Stop thinking in terms of money. Imagine an isolated group (A) of 10 people. When will they be happiest? When they all work as much for each other. Noone is lazy. Everyone is employed. Some gather the food. Others cook the food. Others make shelter. Others paint and entertain others (in times of bounty).
However, it is not always easy for everyone to be employed. Assume there is a person A1 in the group who is very good at making pots which the entire family needs and loves. However, his pots can only be made if he can have a potters wheel which is difficult to make. Otherwise he is jobless. The remaining family works hard to cut wood and spend 10 days just researching and making this wheel. This is an investment, which provides employment.
Where does the money come in? Money is basically the medium of interchange. For example, Person A2 delivers person A1 10 litres of milk, and expects 2 pots back in return. However, A1 is tired (and a little lazy from all the attention), and says that he will give only 1 pot. He says that he will give another pot in the next season. However, who will trust the lazy but skilled potter? The potter writes an IOU note to A2. A2 trusts this note and waits for the next season for his next pot.
Slowly, it becomes a habit for people to write out IOUs when they are not able to completely fulfill their liabilities. A2, who now habitually delivers milk to A1 in exchange for the pretty pots, suddenly faces a scarcity of rice. He goes to A3 who is a whacky paddy farmer. A3 says that he is willing to give him 5 kilos of rice in exchange for some milk. A2 doesn't have any milk but gives A3 the note that he got from A1 for one pot.
Soon, the notes from A1 become standard currency. The lucky guy A1 becomes the chairman of the RBI.
With such an efficient financial system, people become specialised in their own thing. 2 member of the family A5 and A6 become involved in research. They try to find out how people can produce more within the same time constraints. This leads to increase in productivity and hence greater good.
Suddenly, this group of 10 people have grown to 100. A5, A6, A2, A3 all become head of different departments of the government due to their leadership abilities and their technical knowhow. Quality products are produced by the group of people for their own consumption.
Suddenly another family comes into the picture. They are a comparatively backward family. A group of 50 people called B. They also have a similar system, but they have had less success in mobilizing people into research and development. Over the years their productivity has stagnated, and their products dismal. Moreover the leaders of this group were not happy with people working. They believed that only they can control where these people work, and they never created enough avenues for these people to work.
A comparatively rich person in B called B10 wants the pots produced by A23 and A24 ex-apprentices of A1.
However, he doesn't know how he can pay for this. He says, I will give you my currency CB instead of 10 units of your currency CA which can buy me a pot. With this 50 CB, someone in our family will return you this favor some day.
But A23 and A24 say: What can we buy with your currency? Everything produced by your family is inferior. We need 50 units of CB for 10 units of CA. Even though 50 units of CB will buy you a lot in group B, the quality of this good was inferior so this was a good choice. Anyway, A23 and A24 kept this 50 CB, and once in a while got this return favor from someone in B. Happy with the business, they sold pots to other B people also, and earned 300 CB in money totally.
One day, A23 and A24 decided to visit group B, which was across the mountains. They realised that many people there were talented and can actually produce good quality goods for them. A23 and A24 used 150 CB to create 3 pottery wheels in family B. They paid B48, B49 and B50 to work for them and paid them 25 CB each for a pot. This was sold in their country for 50 CB (10 CA), and they made a huge margin, pushing their bitter rivals A 22 and A25 out of business. This is the growth of outsourcing.
Soon, more and more jobs were getting outsourced to the group B. Slowly B48, 49 and 50 became richer and started demanding more money. They got more money and started buying better goods, and the standards of living in group B improved. They started getting more free time from their hand-to-mouth existence and formed a pressure group which expelled the government.
Oh Now, A and B are identical. They even gave up their currency system. B has grown to 500 people now and are a better nation compared to A.
Now there are more heads to think, hence more capacity to research. Together maybe they can conquer another mountain? Solve the mysteries of physics? Ask, who is it really that created our story? Are we merely the figments of someone else's imagination ?
However, it is not always easy for everyone to be employed. Assume there is a person A1 in the group who is very good at making pots which the entire family needs and loves. However, his pots can only be made if he can have a potters wheel which is difficult to make. Otherwise he is jobless. The remaining family works hard to cut wood and spend 10 days just researching and making this wheel. This is an investment, which provides employment.
Where does the money come in? Money is basically the medium of interchange. For example, Person A2 delivers person A1 10 litres of milk, and expects 2 pots back in return. However, A1 is tired (and a little lazy from all the attention), and says that he will give only 1 pot. He says that he will give another pot in the next season. However, who will trust the lazy but skilled potter? The potter writes an IOU note to A2. A2 trusts this note and waits for the next season for his next pot.
Slowly, it becomes a habit for people to write out IOUs when they are not able to completely fulfill their liabilities. A2, who now habitually delivers milk to A1 in exchange for the pretty pots, suddenly faces a scarcity of rice. He goes to A3 who is a whacky paddy farmer. A3 says that he is willing to give him 5 kilos of rice in exchange for some milk. A2 doesn't have any milk but gives A3 the note that he got from A1 for one pot.
Soon, the notes from A1 become standard currency. The lucky guy A1 becomes the chairman of the RBI.
With such an efficient financial system, people become specialised in their own thing. 2 member of the family A5 and A6 become involved in research. They try to find out how people can produce more within the same time constraints. This leads to increase in productivity and hence greater good.
Suddenly, this group of 10 people have grown to 100. A5, A6, A2, A3 all become head of different departments of the government due to their leadership abilities and their technical knowhow. Quality products are produced by the group of people for their own consumption.
Suddenly another family comes into the picture. They are a comparatively backward family. A group of 50 people called B. They also have a similar system, but they have had less success in mobilizing people into research and development. Over the years their productivity has stagnated, and their products dismal. Moreover the leaders of this group were not happy with people working. They believed that only they can control where these people work, and they never created enough avenues for these people to work.
A comparatively rich person in B called B10 wants the pots produced by A23 and A24 ex-apprentices of A1.
However, he doesn't know how he can pay for this. He says, I will give you my currency CB instead of 10 units of your currency CA which can buy me a pot. With this 50 CB, someone in our family will return you this favor some day.
But A23 and A24 say: What can we buy with your currency? Everything produced by your family is inferior. We need 50 units of CB for 10 units of CA. Even though 50 units of CB will buy you a lot in group B, the quality of this good was inferior so this was a good choice. Anyway, A23 and A24 kept this 50 CB, and once in a while got this return favor from someone in B. Happy with the business, they sold pots to other B people also, and earned 300 CB in money totally.
One day, A23 and A24 decided to visit group B, which was across the mountains. They realised that many people there were talented and can actually produce good quality goods for them. A23 and A24 used 150 CB to create 3 pottery wheels in family B. They paid B48, B49 and B50 to work for them and paid them 25 CB each for a pot. This was sold in their country for 50 CB (10 CA), and they made a huge margin, pushing their bitter rivals A 22 and A25 out of business. This is the growth of outsourcing.
Soon, more and more jobs were getting outsourced to the group B. Slowly B48, 49 and 50 became richer and started demanding more money. They got more money and started buying better goods, and the standards of living in group B improved. They started getting more free time from their hand-to-mouth existence and formed a pressure group which expelled the government.
Oh Now, A and B are identical. They even gave up their currency system. B has grown to 500 people now and are a better nation compared to A.
Now there are more heads to think, hence more capacity to research. Together maybe they can conquer another mountain? Solve the mysteries of physics? Ask, who is it really that created our story? Are we merely the figments of someone else's imagination ?
2 comments:
yo aravind :)
This post was inspired by attempting to reply to vinayak pathak's comment in my last post. I don't know if I answered it correctly, but I enjoyed writing this blog. Thanks vinayak!
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