THOUGHT EXPERIMENTS

WE CLOSED THE introduction by considering the situation of Rich, from the TV show Survivor, stranded on a desert island. Living alone, does the subject of economics still apply to him? Furthermore, what is the point of studying the situation of an isolated human being? Isn’t man a social animal? And isn’t our interest in economics based on its applicability to our real situation, where we live in interaction with countless others?

THE DAWN OF SAVING

RICH, IN HIS effort to change what is into what ought to be, may realize that his ability to acquire food and water could be increased. Perhaps, by building a few traps, he could have six roasted rats a day instead of four. And, he thinks, if he had a barrel for collecting rainwater, he could use that water for cooking, and enjoy boiled rats as an occasional change from roasted rats. He sets about constructing those items.

THE LAW OF ASSOCIATION

RICH HAS WORKED out the details of his solitary economy and has a somewhat comfortable existence. Then, one day he is walking along the beach, and who should he see approaching him but . . . Helena Bonham-Carter. (Stranded, perhaps, during the filming of the latest Merchant-Ivory production.)

INDIRECT EXCHANGE

ALTHOUGH THE RICHLAND economy includes markets with several buyers and several sellers of the same good, it is hampered in two important ways. As we saw in the previous chapter, anyone who wants goats and grows corn must find someone who wants corn and has goats. But it will not always be easy to find someone who has the good you want and wants the good you have. A great deal of time will be spent looking for someone with whom to trade.

SOME STATES OF REST

WE WILL NOW consider several situations in which the market has, in some sense, “come to rest.” While some of the market states we will examine are not possible states of the real world, they are nevertheless important to our understanding of economics. In order to conceive of the impact of changes in the economy, we must first imagine an economy where change has stopped. We can then introduce a single change and ponder what its impact will be.

ECONOMIC ROLES AND HISTORICAL TYPES

The entrepreneurs, capitalists, landowners, workers, and consumers of economic theory are not living men as one meets them in the reality of life and history. They are the embodiment of distinct functions in the market operations.

LUDWIG VON MISES, HUMAN ACTION

WHAT IS CAPITAL?

THERE HAS BEEN an astounding variety of definitions of capital advanced in the history of economics. Capital has been called an abstract fund that creates a permanent flow, it has been referred to as “congealed waiting,” defined as “the produced means of production,” or characterized as a source of future service flows.

MONEY SUBSTITUTES

WE SAW THAT money arose because people were willing to exchange a less marketable good for a more marketable one, even if it was not the good that they ultimately desired. Gradually, one commodity, often gold, emerged as the most marketable good of all. As participants in the economy came to recognize that fact, the commodity would take on the role of a universal medium of exchange: money.