Being steeped in physics I find some economic processes dangerously close to perpetual motion. For this reason I need to look more closely than some to convince myself that some of these effects are real. Here are some simplified phenomena framed as parables.
One day a traveler came thru town and bought a rather expensive cut of meat from the butcher. He paid the butcher with an uncommon and beautiful gold coin. The butcher was a very honorable man and paid a portion of his debt to the baker with this coin. The baker was likewise honorable and paid part of his debt to the candlestick maker. The candlestick maker feeling very good about this, gave this coin to the butcher in partial payment. The butcher was surprised but gave the coin once again to the baker to pay off some more of his debt.
The coin circulated many times until all three were out of debt.
The economy revived as the three felt able to expand their business and extend credit to others.
Inspired by Hernando de Soto’s The Mystery of Capital
Richard, despite his full time job in the fields, finally found enough time to build a better house for his family.
Jonathan, a newcomer in town and impressed with Richard’s house, offers to buy it for a price that amazes Richard. If Jonathan knew how quickly Richard had built the house he might hire him to build a new house, but Jonathan is new in town.
Richard kept track of the cost of materials and how many days he spent building the house. He realizes that for what Jonathan has offered, he could build a new house quickly if he did not have to work in the fields to support his family. The profit would allow him to feed his family at least as well as now and besides he enjoyed building the house more than working in the fields. Alas Richard has no money to build another house—he has spent his savings on his own house.
Yet another newcomer arrives and tries to buy Richard’s house, but Richard’s family has grown and he needs it.
Elizabeth, an older woman who had worked hard all of her life and saved quite a bit of money. Elizabeth did not know Richard for they lived in different parts of town.
Richard builds a new house for Jonathan and pays off the “construction loan”. Then he borrows even more money from Elizabeth, hires a neighbor who has worked in the fields with him to build two new houses with his newfound expertise. He is much happier as a builder and the town prospers.
(Year later)Having just finished Fragile by Design it is blindingly clear that the aforementioned intermediary should be a bank where Elizabeth has deposited her money. The banker has heard from two different friends about Jonathan and the rest is obvious. The bank holds the mortgage. It was obvious to many before.