What makes an economy grow?
It seems most people have the notion that the inner workings of an economy are impossibly complicated and too difficult for the average person to understand.
Well, while it is true that an economy is complex in terms of how many different things are simultaneously interacting in it, the economic principles that apply to those interactions are actually pretty easy to understand. Let's start with a simple economy.
- a Butcher
- a Cutler
- a Stonemason
- a Blacksmith
- a miner
Suppose the butcher starts with$ 100, and the other four are flat-beggared. Well, one day, as he is trimming some meat, the botcher notices his shanks are starting to dull and wear out, and he asks the cutler to make him a new set for his$ 100. The cutler agrees and starts working. As the cutler sharpens the blades, he notices his grindstone is starting to crack, so he asks the gravestone mason to make him a new bone for$ 100. Well, he gives the$ 100 to the gravestone mason, and the gravestone mason agrees and gets to work. Now as he is chiseling down, he realizes he could use a new chisel also, the blacksmith offers to make it for$ 100.
Before the blacksmith can begin work on the chisel, he must replenish his supply.
Iron ore.
So he asks the miner to bring him another ton for $100.
Now the miner works all day, and in the evening he decides he could use a good meal after his long day of hard work.
So, he drops the iron ore off at the blacksmith's and then swings by the butcher, where he buys $100 worth of steak. where he buys $100 worth of steak. Well, the blacksmith then makes the chisel for the mason, and the mason then finishes making the stone for the cutler, who finishes making the knives for the butcher. Now, notice the $100 is back in the hands of the butcher, and everyone else again has no cash.
Now on the surface, it would appear that the economy is exactly the size that it was. After all, there is still only $100 in cash in it. But the butcher has a new set of knives, the cutler a new grindstone, the mason a new chisel, the blacksmith has the remainder of the ore, and the miner has some delicious steaks. Thus, the total number of physical dollars has remained the same as the economy is growing what you see is true economic growth only comes when value is added to the economic growth and does not come from simply putting more money into it.
Suppose for example everyone's family received a big pile of money pretty soon own would want money is much because everyone has plenty of it inevitably people would have to offer more money to trade and at that point prices and wages have both the reason together only the numbers the actual value outside see the only reason we use the money is to support convenience you may not want the other guy's offers so he pays you money and we use that money as sort of an i_o_u_ passed from person to person you'll pass it on to the next guy whenever you find something you do want to in fact, you can feasibly envision an economy where there is no actual currency or people simply trade product for product. the product-to-product economy didn't grow from the money being passed around.
A group of the products that people created he grew in the cutler made the nights with butcher degree when the mason made the stone for the Tyler degree when the blacksmith mated chisel for the mesa degree when a minor died of the or for the blacksmith and finally he grew when the butcher made a delicious thanks for the minor because this trading of milk products and services is what grows an economy the way to improve the economy is to have more avenues of trade opened up rather than be restricted to what politicians and bureaucrats believe is best for you it's not complicated the easier it is to employ someone the more important there's going to be against the more economic growth is going to be it's important to note that even though all politicians sincerely cling to know what's best for us and to have our best interests at heart, many of them thinking for themselves.
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