"Mmmmmn—no, I'm afraid not. It seems to me we've covered the—Wait a moment. Technique! Knowledge."
"Exactly. Most knowledge is free to all of us. But some things are patented or copyrighted. Let's call the owners of techniques inventors. Now we are ready to roll. If we set up our hypothetical domestic economy so that it is structurally similar in every way to the economy of your period, it should work like your period. If we change the man-made laws to those of this present period, it will work like this present period. The natural laws involved remain the same structurally. If we can distinguish between man-made rules and natural necessity, we will know what we can and what we can't do with an economic system."
"How can we make any such complicated set up in our heads and be sure that it will work out in practice, Master Davis?"
"I shan't ask you to carry all of the moving elements of a complicated function in your head. Let's make a model. I see a set of chess men over there. May I use them? They will do nicely for people. Now have you anything I can use for counters?" Perry rummaged around and produced a box of poker chips. "Gaming chips? That's fine. Now we need something to represent the goods we are to produce and consume. What do you suggest? I'll need a number of units, a hundred or more."
"How about a box of crackers?" suggested Perry.
"A happy thought. Distinctly consumption goods. But we would get crumbs all over the table and they are rather bulky. Do you have any playing cards?"
"Surely." Perry arose and returned with them. "Here are a couple of packs."
"Very well. Let each card represent one unit of production of equal value. They represent all sorts of items; clothing, food, air cars, games, stereo records, books, and so forth. For convenience we split them up into equal-valued units. Now take the chess men and give them their functions. The black king is our entrepreneur, industrialist, or farmer." Davis wrote this on a slip of paper and tucked it under the base of the black king. "There. We will know him when we see him.
"You will notice that his tag reads 'Entrepreneur-Consumer' to remind us of his dual function. The black queen is his wife. Place her with him. Put a pawn with them as their children. Now another pawn for her father who is dependent on them. He's a crusty old gentleman who hasn't worked since McKinley was shot and thinks the country is going to hell. The white king is the banker. We'll write a tag for him, 'Banker-Consumer'. This box you keep the chess men in will do as a bank, and this book can be a factory. Put tags on them, but don't place the factory on the table yet. It has not yet been built. The black bishop owns the land on which the factory is to rest. He must first be satisfied. The white castle owns a process to be used in our manufacture of playing cards. Now take five or six pawns and mark them 'Laborers-Consumers'. Mark the black horses 'Owners of Raw Materials-Consumers'. Take the white bishops and mark them 'Government Employees-Consumers'. Take a separate tag and mark it 'US' but don't place a chessman on it, as we must not personify the government. 'US' is all of us, acting collectively.*
[*The reader is urged to make this set up and play it through as he reads. Otherwise the value of the demonstration will be lost. If chessmen are not available; bottles of ink, spools, tin soldiers, and so forth, will serve. Beans, dominoes, or marbles will serve as counters. The Author]
"Now we are ready to run through a typical economic cycle. Call it one eon in length and let it be the time from the building of the factory until it is depreciated in value to zero and is obsolete. Something around twenty years if you must think in definite terms, but it isn't necessary to do so. Suppose you identify yourself with the entrepreneur, Perry, and I'll play the other pieces. You see a demand for playing cards and determine to manufacture them. You have your eye on a suitable site which you can lease at a reasonable price, and you know of a new process that you can buy up. But you haven't the working capital, all of your wealth being tied up in tangible property which you don't want to liquidate. So you go to the banker and ask for a loan of a hundred shekels. You explain your idea and offer security worth quite a bit more than a hundred shekels. From where we sit we see that the bank contains only twenty shekels, the capital reserve required by law. One might think that the banker would say, 'Sorry, Old man. You've got a sound proposition and I'd like to accommodate you, but there isn't that much money in the bank.' But he says nothing of the sort; he lends you the money. How does he do it? You give him a promissory note saying:
Dear Banker,
I.O.U. 100 shekels at 10% per eon.
Signed, Entrepreneur
He enters that on the books as a bank asset, credits your account with one hundred shekels, gives you a bank book, and some blank checks, and you thank him for the money, which is new money, monetized by your security and existing only as bookkeeping entries. To symbolize this I hand you these hundred chips, which you must think of as bank credit, or check book money, not as greenbacks, nor metal coin. But you may use them as money in every respect for the banker will cash a few of them from time to time out of the small stock of cash he keeps on hand. He can afford to do this because only on rare occasions will all holders of bank credit ask for cash all at once, placing a run on the bank. Usually cash money paid out by the bank comes back the next day and is re-deposited.
"You have your hundred shekels now and can commence operations. You lease a site for four shekels for the eon. Put four chips by the black bishop. You build your factory, eight shekels for raw materials, eight shekels for labor. Pay out your chips. Now pay the inventor four shekels for the use of his process. Your wages for labor during the eon amount to forty-four shekels. Pay it out. And for raw materials thirty shekels. You will have taxes of ten shekels during the eon."
"I can't pay them. I've only two chips left."
"Never mind. You'll be selling some playing cards soon, and can pay them as you go along. You now manufacture during the eon sixty-three playing cards. Stack them there by the factory. You need eight shekels profit in the course of the eon to support yourself and your family. You figure out what your market price must be for playing cards in order to accomplish this. What would it be?"
Perry set down his expenses and added them up as follows:
Land rent 4 shekels
Factory (labor) 8 shekels
——"—— (material) 8 shekels
Production (labor) 44 shekels
———"———-(material) 30 shekels
Royalty to Inventor 4 shekels
Taxes 10 shekels
Profit 8 shekels
Interest on loan 10 shekels
126 shekels to be recovered as price.
63 produced units to be sold; therefore price must be 2 shekels each.
Perry looked up. "I get two shekels per card."
"Correct. As you can see, I arranged the figures to give round numbers."
"But I can't possibly sell sixty-three cards at that price. There are only ninety-eight shekels out there to buy my product."
"Don't be in a hurry. Start selling and see what happens. We will assume this time that all these people that received money from you need all the consumption goods they can afford. Sell to them."
Perry dealt out cards to 'Labor', 'Land owner', 'Inventor', and 'Owners of raw materials', and collected two chips for each card.
"How many cards do you have left?"
"Fourteen."
"You have a lot of money on hand. Better pay your taxes."