Trade, prices, and money

Useful tools were originally probably invented by individuals for their own use. Someone found that a naturally-occurring obsidian or flint blade could easily cut through animal tissues, and so speed up the process of skinning and dismembering an animal.

So useful were these tools that, when they became worn or broken, their owners would set about finding new ones, or making them themselves, by fracturing the stones to create new blades, and gradually developing, by trial and error, the skill to be able to do this rapidly. At the outset, in an area rich in flint or obsidian, each individual would learn how to make their own blades.

Such flint tools were probably of low cost, taking less than a day to make, and of high value, in that if they were used carefully, they would last almost indefinitely, and over their useful lifetime would save many days of work.

But as outsiders learned of these new and useful tools, but lacked the skills to make them, they would come asking to try them out. At the outset, they would have probably simply been given them as gifts. But as the numbers of people asking for tools increased, the trouble of forever making tools would begin to tax the charity of the tool-makers, and they would begin to refuse to make gifts of them.

At this point, they would find that their tools began to be stolen. If they would not be given, they would be taken by force. And then the toolmakers would begin to hide themselves and their tools, and perhaps stop making tools altogether.

The problem of making gifts of tools, or stealing tools, is that the cost of production fall entirely on the toolmaker, and the benefit - value-in-use of the many hours or days of time saved - would accrue to the tool-using thief or recipient of the gift tool. The toolmakers would become less idle, and the tool-users more idle. And toolmakers would vanish, to the detriment of everybody.

Purchasing at a price.

The solution lies in a compromise, whereby both cost and benefit are more equitably shared. Since the toolmaker, in making a tool, is doing something that benefits its future user, that user should do something that benefits the toolmaker in return.

One simple option would be for the future owners of a tool to offer to perform some of the toolmaker's work for him - collecting food, carrying water, finding stones. At minimum, this work should be equal the amount of work required for the toolmaker to make the tool, otherwise the toolmaker still loses out. And at maximum, that amount of work should be the value-in-use of the tool, for otherwise the future owner will lose out. But since the tool value (V) is often considerably larger than the tool cost (C), there is a range of compromises in between whereby both the toolmaker and the tool-user benefit from the arrangement. The figure they settle upon, by some process of haggling, is the tool price (P).

In such an arrangement, the toolmaker would spend his time making flint blades, while their future owners would be busy finding and preparing his food, repairing his clothes, finding and preparing flints, and so on. The toolmaker would largely cease to hunt, skin, dismember, and cook animals, or to make and repair his dwelling and garments. Instead he would spend most of his time using his expertise to put sharp blades upon half-prepared flints made ready for him. And in this way both the toolmaker and the tool users would live easier lives. In this scheme of trade, there is no money. The buyer agrees to perform some work for the seller, and he pays the price in hours or days of work. The actual price would be determined by supply and demand. If there were few toolmakers and many buyers, the toolmaker could push up his prices. If there were many toolmakers and few buyers, he would have to cut his prices.


In some of the Idle Theory economic simulation models, the price of a tool is paid not in labour, but with promises to perform labour. These IOUs would consist simply of notes to the effect that "I, Eldred, solemnly promise to work two days for Gwyneth upon being presented this note," or more universally, "I, Eldred, solemnly promise to work two days for whoever presents me this note," since Eldred doesn't care who he works for. In practice, such a currency would probably be unworkable, either because Eldred could not be found, or if found refused to honour his pledge.

In whatever way the time price of a tool is set, if for a tool-buyer tool A can be bought with 10 hours of work, then to the tool-maker, tool A buys him 10 hours of work. If, at the same time, other useful tools - ropes, bags, etc. - were available, such that tool B was priced at 20 hours, tool C at 6 hours, and tool D at 2 hours, then if tool D was used as money, the price of tool A would be 5 D, tool B would be 10 D, and tool C 3 D, and the price of an hour of labour would be 0.5 D.

This suggests that if the real price - the time price - of the money tool were to rise, the money price of all other tools should fall, and if it fell the prices of all other tools should rise.

Once such a set of prices was in place, it becomes possible for purchases to be made using one or more of these tools, rather than directly with labour in the way just described, which might be inconvenient to both buyer and seller. And so rather than a buyer of a flint tool paying with labour, he could pay the equivalent value with some other tool, which the flint-toolmaker could then use to purchase labour at a time convenient to him.

If this is to happen, then this "money" tool would have to retain its value over time. Clearly fruit and vegetables or other perishable goods are unsuitable. Also it should be something that can be divided into small parts, like salt, so as to be able to pay small amounts.

If gold, and silver and copper came to be used as money, it was probably precisely because they were long-lasting, and could be cast into ingots of any weight. They were, of course, very useful metals.

There are of course problems with this sort of money as well. Coins can be counterfeited, debased, clipped. And also the owner of the mint that coins the money can, in principle, simply use it to go on a spending spree. But the effect of this would be to push up all prices, including the price of labour, to the point where the cost of making a coin was greater than its face value. But a deeper problem is that, in an expanding economy, requiring more money in circulation, there may not be enough in circulation for all transactions.

Money is very convenient for transactions, if all goods can be bought with it. In its absence, a buyer would be obliged to find something that the seller actually wanted - a pair of shoes or a hat -, and the cost of the transaction itself could be very high. Money therefore speeds transaction times. And if money is uniform and quality controlled, so that it does not require to be weighed or tested, it speeds transactions further. In this sense, money is itself also a useful tool, without which transactions would take much longer to complete.

Traders and Middlemen.

The result of the trade in useful tools is to distribute tools as widely as possible, and to raise human idleness.

Where trading takes place over long distances, the cost to a buyer may include several days or weeks travel over and above the price of the price of the tool. This additional cost may push the net price of a tool higher than its value. In this case, traders who make the journey to buy in bulk reduce the cost of travel and transportation.

If the round trip to get flint axes takes 20 days, and the price of flint knives is 5 days, and their value is 20 days, then the real price of an axe is 25 days, which is greater than its value. But if 100 people want such knives, then if one trader makes the round trip to buy all 100 knives, then the transport cost per knife reduces from 20 days to 0.2 days, and the trader can sell then at a price of 7 days - well below their value of 25 days -, he earns himself 280 days for 20 days work.

(However, since on his outward journey he will be carrying 500 days worth of money, and on his return he will be carrying flint knives of a total price of 700 days, and worth 2000 days to their end users, he will be a tempting target for robbers en route. To mimimize this risk he may have to hire an escort, or take a longer and more circuitous route, or travel in convoy with other traders, or raise his prices to allow for periodic theft.)

Such traders or middlemen serve to extend the availability of tools which would otherwise be prohibitively expensive to acquire.

Further discussion: Economic analysis

Idle Theory

Author: Chris Davis
Last edited: 29 Dec 2000