Gain early access and support Babbling Brook on Indiegogo

What is an economic system?

Economics allows us to exchange stuff. If you've got too many onions and the flatulence is getting out of hand, then perhaps you could give me some and I will give you some chocolate that I have spare. Sound like a good deal? Actually, I do love onions, but I'm not sure I love them as much as chocolate. However it just so happens that I really want to make curry tonight, so lets swap.

There we have it, an economic system. Economics does not have to be complicated.

This kind of economic system is what most people image people used way back in the dawn of time when we used fingers to count instead of computers. Unfortunately it's not actually true. This kind of swapping has always gone on but it has never been common, due a problem called the coincidence of wants. It is generally unlikely that when you have spare onions that I will have spare chocolate. Never the less, in this instance it's your lucky day (Hmm, shall I make a rogan josh, or maybe a bhuna).

You have some onions. Lets say one kilogram. I have a cupboard full of chocolate, but there is no way I am giving you all of it. Tell you what, I'll give you 100 grams of chocolate for your onions, is that fair? No? You want 200 grams. Lets settle on 150.

What we are doing here is finding a comparative value for our goods. We are not using money, but we are using numbers to decide how much to exchange. We could just eye it up and come to an agreement, but we would still be doing the same thing, just without formalising the quantities. We have assigned a value to something we have and something we want and used that to exchange resources.

The economic transaction described here is very primitive and limited. We have since developed a rich history of different methods to exchange resources. I'll be examining them in detail at a later date as they provide a lot of insight into what causes humans to organise, but the next post is going to sprint to modern times and look at the similarity between purchasing curry ingredients and making a blog post about making curry.

What do you want to do next?
View the comments
Follow this blog
Read something else
Gain early access and support Babbling Brook on Indiegogo