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From ancient times there emerged two systems for coordinating the optimal use of real resources in an economy
One coordinates the private use of factors of production
Another coordinates group decisions to carry out group projects
And one unit binds them all
Understanding these two systems and their interaction underlies all further understanding of the Macroeconomy
Over the broad sweep of history economic well-being has primarily increased because of advances in technology and human organization. Understanding the latter is the key to understanding the macroeconomy and is the topic of this book.
Before imagining our group of a thousand castaways, imagine an island of just ten people. You are on a sailboat, along with nine others, that crashes onto a small deserted island. You have a pretty good idea you won’t be discovered for a very long time, months or perhaps years. So you go about first trying to survive, and then trying to thrive: to improve your long-term material well-being as much as possible.
The ten of you do what you can to get the necessities of life – to build shelter and provide food and water. You each have your own interests and abilities and work on small personal projects such as making fishing nets or cutting and carving posts to build huts and so on.
On these individual projects it nevertheless often makes sense to enlist the help of one or several of the others. For example, it takes two people to drag a net through the shallow lagoon effectively, and several people working together can harvest coconut groves more efficiently than one person climbing and collecting alone.
In addition to several castaways working together on these individual projects, the ten of you sometimes decide to all work together to build something for the whole group. The whole group might decide that it makes sense to dig a deep well together, or to build a path into the center of the island to drag timber and sleds of fruit out of the forest.
The ten castaways thus have two primary “macroeconomic” problems to solve. The first is to maximize the productivity of their private projects. The second is how to arrange the group projects they sometimes want to carry out together.
In addition to resolving these two primary issues, your small group will want to make sure that, combined, your projects are using your resources effectively. For example, you won’t want a field of ripe fruit to go unharvested because you didn’t make a trail into the woods, or a lagoon full of fish to swim away because no one was available to fish or you hadn’t built good nets to catch them.
With only ten people everyone knows each other well, and both small individual projects and larger group projects are easily arranged. Everyone knows each other personally, can trust that small favors and gifts will be reciprocated, and the benefit from coordination and the fair distribution of the resulting goods is clearly visible in most cases.
However, as the size of a group goes up, trust, personal knowledge of each other, and communication across the whole group rapidly becomes more difficult. You have to work with people you do not know, people who don’t trust each other, and group projects, even if popularly decided on, are hard to organize. At one hundred people basic communication is difficult. At millions, whole new methods of organization must emerge for a group to be prosperous.
This book looks at a society small enough for us to easily maintain a birds-eye (macro) view of it, but just large enough for the group to require the key institutions our modern society of millions needs to function well. These are our 1,000 Castaways.
Despite consisting of countries with millions of people, in our modern society the two primary macroeconomic challenges above were met by the emergence of two fundamental systems that are crucial to guiding the economy. Understanding these two systems, how they are used, and how they interact, is the key story we need to know for a true understanding of the macroeconomy of all large democratic societies.
This book tells that story.
UPDATE: It’s Done! Live on Amazon here –
- Chapter 1: System One
- Chapter 2: System Two
- Chapter 3: Balancing the Two Systems
- Chapter 4: The Real World, System One
- Chapter 5: The Real World, System Two
- Additional Internet Material (Chapter 5)
- Further Considerations