Economics In Simple Arithmetic

We had some economics recently. My concept of how economics works can be expressed with four models of simple arithmetic.

THE BELL CURVE

Some people have leftward economic views, and some rightward. But every economic transaction has both a buyer and a seller. To say that one is more important than the other is illogical. The left favors the buyer while the right favors the seller.

Consider two numbers that sum to ten. Let one number represent the buyer and the other the seller. Let's multiply the two numbers and see what we get.

1 x 9 = 9

2 x 8 = 16

3 x 7 = 21

4 x 6 = 24

5 x 5 = 25

Economics works in exactly the same way. The closer the two numbers are the greater the product. It forms a bell curve. The best economic model is centrist, the left and right, or buyer and seller, being equal. We tend to go to the left or right to compensate for having gone too far in the opposite direction.

THE THREE FUNDAMENTAL COSTS

There are three fundamental costs, of which all costs are composed. These three are independent costs, while other costs are dependent on them. The cost of labor is not a fundamental cost.

The Three Fundamental Costs are:

1) The cost of land.

2) The cost of transportation.

3) The cost of communication.

As with all costs these operate by the Law of Supply and Demand. What makes them fundamental is that they are affected by factors outside the rules of economics. An economy is not a self-contained entity, existing in a bubble. It is supported by outside factors. The places that these outside factors support the economy are the Fundamental Costs.

Land is finite and non-renewable. To cut down on transportation and commuting time and costs, which is another of the Fundamental Costs, businesses, their workers and, their suppliers should be located as close together as possible. This leads to the development of permanent settlements, villages, towns and, cities. But this causes scarcity of land which makes the land more expensive, according to the Law of Supply and Demand. The cost of land finds it's way into other things, making prices generally higher in cities.

Transportation, including workers commuting, is a vital part of the economy and it's cost is one of the Fundamental Costs because it is affected by factors outside the economy. Transportation is a function of technology and the supply of whatever fuels are required. This also includes energy other than that used for transportation, such as electricity. Since this is affected by factors outside the economy the cost of transportation is a Fundamental Cost.

The cost of communication is the third Fundamental Cost. Communication, in the economy, is related to transportation in that it is generally preferred to replace transportation, meaning actually going somewhere such as to place an order, with communication, although physical transportation is often necessary. Since communication is a function of technology it is affected by factors outside the economy and is thus a Fundamental Cost. The internet has generally reduced the cost of communication almost to zero.

All prices of goods and services and labor are products of these three Fundamental Costs.

THE FOUR WORKERS

All workers and industries are in one of the four following categories. 

1) Those who make things.

2) Those who fix things.

3) Those who move things.

4) Those who run things.

We should logically want as many workers as possible as high on the scale as possible and as few workers as possible low on the scale.

Those who make things include agriculture, education and, information. Those who fix things includes the medical field. Those who move things include merchants, sales, transportation, communication and postal. Those who run things includes government, and the forces that support the government including military and law enforcement. Those who run things also includes the judicial and law fields.

A worker's position in this scale may be multi-layered. An example is a supervisor, one who runs things, in an industry that makes things.

THE TRANSPORTATION PYRAMID

The Transportation Pyramid of the economy refers to production beginning with few larger modes of transport and concluding with many smaller modes of transport. It could also be described as a tree pattern.

The typical Transportation Pyramid, from the top down, is as follows.

1) Ships 

2) Trains or aircraft

3) Trucks 

4) Cars

Raw material might be brought to an industry by ship and then the finished, or semi-finished, product would leave the industry by train. A ship has a much greater capacity than a train. This arrangement is much more likely than the reverse. The input mode of transportation will have greater capacity than the output mode.

The finished product is brought to stores in trucks, and then taken home by consumers in their cars. The finished product must be less massive than the raw material so it makes sense that the Transportation Pyramid should match.