As part of my attempt to understand the current financial times, I’ve been constructing an imaginary world in my head, and trying to visualise the first principles of trade.  Yes, I know, I have far too much time on my hands.

The first thing I noticed is that you don’t have to worry about trade between borders.  Just extend the border.  While in the real world political interference is a real influence on the way business operates, you want to first find out what would happen in the natural state and then consider how you want to interfere!  The only fundamental reason for cross-border trade (whether international, national, or municipal) is if the economy in question desires something it does not have and cannot produce.

The second thing I noticed was that the nature of a self-contained economy is directly related to its population size.  It comes down to what the purpose of the economy is, which is to meets the requirements of the human population.  That means food.  If you don’t have many people to feed, you can gather.  As the population increases, you’ll need to hunt, then farm, then industrialise, then…..whatever comes next (looking like GM?).  This is the necessity that drives invention.

Which raises the question, what would happen if the population became static?  The need for improved technology would certainly be lessened.  While we naturally seek to improve the way we do things, we simply wouldn’t have the incentive to spend too much time on it (except for maybe a new energy source at this point).  What would that do to economic balance, because by this time labour has already specialised.

You don’t need many people building machinery because they’ve already built them all.  They just need to fix/replace broken equipment from time to time.  The farmers however, still need to work just as hard as they’ve always done, because what they do, by its nature,  does not persist.

The reason I bring this up is that this seems to be the classical problem of standard economic theory.  There is always a requirement for new stuff.  But sometimes there isn’t.  What do you do with the machinery creators who are now surplus?

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