Economic Simulation Model
1. Useful Tools.
Idle Theory regards all life as essentially working life. Life has to work to stay alive. Those creatures which need do the minimum amount amount of work to stay alive, and which are consequently the most idle, are most likely to survive times of difficulty, when all creatures must work harder, because their idleness is redundant work capacity which can be called on in an emergency.
Technology is the means by which humans have increased human idleness. This idleness0 is the sine qua non of all games, art, music, literature, philosophy, and science. Where human idleness approaches zero, there can be no such cultural activities, because there is no idle time available for them.
A useful tool is one which increases its user's idleness. For example, where men live by eating the energy-rich roots of plants, a lot of bare hand digging may need to be done. Using a spade or shovel may get this job done a lot faster. The value 1 of such a spade is the amount of time it saves its user over its lifetime. It has a limited lifetime because the spade is subject to damage and wear and natural decay. But a spade also has a cost 2 : some amount of time has to be spent making the spade. If the value of a spade exceeds its cost, it will, overall, save its user time - it will be a useful tool 3. If the cost of a spade exceeds its value, it will, overall, waste its user's time - it will be a luxury 4.
The distinction between luxuries and useful tools is the same as the distinction between wants and needs. The distinction is absolute: useful tools make time for their users, and luxuries use up time.
For a tool-maker and tool-user, life alternates between being first relatively busy making a tool, and subsequently relatively idle while using it, in a continuous cycle.
In times when the idleness of untooled men was high, and the roots and seeds and fruits on which they lived were easy to obtain, useful tools would have made only a slight improvement. The use of a spade would increase idleness from, say, 95% to 96%. In such circumstances, men didn't bother to make tools. It was only when, for one reason or other, gathering food became much harder, and untooled bare-handed idleness fell to low levels, that useful tools served to make a real difference, and often the difference between life and death.
In tropical forests rich with plant and animal foods, human life was idle, and men needed few tools, and little clothing or shelter. In colder and more northern latitudes, where life was more difficult, tools, clothes, shelter, and also the ability to store foodstuffs overwinter, were essential to survival. In these environments, humans frequently had to work long hours. It was in these harsher environments that tool production and trading came into existence.
2. Tool-sharing Society.
The first tools were probably made by individuals for their own use. It was only when some innovative individual had perfected a tool that this tool could begin to be used throughout human society.
In human societies where each individual makes and his uses their own tools, there is no trade or exchange of tools. Each makes his own tools as best he can. Each is a jack of all trades, and master of none, and the tools he makes are of indifferent quality and durability.
But among these, some individuals will make the same tool better than others. If the tool is a knife, they will make knives which are sharper and more durable than other knives, and they will make them more rapidly than others. If the products of the best toolmakers were made available to others, then the idleness of such a tool-sharing society would rise.
If human society switched from being a collection of independent autonomous individuals to being a collective in which all tools were shared, then each individual would take and use tools made by other individuals as he required them, and would make tools upon request. This society is perhaps one which operates according to the maxim: "From each according to his ability, and to each according to his need." If this were to happen, then those who made the best tools would find that their products were eagerly snapped up as soon as they were completed, while those who made the worst tools would find their products ignored. In this way, those who made the sharpest and most durable knives would become the knifemakers, and the rest of society would stop making knives and use only their high-quality knives. A division of labour would emerge.
Idle Theory uses a simple economic model to explore the behaviour of tool-making and tool-trading systems. In a simulation model, a number of non-trading tool-makers - each of whom makes a single useful tool - initially live at low idleness. They then switch to giving away their tools free to all comers. The result is that social idleness rises. Overall, everyone is better off.
But the result of this arrangement is that, while overall social idleness rises, because everyone is using high-quality tools, the toolmakers themselves are kept very busy. By contrast, individuals with no skills, and who make no tools, and yet can have the use of all the tools available in that society, live largely idle lives. In short, while sharing tools increases overall social idleness, it does not result in social equality - some people are more idle than others.
This would certainly draw protests from the busy toolmakers. They might begin to refuse to make tools on request, but make only a few, and thus enjoy more idle lives. But in so doing, they would restrict the supply of their tools to society, and social idleness would fall. In some circumstances, toolmakers might completely refuse to make tools for other people to use. And then society would tend to disintegrate into a collection of less idle, autonomous individuals.
Maintaining some sort of approximate equality is essential if tool-sharing societies are to be maintained in existence. And keeping them going may be essential because the alternative less idle solo independent life may be of such low idleness as to threaten continued life. Either tool-sharing human societies had to be made to work, or everyone, including the best tool-makers, would die.
One way to help out the busy toolmakers would be for their toolusers to offer to perform some work for them. They could offer to collect the raw materials used in making tools, or assist in the preparation of some of these materials, or perform other tasks which the toolmaker would otherwise need to do himself. Before tool-users were allowed to take a tool, they would either have to perform, or promise to perform, some amount of work for the tool-maker.
This amount of work then becomes the price that buys a tool. Since the price is denominated in human time - so many days or hours of work -, it has the same denomination as the value and cost of tools, which are also measured in human time. Since the real cost of tools is measured in time, and their real value measured in time, then their real price must also be measured in time.
Perhaps the most fundamental form of money consists of a promise to work. Each buyer gives the seller an IOU on which is written "I promise to perform N hours of work to whoever presents me with this note. Signed X." Or else he gives the buyer some token which has the same meaning. The importance of the word "whoever" allows the note to become part of a circulating currency of such notes. For it does not matter to the issuers of such notes who they perform work for, but only the amount of work they must do.
There are clear dangers in money of this sort. Individuals might cheerfully issue IOUs to buy whatever they wanted, and never make good their promises. Societies operating such money systems might have to both restrict the amount of credit that any individual could issue, and have means of forcing creditors to make good their promises. But for the time being, it is assumed that people who issue IOUs have a real intention to do as they promise - that they are honest.
With the introduction of prices for tools, it may be seen that the previous circumstance where people simply took tools as they needed them was one in which the real price of tools was zero. Once all tools acquired prices, paying a zero price would become theft. The question then becomes: at what level should prices be set?
But the first question to ask is whether such a trading society can operate at all without rapidly breaking down? Will it produce tools in sufficient quantities to meet demand, and will the number of IOUs in circulation remain stable? The answer to this question is to be found by producing a simulation model in which arbitrary prices are set, and seeing what happens. It seems that if tool prices are set randomly somewhere between tool cost and value, the trading system works fine, and the money supply stays roughly constant.
In one argument, the price of a good should be its cost, on the grounds that a tool-buyer should do no more work for a tool than it cost the tool-maker to make it. But tool-makers might protest that, if so, the more quickly and efficiently they made tools, the less they would get for them. If prices were set at costs, then the tool-makers would gain nothing from the sale, and the tool-buyers would gain everything. The tool-makers would point out that the buyers realized the value of the tools once they used them, and that, if anything, the price should be set at the value of a tool. At which the buyers would protest that if prices were set at values, the tools would cost them as much time as they saved, and not be worth buying. With some haggling, the price might be set at some figure part way between cost and price. One such price might be one that splits the difference between cost and value, and another simulation shows the result.
Haggling offers one way of discovering a price at which both the tool buyer and seller are satisfied. But tool-makers might simply declare a price, and brook no argument. These toolmakers could then act to drive a tool's price up towards its value, or even higher if buyers were undiscerning in their habits. The high price of tools might then attract new producers into the market, undercutting the high prices, and driving tool costs down towards their cost.
4. Just Prices.
Regardless of how prices are determined - by haggling, by monopoly, by competition, or by fiat - one may ask, in such a trading system, whether there is any set of prices which will produce social equality - that is, everyone living at the same level of idleness, regardless of what they make and sell. The importance of social equality lies in the harmony that it brings, for where no person is worse off than any other, no complaint can arise. Also, if inequality is tolerated, then there is the possibility that some individuals will be so reduced as to become unable to produce tools in sufficient numbers, or to pay their debts.
In the current trading system, it can be shown - by mathematical analysis - that if the prices of two tools, Pa and Pb, are set such that
Pa = Ca + La.( Pb - Cb ) / Lb
the result is equal idleness for all traders in the system. This can be termed a set of Just Prices, reviving a scholastic term. If Pa = Ca, then Pb = Cb, and setting prices at costs results in one set of just prices. But there are many sets of just prices, some of which typically have prices higher than costs, and some with prices less than costs.
If the price of tool 1 is set at 1.1 times cost, and the just price of tool 2, 3, 4, and so on calculated, another simulation shows the idleness of all traders closely bunched together.
The interest in this lies in the fact that all traders' prices are higher than tool costs, so that all traders are making a profit, and yet social equality is achieved. Profits are not made by one trader at the expense of another.
In another simulation, the numbers of traders in the economy is expanded to 15, of whom 11 make rudimentary tools of such little value that these members effectively only have their labour to sell. Yet the just pricing system works to maintain social equality.
In another variant simulation, prices are set below costs. In this case the just price for the rudimentary low-value tools is negative, which means that the sellers of these tools offer to pay to sell them, rather than be paid!
If prices are marked up too high, however, there's trouble, as another simulation shows. With high prices, some tool buyers have to work so long to pay the tool prices that they simply can't keep up. These buyers end up working continuously, and unpaid IOUs mount up, and the amount of money in the system soars. A monetary inflation results.
If prices are not set by fiat, but through free competition, prices must generally be driven down towards costs, as competing producers act to undercut each other. Since setting price equal to cost is a just price, competition would appear to make for a more equal distribution of idleness.
5. Unjust Prices.
If social equality can be produced with just pricing, the opposite alternative - the most unjust and unequal society - should also be considered. The most unjust society is one in which a single individual is a trading society's sole beneficiary, and all other members of this society are engaged in continual work at near-zero idleness.
Such a situation can be arranged if all goods are priced at cost except for one, which is priced according to
Unjust price, Pa = Ca + La x mean social idleness.This very high price results, as shown in a new simulation, in a circumstance where all other members of the trading system live at near-zero idleness, while the idleness of the trader charging the high unjust price is extremely high.
In this "dragon" economy, all the idle time available is received by a single individual, while the rest have little or no idle time at all. It is a society divided into rich and poor. If the total available idle time received by the single rich man exceeds 1 day per day, the excess of idle time cannot be converted into increased leisure, but only into goods or services which do not increase idle time - in short, luxuries of one sort or other. If, thanks to the high price he charges for the tool he sells, a man receives an income of 5 days per day, then he can take a maximum of 1 day per day as leisure, and the remaining 4 days of bought labour can be used however he chooses. He may require that labour to work to enlarge his dwelling, or to set out a garden, or create a lake. But such an individual may not use this labour for his own amusement: he may use it to perform socially useful tasks, which act to increase social idleness. For example, he might use his income to build useful roads or bridges.
Monetary inflation, in these simulations, is caused by high prices. In the current model, traders buy tools using IOUs they issue. These IOUs are promises to perform work on presentation of IOUs. In the current simulation model, IOU holders have prior option on a toolmaker's labour, so that toolmakers only have the time remaining after their IOU debts are paid to make tools. So, as prices rise, toolmakers are increasingly squeezed for time, and they make insufficient numbers of tools to meet demand. Tool shortages result. Those traders who are short of time-producing tools find they have less time in which to pay off IOU debts and make tools, and so they in turn fall behind their toolmaking schedules. Tools vanish from the economy, and without these tools, idleness falls. And it falls to the point where they not only have too little time to make tools, but too little time to pay of IOU debts. But they still keep issuing IOUs to buy what few tools remain on sale. Because they can't repay these debts at the rate they accrue them, the number of unredeemed IOUs in circulation rises.
The cure is to reduce prices to the point where traders can pay off their debts, and begin making tools again.
Since the most of the unredeemed IOUs are held by a few traders, if prices are not reduced, these traders will begin to discount the value of the IOUs they hold, and may be prepared to pay more than the asking price to secure goods or labour. Then monetary inflation becomes price inflation. In this case, it would entail a rise in the price of labour, and IOU issuers would be able to pay off their debts with less work than promised on the IOUs. However, the current simulation model, which has fixed prices, does not allow this option to be explored.
The trading systems discussed so far assume that the untooled condition of human society is one of low idleness, and that useful tools act to increase idleness. A useful tool is one whose value is greater than its cost. A luxury is a tool whose value is less than its cost, and the use of which results in a decrease in idleness.
A tool whose expected life is 10 days, but actually only lasts for 1 day, is a luxury, but an unwelcome one. Most luxuries, however, are goods which are wanted for their own sake, or for the pleasure and amusement they provide. Beautiful objects have a cost of production, but may have no value, in the sense used in Idle Theory. Other luxuries, such as books of poetry, or theatrical plays, may be regarded as having negative value, in that their use costs their buyer time - the time it takes to read a book, or to watch a play. Games of every sort also use up idle time. Drugs whose consumption renders their users incapable of productive activity for a period of hours or days also have a negative value.
Luxuries of these sorts can only make their appearance when human life is to some degree idle, either naturally or as the product of using useful tools. In low-idleness societies, there can be few or no luxuries.
If human life was all leisure, there could be no useful tools, because such tools could not act to increase human idleness. In such a circumstance, the only goods being produced and exchanged would be luxuries. The same simulation model that has been used to explore tool trading systems can be used to explore the behaviour of luxury trading systems. In a simple case, untooled idleness is set at 100% - complete idleness -, and traders make and sell luxuries whose value is zero or negative, and which consequently act to decrease social idleness, make everyone busy. This simulation shows that in such trading systems the money supply remains stable, but also that just prices and unjust prices operate exactly as in systems trading useful tools.
There's no surprise here. A trading system with a high untooled idleness in which idle-time-consuming luxuries are exchanged simply has a reverse sense to one with a low untooled idleness in which idle-time-producing tools are exchanged. The former acts to reduce idleness, while the latter acts to increase idleness.
Since useful tools act to increase idle time, and luxuries act to decrease it, tools and luxuries have opposite effects on the trading system. This raises the question of whether it is possible to mix tools that increase idleness with luxuries that reduce idleness in the same trading system. Another simulation shows such a combined system, with just pricing again working to produce equality.
The combination is not always so happy. In another simulation, one luxury on sale has a negative value. That is, it uses up time. In this system, just pricing results in monetary inflation.
The argument for equality, with useful tools, is really the same argument for keeping a ship on an even keel: that an even ship will be able to pass over a shoal on which the same ship, with the keel pitched forward, would ground. Maintaining equality is vital for survival when idleness is low. But since no-one dies of lack of luxuries, this argument for equality can't be applied to luxuries. There's no obvious reason why there should be equality in their distribution.
8. Tools as Money.
The real cost and value of a tool are measured in the time spent making it, and the time it saves. The real price is therefore measured in time. However, it is not actually necessary for a money system to use real money of this sort. The tools that are produced can themselves act as money.
If the real price of a tool A is an amount of labour, Pa , then tool A can be thought of as buying Pa labour. Equally, if the real price of tool B is Pb, then one tool B buys Pb amount of labour. And the price of tool B in terms of tool A is Pb/Pa. For example, if Pa = 2, and Pb = 10, then B has a price 10/2 or 5 B. The same ratios for tool C, D, E, and so on can be reckoned.
In principle, there's no problem in shifting from real money to tool money. In practice, the tool used as money has come in sufficiently small units that other tool prices can be expressed as multiples of it. Also, once one tool has been selected in some way to be the monetary unit, a trading system has to be filled with a sufficient quantity to allow trading: the money-tool maker has to produce a higher quantity of these tools than that needed for ordinary non-monetary consumption.
The use of commodity money of this sort solves the potential problem with the simulation model IOUs - that people can issue IOUs that they will never redeem. Commodity money involves no promises which can be broken.
The economic simulation model has been used here can demonstrate
Developed further, it could be used to demonstrate
Economic systems, as seen in Idle Theory, act primarily to free men from work. Producing pleasurable luxuries is a secondary activity.
Also, what is being traded in these economic systems is not so many knives and spades and bags - things -, but human time. In these economies, despite the apparent multiplicity of goods, there is actually only one good being bought and sold.
Author: Chris Davis
Last edited: 17 Sep 1998