time to enjoy a little beer, and I was getting exhausted of accumulating the tasks. I simply wasn't used to it. So much work.
On top of it, April came, and with it came the rain. And it rained and rained and rained and it flooded a good portion of the remaining of our tomatoes. With the parts I took out for workshop and the trees we lost to cupboards, the crop was miserable. I was discouraged and blamed my wife for her incredibly bad planning and lack of foresight. How could she not have seen this coming? Does she think good weather really lasts forever? Shouldn't we have made reserves (or preserves) for such a case, instead of filling the cellar with cupboards?
When in August we went to our neighbour to trade some of that dripping fruit for some tasty chicken (and hopefully a little beer), we had another surprise coming our way. The neighbour had invented a miraculous grain that doubled the production of chickens and had built a road to other countries who were all dying to eat some of those chicks and drink some of his beer, so he was trading it for exorbitant prices. When we showed up with our meagre fruit, he laughed and so we came back with a very few dirty small sick chickens, and not a single beer in my pants, and feeling distraught. When we got home, Waldy was barking wildly, there was something at the door steps, a basket. We thought, oh great, could it be that someone came by and dropped some aid in the form of food? Would some foreigner be that generous?
We took a closer look, and a noise came out of it, a shriek, it turned out to be a baby... with a paper on it saying that it'd be happy if someone would take care of it... Not only these foreigners don't help, but they still impose. I told my wife, we could not possibly have another mouth to feed in this country, we don't have enough food. My wife took to the child immediately and would not hear of it. I said it was too much, I wouldn't have it, I wouldn't have any smelly immigrant coming into our house, and I’d strike and make things even worst if she didn't listen. Not only this bum baby would not help a bit with all the work, but it would literally be taking food out of our mouths into his. I felt so outraged that my mind was filled with thoughts of revolt. I wanted civil war, I wanted to get Waldy on my side and together over throw her and make her go and plough those fields herself to see what it's like, and let the planning to me, after all I'd been working those fields myself, who knows more about it than me? That next winter was the coldest and hungriest of our lives, and all through it Waldy and I conspired in the cellar for the Revolution that was to come soon. We hardly spoke to my wife anymore, and I hated that baby.
It was then, as winter was fading, that she had a fantastic idea that could actually save us. She said: "Why don't we do like our neighbour?", I said: "What? Make beer?", she said: "No stupid, build a road and start trading with other countries? We will not tax them like we do to the neighbour, so they'll have more incentive to buy from us, and I tell you what, if you don't like my planning skills, we'll let an expert foreigner come in and plan it for us, he'll make this farm produce so much that you'll be able to get as much beer as you like, and if you don't complain about the baby, I'll make the beer legal, so the neighbour cannot rip you so much", "How do you know the neighbour has been ripping me off on the beer?", I asked, "His wife told me, now what do you say? We don't have a choice, this is just going to get worse, we'll never eat chicken or drink beer again". What could I have said the prospect of infinite cool beer, sounded just well to me. Maybe those other countries would even have other stuff that was as cool as beer, I'd heard rumours of the existence of a television, a sports cars and smelling cosmetics, and those sounded all just super awesome to me.
So we told the neighbour we would not be taxing him anymore if he wouldn't tax us, he had no problem with that since now he was also selling exceeding tomatoes and oranges to other countries so he was free to take as many from us as from his cousin, so we asked him for a loan and we built ourselves a road which connected us to other countries and we invested again in our farm, we expanded the production to include other fruits and vegetables, way beyond our own needs, such that we could trade for lots of other cool stuff. This was not easy, and demanded a lot of work, so now i wasn't so concerned about having other people in the house and we actually put out a sign on the road that we'd give free boarding a food for help in the farm, and a few foreigners came by to offer their services, some of them looked very hungry, and poor, I was often afraid they'd rob us or kill us during the night, well, some were really weird, I tell you. But they turned out to be nice people in the end and we welcomed them. One day a foreigner came who claimed to be an expert in agriculture; my wife blinked to me and invited him in. He said he'd be glad to take over the burden of planning the crops, he had good knowledge of the needs in the outside world, and he happened to have some valuable possessions which he'd be willing to trade in for more tools and fertilizer. Can you imagine? Fertilizer? So we could never go wrong, he'd make sure our production would be just optimal. His name was Cap, Cap Italist. My wife gave him a big kiss, which I found totally unnecessary, and she gave him my room to sleep in and sent me off to sleep in the barn, since the rest of the house was already packed. And that's how we came to be a free market economy. So far I can't complain, I don't really like sleeping in the barn but at least i don't get to hear the baby cry, but I hardly ever see my wife anymore, she often has business dinners with Cap, she claims he's explaining the new agricultural methods, which are going to make us rich! She started drinking beer herself. I told all this to the neighbour and I made also my own private loan which I traded down the road for cheap Whisky. Whisky!! Man, life is good in the free market world! Next year I'll pay back the neighbour and get a whole lot of new stuff including an I-Pop, or whatever that is.
So you see one day you're in a tall snowy valley, cosy but often cold, and then something crazy happens, and you find yourself rolling down the mountain in a snow ball and you think you're going to crash and die, but eventually the snow melts, you find yourself in a warmer valley, better than the one before, all is well, and that my friend I call Progress!!
Would you like to know how life in the new free market economy is? That I hope will the subject of the next post.
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