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V. 01/13

The Foundations of Wealth
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How It All Began
MAN: I’m an average man.
WOMAN: And I am an average woman.
MAN: One thing about being the average man leading the primitive life – it gives you plenty of time for
thinking. My wife thinks a lot.
WOMAN: It’s true. Although we’re living ten thousand years ago, I do think a lot but then, so does he.
Though being only average he only thinks average thoughts. In fact, we are both so average…sometimes
we think the same average thoughts, so we don’t even bother to speak to each other.
MAN: Hmm…you know, I could tell you precisely what she is thinking now. She’s thinking, “What
would it be like to move forward ten thousand years in time and live in the twenty-first century”
MAN AND WOMAN: Ohh! What’s that Oh!
WOMAN: Ohh! It’s a time machine!
MAN: Ohh, look at that!
WOMAN: Hey! Hello
BOTH: Uhh, ohh, ooh!
MAN: What’s that
WOMAN: Oh, I don’t know. What are those…those things he’s holding They look like square bits of
…
MAN: I-I don’t know. It’s all so complicated.
WOMAN: Ooh!
MAN: What’s that
WOMAN: I don’t know. They seem to be doing things for each other all the time.
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MAN: And everybody seems to be depending on those little pieces of …
WOMAN: Oh, no, look…there are round pieces.
MAN: Is she going to eat that Hey, they look just like us!
WOMAN: Except they’re wearing those funny clothes. I wonder if they think like us.
MAN: I bet they do. He’s thinking, “How did we get into this amazing state of affairs Wouldn’t it be
lovely to have lived ten thousand years ago before life got so complicated”
WOMAN: Yeah. And she’s thinking, “What was it like ten thousand years ago when there were no
banks, no factories or offices, no post offices or mobiles or computers, no shops or supermarkets” In
fact, what would it be like to be us
MAN: I bet they got it all wrong. I bet they think it must have been paradise ten thousand years ago with
nothing to do all day long except enjoy themselves.
WOMAN: That’s right. They think we spent all day getting a nice sun tan, feasting on the bounty of
nature. When you want something to eat all he has to say is…
MAN: Is lunch ready
WOMAN: Coming, dear.
MAN: I bet he thinks he is completely independent of everybody else.
WOMAN: Yeah, and that he’s his own master. Oh, dear, they’ve got a lot to learn.
MAN: I suppose they imagine a community of folk, like us, living ten thousand years ago, in a wooded
valley cut off from the rest of the world by high mountains.
WOMAN: Hmm…the folk in Happy Valley, they call us.
MAN: Just the life, really – enough work for everybody who wants it, no inflation. Ho, ho, who ever
heard of inflation And, there’s no money.
WOMAN: Umm, and there’s no problems with one person having more than the other. Everybody here
is absolutely equal because everybody is in the same boat.
MAN: Yes, and in the same conga line. Woo hoo!
WOMAN: Oh, yes. Life is so wonderful here, isn’t it – so easy and playful and happy
MAN: And that’s how they think it was. If only they knew the reality! For a start, there’s no machinery
here to help us grow food. Everything is done by the painful sweat of the brow of you know who.
WOMAN: And you know who. Have you ever tried grubbing away at poor soil baked like concrete by
the sun Come on, get on with it.
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MAN: Oh, you get on with it!
WOMAN: Poor kids, they’re flaked out.
MAN: Get on with it, I said. You want to eat, don’t you The back-breaking jobs you have to do just to
keep alive and you have to be doing them over and over again, year in-year out until your dying day.
WOMAN: And then one day some people think, “Ah-h, there must be a better way of life than this!”
MAN: There will be those who say, “But we’ve always lived like this. My father and his father before
him lived like this.
WOMAN: Well, that’s no reason for going on the same way forever and ever.
MAN: Uh, sometimes there doesn’t seem to be much choice.
WOMAN: Until you think about it.
MAN: The thing is, life can be rough and it can be short. Suppose somebody is taken ill.
WOMAN: Well, there’s certainly no nurse or doctor just around the corner. When somebody gets
sick…
MAN: …they die. The average age a man can expect to live to is only about 30.
WOMAN: Many children die very young.
MAN: The truth is Happy Valley is threatened in lots of ways.
WOMAN: Get up, quick!
MAN: Oh, go back to sleep.
WOMAN: Get up, get up, get up! I know I heard something, I did. There’s something outside!
MAN: Go back to sleep. You’re always imagining things. Ooh, ooh! It’s a wolf, it’s a wolf!
WOMAN: I told you!
MAN: Ooh, ooh, and that’s how it is. When wild animals raid the valley’s livestock it’s a major disaster.
WOMAN: The animals can’t be replaced overnight. Where would we get them from There are no
markets, remember.
MAN: And then winter comes and everybody has to live on grain or the few root vegetables they
managed to save from the summer harvest, if they’re lucky.
WOMAN: And that’s all there is to last until spring.
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MAN: Don’t worry. It’s bound to be a mild winter. I can feel it in my bones.
WOMAN: In a bad year there’s no surplus to put by. We have to rely on what’s dug out of the frozen
earth, if anything.
MAN: And, if you’re really unlucky, it can mean starvation.
WOMAN: A mild winter, you said.
MAN: Don’t worry, it won’t last, you’ll see. But somehow or other, people did survive. After all, we
couldn’t be here talking about it if we hadn’t, could we
WOMAN: That’s true. We had everything – snow, flood, wild animals – yet we survived. Still, there
was one thing we didn’t have much of.
MAN: What’s that
WOMAN: Choice. For instance, they can’t choose one job in preference to another. They just do
whatever’s necessary to stay alive and they do it hour in and hour out, day in and day out, week in and
week out.
MAN: This way of living is called a subsistence economy. It needs all the efforts of every able-bodied
member of the community just to stay the way they are now.
WOMAN: And there’s nothing to spare for anyone else. Anything they don’t need for themselves
today- they keep for themselves tomorrow. And all this isn’t just a piece of history or a bit of
imagination; it all happened thousands of years ago. It’s true…and it’s still happening today, for real.
MAN: You know, about a quarter of all the people in the world today live on less than one dollar a day.
They produce barely enough for their basic daily needs and sometimes not even that.
WOMAN: In a poor country like this, for instance, approximately ninety-five percent of all adults work
on the land. They are very poor and their lives are very hard. Of course, there are always those at the top
who do very nicely even in a country like this- but most are constantly threatened by disease and famine.
People like this are essentially living like their ancestors.
MAN: They are on the very bottom of the economic ladder. They are one step above extinction. Ninetyfive
percent of the population of many developing countries work to produce food just for themselves,
and that leaves hardly anybody else to produce other goods and services.
WOMAN: In Britain, only about one percent of the people work in agriculture, but more than half the
food they use is produced on our own farms.
MAN: In the U.S. just two percent of the population are farmers or farm workers- and they produce
enough to feed the remaining ninety-eight percent of the American population, with enough left over to
export vast quantities to the rest of the world.
WOMAN: An American farmer producing one thousand tons of wheat a year will only need a few
hundred pounds of it for his family. What he does, in effect, is to swap the wheat he doesn’t need for cars
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and trucks and tractors and new fencing and all the other things he wants for his farm and everyday life -
the goods, in fact, produced by the vast majority of Americans who aren’t required to work on the land.
MAN: Just consider these two ways of life and the astonishing fact that they can both exist at one and the
same time on our small planet.
WOMAN: How could this have possibly come about Why this happened in some countries and not in
others- even though they may have the same climates and conditions
MAN: How can people at a subsistence level ever lift themselves off the bottom rung of the ladder
What’s the secret
WOMAN: The secret is producing more than you need for your own immediate use. The point at which
a community can create a surplus- is the point at which it can begin its long march towards a wealthier
life.
MAN: It’s also the beginning of the science of economics.
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Division of Labor 1: Product
MAN: Unh, oh, what did they say our way of life was called
WOMAN: It doesn’t matter what it is called; still, if you must know, it’s called a subsistence economy.
MAN: Subsistence economy. It’s terrible! I work day in, day out just to keep us alive.
WOMAN: It’s not just him. Every human being here is just a machine.
MAN: You fill them up with food and water and then you use the energy you get from food and water to
dig the ground, to plant seeds, to grow grain and to keep the animals.
WOMAN: And you eat the food you grow to give yourself energy to keep yourself alive to plant more
seed to grow more food…
MAN: …to give yourself more energy to plant more seed…
WOMAN: …to grow more food to give yourself more energy…it’s a trap, you know, a subsistence trap.
MAN: It needs a genius to get us out of this one.
BOTH: Unh, ooh…
WOMAN: Come on, kids. Run for it!
MAN: Oh! It’s horrible!
BOTH: Unh, ooh…oh, no!
WOMAN: Oh, that landslide, it’s huge!
MAN: And it’s blocked off the whole of the valley.
WOMAN: Now we’ll never be able to get our cattle and sheep to the only grazing we’ve got!
MAN: They’ll die and we’ll starve! If we could only get across the river…
WOMAN: Oh, just look at that lovely green grass – enough to make any cow’s mouth water.
MAN: But we’ll never get the animals across the river safely.
WOMAN: Unless we build a bridge.
MAN: But I only have enough energy to plant the seeds to grow the food to give me the energy to…
WOMAN: Oh, we’ll never build that bridge. What we need is a genius.
MAN: Wait, I have an idea!
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WOMAN: Oh-oh! He’s got an idea.
MAN: Everybody around here is like us. They have one cow, two or three sheep, a few hens and a patch
of ground for corn. They catch their own fish, collect fuel for cooking, build their own houses for
themselves to live in and they make their own clothes for themselves to wear.
WOMAN: Though some are better at some things than others.
MAN: Precisely. For example, you make the best clothes in the village.
WOMAN: You know. He can be quite flattering when he feels like it.
MAN: Though I suppose it’s only because I’m so good at getting good wool from our sheep.
WOMAN: The truth of the matter is that the man with the real knack with sheep is our next door
neighbor, Mr. Shepherd. Not you at all.
MAN: Oh, well, that’s true. I must be best at something though.
WOMAN: Thinking, love. You’re very good at thinking.
MAN: Hey! That gives me an idea. Listen, suppose we alter the system. There are ten families in our
village as it is now. Every household has their own cow and their one sheep. They keep poultry, catch
their own fish, grow their own corn and collect their own fuel.
WOMAN: And they do their own cooking and they make their own clothes.
MAN: Right. So in order not to waste time walking to the woods to collect fuel or waste energy by one
man looking after one cow, why doesn’t each family specialize
WOMAN: What – divide the labor
MAN: Precisely! Division of labor – that’s what it’s all about.
WOMAN: So only one family looks after the sheep.
MAN: Mr. and Mrs. Shepherd. They’ve really got a way with sheep.
WOMAN: And another family sees to the cows.
MAN: The Cowherds– they’re marvelous.
WOMAN: Yes. Another does the fishing.
MAN: Mr. and Mrs. Fisher.
WOMAN: And others do the farming, collect the fuel and do the cooking.
MAN: And we make the clothes for the whole of the village.
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WOMAN: The Tailors.
MAN: Right!
WOMAN: Oh, but leaves two families over – the Masons and the Carpenters.
MAN: Ah, because eight of the families in the village specialize, they produce enough for ten.
WOMAN: And that leaves the other two to build a bridge across the river to the new pasture!
MAN: Brilliant! Let’s put it to the others and see if they agree. Besides, think of what will happen if we
don’t do something soon.
WOMAN: If we don’t, our animals will have nowhere to graze.
MAN: And we’ll all go hungry.
WOMAN: Well, that’s settled then.
(Man grunting from carrying heavy load)
MAN: It worked!
WOMAN: Yes, who would have thought it
MAN: Not only are Mr. & Mrs. Farmer getting bigger crops than any of us managed on our own, the
Fishers are bringing in more fish, and the Shepherds are keeping all our sheep much better.
WOMAN: Not to mention the fact that the whole village is better clothed now that the Tailors are in
charge.
MAN: But what about the Masons and the Carpenters They’re well-fed and well-dressed just like the
rest of us- but now that the bridge is finished, there’s really nothing for them to do.
WOMAN: I’ve got an idea!
MAN: Oh, she’s got an idea.
WOMAN: Mrs. Farmer over there – she spends most of her time carrying water from the river to water
her crops. Well, if the Carpenters and the Masons could just be persuaded to dig a channel to take the
water from the river to the fields…
MAN: …not only would it keep the crops watered, it would save the Farmers’ energy, and they could use
that for growing even more food for the rest of us.
WOMAN: Brilliant!
MAN: And that’s how it was.
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WOMAN: When every family did everything itself everybody was working flat out from dawn to dusk
just to stay alive.
MAN: But now we’ve hit on division of labor.
WOMAN: We’ve all become specialists, and we’ve all become more skilled in our specialty and as a
result- we have a surplus.
MAN: And that surplus is the Mason and Carpenter families – or rather, the product of their labor.
WOMAN: They’ve opened up bigger, richer pastures for our cattle and sheep, and they’ve given us a
regular supply of water, and that means better crops of vegetables and grain…
MAN: …and all this is one of the most important things ever to have happened in the community. The
surplus created by dividing the labor is the first step on the path to prosperity and it’s a tremendous step.
WOMAN: Division of labor by product is at the heart of all progress and prosperity, and it’s not hard to
see why. Well just think about the sort of food we eat every day – cheese from a huge factory in Holland,
salads from specialist farms on the Channel Islands, and that ham is from one of the great Danish pig
farms.
MAN: More than one hundred-twenty thousand pigs a month leave Denmark as pork, and ham, and
bacon and sausages to shops of the world.
WOMAN: The bread comes to your table all the way from wheat fields on the Canadian prairie. The tea
comes from northern India, where the villagers make a living by exporting to the rest of the world.
MAN: By cultivating thousands of acres they produce tea at a price you can afford.
WOMAN: That’s another bonus of specialization: a bonus of division of labor by-product- goods that
come cheaper.
MAN: But, of course, it doesn’t just happen in agriculture. Everything on this table is mass produced by
specialists: plates, knives, forks, tablemats – the lot!
WOMAN: And that leads to another step in specialization.
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Division of Labor 2: Process
MAN: Good, isn’t it Remember what it used to be like
WOMAN: Subsistence economy
MAN: Mmm.
WOMAN: I’d rather forget it, working day in and day out, digging, planting seeds to grow the food, so
that we could eat, just to give us energy so we could go on and do more digging…
MAN: … and plant more seeds, to grow more food to eat, to give us more energy…and so on…
WOMAN: …and so on…
MAN: …and so on.
WOMAN: Ah, but we thought of a way out of that.
MAN: I’ll say! A bit of brain power…that’s all we needed. Instead of each family supporting itself by
doing everything, we divided up the labor so that each family specialized in what they did best.
WOMAN: And that way, the Shepherd family got even more wool from sheep, because they got better at
raising sheep, the Farmer family grew even more wheat, and the Fisher family brought in even bigger
catches of salmon.
MAN: It’s happened with all the families.
WOMAN: Mmm, and all that extra skill they learned, and all that time they saved from travelling about
from place to place, and all the boring preparatory work they no longer had to do for all the different jobsmeant
that eight families produced enough for ten. We had a surplus.
MAN: And that surplus provided for the needs of the two other families, the Masons and the Carpenters,
and they built a bridge so we could feed our animals on better pasture.
WOMAN: Mmm, and then they made an irrigation system that watered the land, and gave us even better
crops.
MAN: I suppose you could say that the road to a bit of modest prosperity began with that one idea of
mine.
WOMAN: Yes, I suppose you would.
MAN: Well, it’s scarcely a life of luxury we live, but at least we have enough to know that we and the
children won’t starve, and we can even lay a bit by for tomorrow.
WOMAN: And have a little bit of time for ourselves and the family to do other things…
MAN: …like making that shawl.
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WOMAN: …like making this shawl.
MAN: That’s a nice shawl there.
WOMAN: He says nice things sometimes…
MAN: But the trouble is…
WOMAN: …and sometimes he doesn’t.
MAN: …it’s taken weeks to make – weeks.
WOMAN: It’s true! It did take weeks – well, two weeks anyway.
MAN: Shearing the sheep, washing the wool, spinning it, dying the thread, weaving it into cloth,
finishing it off…
WOMAN: So
MAN: So, it’s a lot of effort to put into a shawl. It will be worn out after a couple of years. It’s nice,
though.
WOMMAN: Hmm. That’s what I call a wholehearted appreciation.
MAN: Hey! What’s going on over there
WOMAN: Hmmm What
MAN: He says he’s from a village up the river.
WOMAN: Oh. Just look at all that wonderful stuff he’s got in that boat!
MAN: Ooh!
WOMAN: Cooking pots to die for.
MAN: Oh, yes – apples! Oh…wonderful red apples. Oh, I wish we had apples like that.
WOMAN: And shoes for the children.
MAN: Right, right…and axes and knives.
WOMAN: Huh What’s he going to do with all that stuff
MAN: He says he’s a trader.
WOMAN: What’s a trader
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MAN: He says a trader is somebody who exchanges whatever surplus goods he’s got- for whatever
surplus goods you’ve got.
WOMAN: It’s true we don’t live in a subsistence economy anymore, but we don’t have much to spare.
We’ve got a bit of spare food, but it isn’t as good as the food he’s got. Our apples aren’t half as nice as
his.
MAN: Hmmm…
WOMAN: Hey, what’s he doing Hey, if he thinks he can trade me in exchange for all that stuff, he’s
got he has another thing coming. Tell him!
MAN: Um, he says your shawl is cool.
WOMAN: Ooh, he likes my shawl, and so he should! It took me weeks to make.
MAN: He says he needs twenty shawls.
WOMAN: Twenty
MAN: He’ll give the whole boatload of stuff for twenty.
WOMAN: Twenty
MAN: They’re for the king of Wongaland. He’s got twenty wives.
WOMAN: He what
MAN: If he only gives one of them a shawl like that- the others get so jealous; his life simply isn’t worth
living. Do we have another nineteen like that
WOMAN: Do we have another nineteen like that That took me weeks to make – well, two weeks
anyway.
MAN: He said he’ll be back in two weeks.
WOMAN: I’ve never seen cooking pots like that before.
MAN: Aye… and those apples looked delicious.
WOMAN: We could have done with a new pair of shoes for the kids.
MAN: He said he’d give us everything in that boat for twenty shawls.
WOMAN: Oh look, there are ten of us here with a bit of time to spare, but even if we all worked flat outwe
would only make 10 shawls in two weeks.
MAN: We need a genius to produce another ten shawls. – A genius or a miracle.
WOMAN: Hey, I’ve got an idea!
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MAN: Oh, oh.
WOMAN: Why does it take so long to make a shawl I’ll tell you why. Because there are so many
processes you have to go through, before you can turn what’s on a sheep’s back into something that you
can wear. First you’ve got to catch your sheep, then you’ve got to shear it, you’ve got to fetch water to
wash the wool, and then you’ve got to spin the wool into yarn. Hmm… there are dyes to make before you
can color your yarn, and then you’ve got to weave your yarn into cloth, and even that isn’t the end.
Putting on knots and tassels that give a finishing touch takes ages.
MAN: Every one of those processes takes ages. You can see why – setting things up, putting things
away again, and even if you’re good at weaving, it doesn’t mean you’re good at dying or spinning.
WOMAN: And that’s where my idea comes in. There are ten of us here. Suppose we each did only the
thing we were best at
MAN: Ah!
WOMAN: One will do the shearing – enough wool for twenty shawls; another would wash it – all of it;
three would spin it into yarn, and one would dye the yarn. Well, that would leave two to weave it and two
to do the finishing up.
MAN: Ah! That means you wouldn’t waste time setting things up, and putting them away again
WOMAN: Right!
MAN: And there’s something else that could happen, too. It needs a genius to see it. Since they are only
doing the thing they are best at… everybody will get better with practice.
WOMAN: Genius. Anyway, why don’t we give it a try
MAN: Why don’t we
WOMAN: Well, at first it looked like we’d never do it in time.
MAN: Obviously the dyers and weavers couldn’t start until the dye was ready and the wool was spun, so
they helped shear the sheep.
WOMAN: It wasn’t long before we all got very good at our jobs, but we might not have been ready on
time if the shearers and the spinners who finished their jobs quickly, hadn’t helped the weavers and
finishers who were getting behind.
MAN: But, we did what we set out to do.
WOMAN: And in exchange we got what we wanted.
MAN: Oh, lovely!
WOMAN: Nice pot.
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TRADER: Oh, champion.
WOMAN: There you are. And this is how we did it.
MAN: We divided the work into separate processes, so that each one of the ten of us specialized in just
one thing. The result was: we doubled our productivity; we produced twenty shawls in two weeks.
WOMAN: Before, using the old ways, we would have produced only ten. We’d created the extra ones
by division of labor by process.
MAN: But this time we used the surplus in a different way. We swapped it for somebody else’s surplus.
WOMAN: And the result is: we’ve now got a lot of things we couldn’t have made for ourselves.
MAN: What we discovered was: the division of labor by process has created more surplus…
WOMAN: …and by trading that surplus, we’ve taken another step along the path to prosperity. Oh, the
cooking I can do with this!
MAN: Oh, just look at that!
There are still quite a few places in the world today where division of labor by process is still at much the
same point as in our village community. Some people spin, some people weave, some people finish off
the goods. In the modern industrial world, it all looks very different, and so it is in a way, but if you
follow manufacturing through, you’ll see that it’s still divided by process in just the same way- even if it
is on a massive scale.
WOMAN: The shearing and cleaning of wool is carried out on huge commercial sheep farms. The raw
wool is spun into thread on enormous machines, with two hundred spindles that turn out twenty-three
miles of yarn a minute.
MAN: The yarn is woven on gigantic electrically-powered looms that produce almost an acre of cloth a
day. It’s dyed in special machines, and then made into goods like these, which are sent off to the docks
for export.
WOMAN: And in return…we get other people’s surplus – beautiful fruit, tea and coffee – things we
cannot produce ourselves. We don’t swap it directly the way our villagers did. We sell our products and
use the money to buy the tea, but it comes to the same thing.
MAN: And it’s made possible only because we’ve created a trading surplus, and created it through
division of labor by process, one of the foundation stones of the modern industrial world.
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Mechanization
MAN: Why am I sitting here
WOMAN: Why I don’t know, to keep warm, I suppose.
MAN: No-o.
WOMAN: Mmm. So you could daydream and carve on a piece of wood
MAN: No, no, no, I mean, how am I sitting here
WOMAN: How You’re squatting on a stone. You have been ever since you came back from collecting
the firewood.
MAN: No, no, no, no. You’re really not trying to understand me. I mean, how come I’ve got time to
spare to sit here at all It wasn’t so long ago that we had to work from dawn to dusk just to keep
ourselves alive. In those days there was never any question of idling the odd half-hour away in front of
the fire…
WOMAN: … like now. Ah, you’ve been thinking again.
MAN: That’s right, I’ve been thinking. I’ve been thinking that once upon a time we lived in a
subsistence economy. Then we could never have spared the time to do nothing in particular. Now we can
spare a bit of time. Why
WOMAN: Well, that’s not difficult. Just think back for a few minutes.
MAN: Right. I’m thinking.
WOMAN: Well, we got out of the subsistence trap by creating a surplus.
MAN: That’s right and we got that surplus by inventing division of labor.
WOMAN: Right. First we divided the labor by product. We changed from each family doing a bit of
everything, to one family specializing in only one thing – say sheep, or fishing and so on.
MAN: Then we invented another kind of division of labor. Instead of one person making a shawl for
themselves we divided the process between the families – shearing and spinning, dying and weaving. We
all made twice as many shawls as we were able to before.
WOMAN: Yes, we made a surplus.
MAN: And we traded our surplus for somebody else’s surplus.
WOMAN: Now we’re all better-fed.
MAN: The children are healthier.
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WOMAN: And we even managed to put something by for a rainy day.
MAN: And…
WOMAN: Yes
MAN: …it’s your turn to fetch the firewood. Ha, ha!
WOMAN: Oh. I wouldn’t mind if he did something useful while I did the hard stuff, but all he does is
make toys for the children. Hoops, indeed!
OH, Oh. Six trips to the forest that lot took me! Well, it’s his turn now. And what use has a hoop been to
anybody
MAN: Hoops. Come on, kids. Hoops. Hoops, hoops – ha, ho, ho – hoops. Ho-o-ops, ho-o-ops, hey,
hey, hoops. Look at this. Wheels.
WOMAN: Hmmm. My pile took me six trips to the forest.
MAN: And mine took one.
WOMAN: Hmmm….um-hum. Hmm Yes. I’ll show him. Yes. Yes!
MAN: Well; I’ll be blowed - another revolutionary idea!
Unh, urgh, urgn, oh. It’s all very well for you. All you have to do to earn your keep is to turn grass into
milk. How would you like to push a plow, eh Look at me while I’m talking to you. Well, how would
you like to push a plow, or even pull a plow Hey, kids, over here! Good girl. Walk up
WOMAN: Oh, you’ve got to hand it to him. First he invents the wheel; then he gets the animal to do the
work for him. What next Hey, what about the really important jobs, like grinding corn that makes the
bread, that gives him the energy to make more toys for the children Oh. Hmm, yes, what next indeed.
MAN: Oh, oh. I think she’s thinking again.
WOMAN: Yet another machine.
MAN: And yet more surplus.
WOMAN: In fact, we only had one reason to invent anything. We wanted to cut down the effort we
need to do a job. Then we’d have more energy to spare to make more surplus.
MAN: More time, too!
WOMAN: Hey, then we could even take time off – have a holiday!
MAN: That’s why we invented machines. After all, they are nothing more than devices which make the
energy from our muscles more effective, therefore more productive. Every machine, no matter how
complicated it looks, is made up of very basic parts; for example, a wheel, an axle, a lever, bits of wood
17

put together with one purpose in mind. And that purpose is: To reduce the amount of human muscle
needed to do any particular job. The next step was to eliminate it altogether by using animal muscle.
WOMAN: One horse or one ox has the strength of twenty men. It can do twenty times more work and
create twenty times more surplus. But it’s possible in the end to do away with all muscle power
altogether – animal or human.
MAN: And that’s by harnessing the forces of nature. Water power can grind corn…
WOMAN: …it can also power spindles and looms.
MAN: But there are more powerful and more useful sources of energy in nature…
WOMAN: …the wind…
MAN: …coal…
WOMAN: …oil…
MAN: …uranium.
WOMAN: It isn’t all that long since we were using simple machines combined with animal power to
produce surpluses.
MAN: Even today in some parts of the world animal muscle is still the main source of surplus. There are
places where animals are still used for freight, or carrying passengers…or for machine power.
WOMAN: Until the railways in the 1830s- a horse was still the fastest means of travel on the land, just
as it had been for tens of thousands of years. But in time, the way the machines were applied became
more complicated; but no matter how sophisticated they got, they were still a combination of very simple
machines.
MAN: The wheels and axles on this modern tractor enable it to tackle ground farmers would once never
have dreamed could produce any crops. And the gears that make it possible to go up and down steep
slopes are operated by levers.
WOMAN: Basic machines- combined together make it possible for us to turn nature’s energy into huge
surpluses. But it’s only possible to produce surpluses like these- when you can draw the energy you need
from one of nature’s great resources.
MAN: Until the end of the nineteenth century wind powered the fastest method of travel over water. But
there was something much more effective than either wind or water. That was the power of fire.
WOMAN: Fire transformed the world. First it boiled water for steam engines…then it ignited petrol in
combustion engines and generated power for steam turbines.
MAN: And more recently the controlled energy from nuclear reactors has been converted to electrical
energy. And what does it add up to – all this application of different forms of energy
18

WOMAN: It adds up to a surplus. The creation of a surplus means that the time saved by the wheel on a
car or the lever on an engine can be used to make more goods.
MAN: You can either use these goods or you can exchange them, or you could use them to provide
services: nurses or teachers, or postmen or firemen – or you could use them to provide leisure for
yourself.
WOMAN: So when we take advantage of a combination of mechanical devices, natural resources and
our own efforts, we create a surplus. And that surplus provides us with the standard of living we have
today in our modern world.
19

A Life Worth Living
MAN: You know, I’ve been thinking…
WOMAN: Oh, yes, and what have you been thinking
MAN: Well, I’ve been thinking… that it’s thinking that got us where we are today.
WOMAN: Hmm, I followed the first bit about your having been thinking again, but I got lost on the
second bit of thinking
MAN: Well, just look at our village today.
WOMAN: Yes, so I’m looking…
MAN: What can you see
WOMAN: Well, I can see a group of people who aren’t exactly living off the fat of the land- but who are
doing very nicely, thank you.
MAN: Right…and how did this happen when not all that long ago, we lived in a subsistence economy
WOMAN: Oh, I see what you mean – you mean which pieces of thinking- which ideas took us from one
level of prosperity to another
MAN: Right!
WOMAN: Right. Hmmm. It’s quite simple, really. Subsistence is the economy we started out withand
a surplus is what we’ve got now. And the way we got from one to the other was by specialization and
by mechanization, sometimes a bit of one, sometimes a bit of the other, and sometimes a bit of both.
MAN: Do you remember what it was like living in a subsistence economy
WOMAN: Oh, how could I ever forget
MAN: We used to spend all our time and energy just getting ourselves enough food to say alive. And
there was never anything left over. And then we discovered division of labor by product.
WOMAN: Oh, yes, what a day that was!
MAN: It certainly was! We divided labor by product which just meant that instead of every family doing
everything for itself: one family specialized in sheep, one in cattle…
WOMAN: …and another specialized in fish…
MAN: …another in tailoring and cloth-making…
WOMAN: …uh-huh…that was us.
20

MAN: Yes, and as a result: eight families produced enough to feed ten, which left two families with
nothing to do. So, they built the bridge which took our cattle across to new pastures, and then they had
time to dig the irrigation channel, which took the water to more of our crops. Do you remember what
happened then
WOMAN: Yes, then came division of labor by process. Until then, to make anything one person had
always done everything. I used to do everything: from shearing the sheep, to weaving the cloth – one
process after another. It was slow…and I wasn’t very good at all of it.
MAN: So, we decided to specialize in one process each.
WOMAN: Hmm. One did all the shearing…
MAN: …another- the washing…
WOMAN: …yeah… another- the spinning…
MAN: …another did the dyeing…
WOMAN: …another- the weaving…
MAN: …another- the finishing.
WOMAN: And the result was: that the same amount of people produced twice as many shawls by
working together-one process each, as they would have done making complete shawls by themselves.
MAN: And, what’s more, the shawls were much better-made.
WOMAN: Oh, thank you very much! Anyway, that’s how we left our subsistence economy behind to
produce our surplus. It was our first great idea – we specialized…we specialized by product, we
specialized by process – and our second great idea was- we mechanized.
MAN: We had ideas for new devices, and we had ideas to harness horses and oxen. In our family’s caseour
greatest idea for mechanization, and our most useful device was the wheel.
WOMAN: Oh yeah, you can say that again! The wheel meant that the children could bring home in one
go what would previously have taken you or me six journeys. Do you remember that day when you
thought of saving your own strength by letting the animals do the work for you
MAN: Oh, ho, ho, yes! What a great day that was!
WOMAN: Yes!
MAN: Animal muscle power - but it was nothing compared to what’s happened since we discovered how
to harness the forces of nature.
WOMAN: Yes, there was the energy of wind…
MAN: …and the energy of water…
21

WOMAN: …and eventually there was the energy of coal…
MAN: …and the energy of oil…
WOMAN: …and linking these sources of energy to our mechanical devices meant that we could till soil,
draw water, grind corn and produce all kinds of things far more quickly- than by simply using our own
muscles.
MAN: Mechanization was the second step out of the subsistence economy. We mechanized by inventing
devices, and by using natural forces to add to our own efforts. And it was specialization and
mechanization that gave us our surplus.
WOMAN: But what is the surplus What is it that specialization and mechanization gave us
MAN: First, we now have stores of food that will last us through the winter. We have a few luxuries to
tide us over until the harvest.
WOMAN: Second, we have surplus food and manufactured goods that we can exchange for other things
we want when the trader brings them.
MAN: Third, we built a bridge and a barn and a waterwheel, we dug irrigation channels. We made
spinning wheels and plows- and they help us protect or even increase our prosperity.
WOMAN: Fourth, we can spare one or two people from the field to serve the rest. Parts of the surplus
food can go to someone who teaches the children, and somebody who looks after the sick.
MAN: And fifth, we have a bit of time to spare. We can play games occasionally, paint beautiful
pictures on our crockery, or make beautiful clay figures or decorate our huts. So, we applied our surplus
to five different things: reserves (in this case food), trade, capital, services and leisure.
WOMAN: All this may not seem much if you don’t remember how they started out in a subsistence
economy.
MAN: I’ll never forget it – days of cold, sickness, hunger – days of backbreaking toil…
WOMAN: It all seems a long way away now.
MAN: Yes, we have come a long way.
WOMAN: Yeah. Of course, I don’t really have to tell you that our community is imaginary. A valley
like ours never really existed.
MAN: Not exactly, anyway. But everything we’ve seen, everything we’ve talked about, really happened
through the ages in some community or another. Let’s take a look at reality for a minute.
WOMAN: This is how men once tried to set down their own reality. These are the actual pictures drawn
by primitive men showing their own lives as hunters and wanderers.
22

MAN: And for all but a few thousand of his one or two million years on this planet, this is how man
really lived –hand-to-mouth, day-to-day and place-to-place. He followed the herds, eating any wild
animals he could kill, and gathering whatever wild fruits and vegetables he could manage to find.
WOMAN: But for most people… life began to change dramatically about ten thousand years ago, when
human beings found the secret of staying in one place.
MAN: The secret was farming, domesticating animals – pigs and cattle, sheep and goats – and
cultivating crops. By finding that secret- man had stumbled on the path to prosperity.
WOMAN: The first prosperous civilizations grew up in four great river valleys – the Yellow River in
Northeastern China, the Indus in Pakistan, Tigris and Euphrates in modern Iraq and ancient Babylon and
the Nile in Egypt.
MAN: And yet, if you look at those great fertile valleys today you’ll find a strange thing. They are now
among the poorest of the world’s nations, often unable to provide even enough food for their inhabitants.
WOMAN: Until two or three hundred years ago, the richest countries were often the ones with the best
land. But today, great industrial communities have been built up in the world using resources imported
from other places. In other words, some of their wealth comes from foreign trade.
MAN: There will always be strong disagreement about why some countries have followed the path to
prosperity, and others haven’t.
WOMAN: But of one thing there is little doubt. Those who have achieved it, have done so by creating a
surplus…a big surplus, using exactly the same method as we did in our community. This factory, like all
factories, is the result of division of labor by product…and the product is television sets.
MAN: It produces them in a whole lot of different stages: Division of labor by process.
WOMAN: It’s mechanized, and the production is achieved through devices like wheels, levers, gears,
hinges and pulleys. Most of the energy comes from electricity supplied by harnessing the resources of
nature: like water, coal, oil and uranium.
MAN: As a result, a thousand people working in a factory like this turn out half a million sets a year –
five hundred a year each. Since they don’t need them all for themselves- they’ve created a massive
surplus of television sets to exchange.
WOMAN: So in effect, they’ll be swapped for other people’s surpluses. For his share of the exchange a
worker in a factory gets: food, clothing, heating, a house and a car- from other workers who produced
more of those things than they needed.
MAN: He also gets roads, street lighting, a teacher for his children, a doctor and a policeman as well.
WOMAN: And after all that, he still has his evenings free to watch a television.
MAN: Of course, he still has his problems and frustrations.
WOMAN: But when you consider the subsistence level where it all started long ago, is there any doubt
about which sort of life you would prefer
23

The Market
WOMAN: You know I can’t believe it sometimes!
MAN: It didn’t come easy. It took a lot of hard work!
WOMAN: Mmm…it certainly did!
MAN: The idea of each family in a community producing something different, dividing up the labor,
mechanizing – that’s what made the difference.
WOMAN: We make really wonderful clothes now.
MAN: Oh, yeah.
WOMAN: We’ve got a right to be proud.
MAN: And the Farmers produce terrific wheat and barley!
WOMAN: The Cowherds are turning out the best beef and cream I’ve ever tasted!
MAN: Pity about the Shepherds.
WOMAN: I’m getting a bit fed up with the Shepherds.
MAN: Though you’ve got to admit their mutton is better than anything we could produce, dear.
WOMAN: When we manage to get any of it.
MAN: Anyway, don’t forget the Fishers. That trout of theirs yesterday…oh! And our idea of putting
everything we all produced into common stores, so that every family could take what it needs, works
really well… well, up to a point, anyway.
WOMAN: We’d have had salmon yesterday- if the Shepherds hadn’t gotten to the barn first. We had to
have the Fisher’s trout instead. Still, it was better than anything we could have caught.
MAN: Better food isn’t the only advantage, you know.
WOMAN: That’s true enough. There’s more food for everybody now. After all, when you spend all
your time at your one job, you become more skilled at it.
MAN: Our looms are the most efficient this valley has ever seen.
WOMAN: We get ten times the amount of cloth from this beauty, and it doesn’t take any more effort,
either. You’ve got to admire the Fishers, though.
MAN: Yes, that boat they made to get down the stream to fish in the lake – brilliant idea!
24

WOMAN: And they spent all those evenings making a huge trawling net, beautifully designed – floats
and everything.
MAN: They must have increased their catch twenty times over with that net.
WOMAN: The Masons increased their productivity in just the same way.
MAN: So have the Farmers and the Shepherds.
WOMAN: I know all about the Shepherds, thank you very much.
MAN: You do go on about the Shepherds, dear.
WOMAN: Yes, and with reason. There they are, look… at it again!
MAN: No, not again.
WOMAN: This week all they’ve put in the barn is one mangy lamb, and what have they taken out of the
common food, you may ask
MAN: It does look a bit suspect…
WOMAN: Would you believe it
MAN: And they’ve got three times as many sheep as the Cowherds have cattle.
WOMAN: I know.
MAN: Mrs. Cowherd knows what they’re up to. They’re cheating and salting away all her beef for a
rainy day.
WOMAN: Mind you, Mrs. Cowherd doesn’t have much right to complain. She walked off with all the
best raspberries last week.
MAN: We’ve got to face facts, you know. This idea of a common pool hasn’t worked out as well as you
thought it would.
WOMAN: Yes, and we’re not the only ones who think so.
MAN VILLAGER: This business of sharing doesn’t work. It’s not fair. By the time our family gets to
the barn the best stuff is gone. The share out is far from equal.
WOMAN VILLAGER: And it’s not only that. Look what’s happening now. Just because of the glut in
vegetables that nobody wants we have to throw away all those turnips – after all that work, too.
ANOTHER MAN: And don’t forget that terrible row over the raspberries. Disgraceful behavior!
MAN: After that, Mr. Mason thought we should put him in charge of everything.
WOMAN: Oh that man makes me so mad! Look at him showing off!
25

MAN: He said because he is the strongest person in the valley he guaranteed he would make sure
everybody puts everything into the barn. He said he would personally divide it all up and issue everybody
with their own share.
WOMAN: Yeah, I’ll bet he would.
MAN: Anyway, we all knew what that would mean: Having your head knocked in by Mr. Mason.
WOMAN: Well, you had a bright idea.
MAN: Nope, I had an inspiration. I suddenly had the notion of nobody putting any produce into the barn
at all, and everybody keeping everything they made for themselves.
WOMAN: Hah, hah, hah! Mrs. Fisher immediately said that would mean they would eat nothing but
fish for the rest of their lives, and Mr. Carpenter asked if you expected him to eat hammers and nails for
his supper.
MAN: Yes, he did, as a matter of fact, and Mrs. Farmer said: Where was she supposed to get new clothes
when the old ones wore out
WOMAN: Well it did seem a reasonable question in the circumstances.
MAN: But it was – I-I-I mean, it is. Don’t you see We can’t possible wear all the clothes we make. But
we do need corn and milk, and we do need fruit and fish, and we do need all the other things everybody
else makes and grows.
WOMAN: So
MAN: So, we swap.
WOMAN: An inspiration!
MAN: That’s what they all said. Mr. Fisher immediately noticed that if the Shepherds didn’t produce
any sheep- they wouldn’t have anything to exchange.
WOMAN: And Mrs. Carpenter said, “Right, no mutton from the Shepherds, and they don’t get the
fences from me for their lambing pens.”
MAN: And if the Shepherds didn’t like the new plan- they could lump it and leave.
WOMAN: It would just mean more grazing for the cattle. We’d have just as much meat as before, but it
would be beef instead of mutton.
MAN: It’s a way of making the Shepherds behave, without having to put Mr. Mason in charge of
everything. Everybody was delighted. Although he’s not that bright sometimes, even Mr. Mason began
to see how he would benefit.
WOMAN: That’s how we all agreed to have a swapping day every week- in the square in front of the big
barn
26

MAN: Remember that first day The Fishers brought an enormous load of beautiful fresh salmon –
beautiful it was! Everybody swapped their cloth, their milk and their fruit, and even a stool from Mr.
Carpenter for the fish.
WOMAN: Swapping worked so well, we began to do it every day for things like raspberries, and milk
and fish that don’t last but we want every day. There was no end to what we could swap if someone else
wanted it.
MAN: Even Mr. Mason promised to build a jetty for the Fishers, if they would supply him with one
salmon a week for the whole year.
WOMAN: Yes, everybody thought it was a wonderful system except the Shepherds. They brought
practically nothing to swap.
MAN: When anyone made a bargain it was marked on the wall for everyone to see. That’s why we
called our square the “mark it place,” it became the busiest place in the village – in fact, it became the
village center.
WOMAN: Oh, dear! The Shepherds had a pretty thin time that first day, especially as the Fishers had
brought along masses of salmon which made up for the shortage of mutton. That night, the Shepherds
went home practically empty-handed. But the next week was a different story. The Shepherds came back
with an enormous supply of sheep. Mrs. Shepherd said that last week she had lost her sheep and didn’t
know where to find them ‘til this week. And if you believe that you’ll believe anything.
MAN: Well, as time went by- the market became the best family outing of the week. Not only did
everyone discover the value of their produce for everyone else that day, they saw all their work rewarded.
WOMAN: They discovered other things, too. They found out what was happening in the village. They
found out what people needed so that they knew what to provide next time.
MAN: Of course, the word “market” didn’t really originate from the mark on the wall of the barn, and
the world we’re living in these days is very different from the kind of life you saw in our village. But,
from time to time, people do try to live without markets. The famous example is the kibbutz in Israel.
Here everyone works for the community, but the most successful depend on growing or producing things
which are then exported and sold in the markets of the world to provide money for the kibbutz’ common
pool. In return for their work- people get food and shelter but few of the kibbutzes are really selfsufficient.
WOMAN: In the 1960s, many groups of hippies tried to make new lives for themselves, by getting
together to grow their own food, make their own clothes- and even build their own villages. Their idea
was to share everything equally, but not many of their communities flourished. Some people found life
too hard; there were personality clashes and people walked out; others needed doctors or medicines and
when there weren’t any they left, too. But hippie communes that survived tended to specialize in crafts,
leatherworks, gem works, and jewelry. But to sell their work, and to buy what they needed to live, they
had to take their wares outside to the markets. Like the people in a kibbutz, they quickly realized the
undeniable advantages of a market to the survival of their chosen way of life.
MAN: Markets just spring up spontaneously. Look at car boot sales – nobody launched them, they just
happened. Now tens of thousands of people go there every week
27

WOMAN: And when the internet arrived it became a world-wide market in cyber space.
MAN: There are markets for everything – big things, small things – even markets in ideas like leisure
and holidays. Perhaps the commonest, everywhere in the world, are the markets for the food we eat.
They are important meeting places, too. People may go to buy and sell, but they don’t miss the chance to
catch up on the local news and discuss local issues. But along with all the swapping, there is an
information system at work – information about what there is to sell and what there is to buy, information
about what is scarce, and what is plentiful, information about what is not worth much, and what is
considered valuable.
WOMAN: Markets that flourish do so because they work. If they didn’t, they would soon go out of
business because voluntary transactions that don’t work tend not to be repeated. People are like thatregardless
of the control and politics of the society in which they live. They come away from the market
immediately satisfied with what they have acquired, and what they’ve learned. And that’s the nature of
every market in the world.
28

Money
MAN: It worked very well at first.
WOMAN: What did
MAN: The market.
WOMAN: A bit too well if you ask me.
MAN: Right. I will ask you. What do you mean the marked worked “too well”
WOMAN: Well, look what happened to the Fishers!
MAN: What did happen to the Fishers
WOMAN: You remember their catches
MAN: Oh, of course I do. They catch salmon one night, perch the next, all lovely and fresh… two lots
of wonderful fish on offer on their stall at the same time.
WOMAN: True, and what did they exchange their salmon for
MAN: Ah. They did very well out of that. For each load of salmon they were guaranteed to get a dozen
eggs, twelve bags of corn and a leg of lamb.
WOMAN: Yeah, and what did they get for each load of perch
MAN: Well, they didn’t do as well from that, did they Maybe only half a dozen eggs, three bags of
corn and a couple of chops if they were lucky.
WOMAN: Yeah...but they’d spent the same amount of time fishing for the salmon, as they had for the
perch.
MAN: True, but most people prefer salmon to perch any day. And you can understand why. It was the
same with the turnips and the carrots.
WOMAN: Oh…Mrs. Farmer you mean
MAN: Yes.
WOMAN: She soon found that Mrs. Shepherd would only give her a leg of lamb for turnips.
MAN: But for a load of carrots she could get a leg of lamb, a couple of chops and a skein of wool.
What’s more, Mrs. Farmer didn’t have to work any harder to grow carrots rather than turnips.
WOMAN: It’s weird, isn’t it
29

MAN: Not really. Mrs. Shepherd just happens to be partial to carrots…that’s all. It’s another example of
a market giving people information. It tells you what people want, and it tells you what people don’t
want.
WOMAN: Same thing happened with those shawls I used to take to market. People seemed to get tired
of the old favorite designs. Then as soon as I started to take some of our jazzy new designs they went like
hot cakes, even though I was asking twice as much in exchange for them.
MAN: Variety. That’s what people want and that’s what the market gave them: Choice.
WOMAN: And that’s where the trouble began. The more choice people had, the more complicated the
market became.
MAN: Complicated. I’ll say it was complicated! Do you remember the time when we needed a dozen
eggs
WOMAN: Oh, yes, do I not It seemed the simplest thing in the world, didn’t it We’d just made a
lovely new red cloak.
MAN: Nothing seemed simpler than to take it along to Mrs. Farmer’s stall in the market, and swap it for
her eggs.
WOMAN: I know. But Mrs. Farmer didn’t want our nice new cloak that day. “No, thank you very
much,” she said, “I don’t need a new cloak. What I want in exchange for my dozen eggs is something for
our supper, like a nice fat salmon.”
MAN: Well, the Fishers have a nice fat salmon, so we go along to the Fishers with our lovely red cloak.
“Very nice indeed,” says Mr. Fisher, “but what I actually want is butter.”
WOMAN: But of course it’s the Cowherds who have butter, and do they want our red cloak in exchange
for it
MAN: Not on your life. What they need is a beautiful kitchen stool…and who makes stools
WOMAN: Mr. Carpenter.
MAN: Ah.
WOMAN: And does he want our beautiful red cloak in exchange for it
MAN: Of course he doesn’t want our beautiful red…he does He does He really does want our
beautiful red cloak in exchange for his rotten old stool…quick!
WOMAN: So, by swapping our cloak for the stool, the stool for the butter, the butter for the salmon and
the salmon for the eggs, we got what we wanted in the first place.
MAN: What a hassle for just a few eggs! Whoops! Oh, oh…more hassle.
WOMAN: I know. I’m worn out. Sometimes you spend most of the day just finding out who wants
what. It’s such a waste of…
30

MAN: …time and energy which we ought to be spending on making the clothes we need, to exchange for
food.
WOMAN: There must be a better system.
MAN: There must.
WOMAN: Yeah…but, but what You remember last winter, when everybody was short of corn
MAN: Hmm…
WOMAN: Well, if you had corn you could swap it for anything. You never had to go round and round,
from one person to another, collecting things you didn’t want, to swap for other things you didn’t want,
till you finally got the things you did want. You just swapped everything for corn. You could even keep
it till next week or next month, if nobody had what you wanted that market day.
MAN: That’s all very well. You didn’t have to lug those things to market and back when you couldn’t
swap them, and when harvest time came…you could hardly give the stuff away.
WOMAN: Hey…but, but wait a minute! But suppose there’s something someone always wanted!
Suppose there’s something we could use like we used corn last winter. Something like water, for
example
MAN: (Spits out water)
WOMAN: What
MAN: But they’ve got as much as they want of it…and if they haven’t- all they’ve got to do is drop a
bucket into the river. It’s theirs for the taking.
WOMAN: Hmmm…strawberries
MAN: They go bad after a couple of days.
WOMAN: So, it’s got to be something everybody wants, and nobody ever has enough of. It mustn’t be
too heavy… and it mustn’t ever go bad.
MAN: There ain’t no such thing, my dear.
WOMAN: Yes, there is!
MAN: What
WOMAN: These! (Giggles)
MAN: The colored stones I sometimes find by the river!
WOMAN: Yes, everybody wants them for rings and bracelets and necklaces, and there aren’t too many
around.
31

MAN: What a great idea! Why don’t we…hold on…I thought of a snag…
WOMAN: What
MAN: Suppose one of these is worth a dozen eggs.
WOMAN: Then you simply swap it for a dozen eggs.
MAN: But suppose you only want half a dozen eggs
WOMAN: Oh, I see what you mean… can’t break it into smaller pieces. I’ve got it, that’s it!
MAN: What
WOMAN: Gold! We could use gold! Nobody ever has enough of it. You could swap a very small
amount of it for an awful lot of meat, or eggs or cloth. It keeps forever, it doesn’t even rust, and you can
divide it up really small!
MAN: Brilliant! Absolutely brilliant!
WOMAN: So, that’s what we persuaded everybody who used the market to try out. Every family got all
the gold it could spare and took it round to Mr. Smith. Then he melted it down, and made it into small
round pieces for them. Some were bigger than others, and some were small enough to carry in your
pocket or your purse…see
MAN: Oh, shiny, aren’t they Then, of course, shopping in the market place became so much simpler.
If you couldn’t do a straight exchange, say a new shirt for Mr. Cowherd’s butter because Mr. Cowherd
didn’t need a new shirt, you could give him some of your gold in exchange tokens for the butter instead,
and he would use them to buy the salmon he did want.
WOMAN: And the nice thing was that in the end, the person who did want your shirt would arrive with
exchange tokens, swap them for the shirt, and you would be back where you started- with the same
number of exchange tokens you started with, and with the butter you wanted instead of the eggs you
didn’t want.
MAN: In history, all sorts of objects have been used for money and still are: iron rings, shells, even
tobacco- though precious metals have been the most popular, because they can be easily divided into
smaller pieces, and because they don’t corrode or rust.
WOMAN: Eventually, less-precious metals, such as copper and bronze, were to take the place of gold
and silver.
MAN: However, there used to be a problem, because any metal could be debased by mixing it with a
cheaper metal. To stop that- they used to test the purity of the metal, and then stamp it with a special
mark - an animal, or the head of the king or queen to authenticate it.
WOMAN: …also people used to clip small pieces off the edges of their coins.
32

MAN: To stop that, they specially milled the edges to make it obvious if somebody cheated. The system
in similar form can be seen today.
WOMAN: These days, printed paper money has mostly replaced coins as a medium of exchange. Today
everybody uses money, without having to think about either its origins, or what it consists of. But the
important point to understand about it is that: of itself, it has no special value. Its value lies only in what
you can do with it. Money itself is simply a mechanism for making it easy to exchange things, like the
people are doing in this market now.
MAN: But, of course, money has other advantages. It’s very hard to swap say- a pound of strawberries
for a pound of peaches, for instance, because strawberries are finished by June, and peaches don’t ripen
until August. But if you sell the strawberries, the money will store their value until August, when you can
buy your peaches.
WOMAN: And money is also a useful measure of worth. If everything has a money price you can
compare the values of a piece of land, a flock of geese or six months hard work by a carpenter- which
otherwise are very hard to compare.
It’s funny to think that although money itself might be worth almost nothing, it happens to be one of
mankind’s most powerful- as well as most fascinating inventions.
33

Supply, Demand and Price
1. Price and the Consumer
MAN: Best steak again
WOMAN: Best steak again. I mean what else
MAN: I know. Who’d have thought it
WOMAN: Who would have thought what
MAN: Well, all that time ago who would have thought we’d be doing well enough today to eat steaks
WOMAN: …or to be able to count the profits.
MAN: Exactly. Do you remember the day things were so bad, we began to think we might take a break
from making clothes to sell in the market, and turn to something else They were hard times. There was
no steak in those days. Best end of bone if we were lucky. Alright, dear, off we go then.
WOMAN: Oh, it’s true. I remember it just like it was yesterday. I had a feeling it was a dreadful
mistake to give up on the weaving business- even if it was only for a short time.
MAN: Well, nobody was buying your shawls. Things looked black. It was either starve or change.
WOMAN: So we changed. Oh, it had been a dreadfully hard day in the woods that day, looking for
mushrooms and plums.
MAN: Well, that’s why I gave you the mushrooms to pick. Mushrooms are lighter than plums.
WOMAN: Yeah, but there were 10 times more mushrooms than plums.
MAN: Ha! Ha! Odd that, wasn’t it
WOMAN: Uneven, I’d call it!
MAN: But what a time I had in the market that day! Who would have thought a few plums would cause
all that trouble “Get your lovely plums! Here they are; they’re lovely! Oh, well done, thank you very
much. Have a nice day. Thank you. Well done….lovely. Oh…hey…hold on! Hold on!” How was I to
know, everybody was sick and tired of the glut of apples, and that mine were the only plums on the
market “Ow!”
WOMAN: Get off him, you bully!
MAN: Wasn’t as though I was overcharging. Oww, oww! Mine were exactly the same price as Mr. and
Mrs. Farmer used to charge when they had lots of plums. Oww…oww!
WOMAN: You could have heard a pin drop at my end of the stall- it was so quiet. Everybody seemed
sick to death of mushrooms. You’d have thought they had a bad smell- the way people kept away from
them. But they were lovely mushrooms.
34

MAN: Trouble was they were just like everybody else’s mushrooms - the Shepherds’, the Masons’, the
Cowherds’ and the Farmers’… particularly the Farmers’.
WOMAN: Trust their luck to turn up the year’s first tomato crop when everybody is fed up to their teeth
with mushrooms. Oh dear!
MAN: Oh, what a day!
WOMAN: Oh … I know! I wouldn’t have cared if I’d never ever seen another plate of mushrooms.
BOTH: Oh, no!
MAN: They were all rotten by the next day anyway, so we ended throwing them all away. At least that
was one advantage.
WOMAN: Disadvantage is what I called it. Something else could have been stored for a rainy day, but
not mushrooms!
MAN: No, not mushrooms!
WOMAN: Then I suddenly had another thought. Why don’t we use things the other way round Why
don’t we only spend an hour or so collecting mushrooms, and the rest of the time collecting masses and
masses of plums That would please our customers.
MAN: And make us a fortune. What a brilliant idea! It really made sense.
MAN: Mushrooms were getting harder to find anyhow, and the plum crop was getting better and better.
WOMAN: So that’s exactly what we did, but it’s funny how things don’t turn out how you expect.
MAN: I remember that day calling out, “Get your lovely juicy plums! Roll up, then, roll up here they are
now, the fruit to tingle your taste buds. Roll up, and please form an orderly queue. Roll up! Roll up!
Plums, all fat and juicy! Every one a winner. Come on, ten cents a bowl- all fresh-picked with my own
fair hands this morning. Straight from the…”
WOMAN: Hello! Alright, one at a time, please. Sorry, can you just be patient
It wasn’t what I’d call one of the most successful of days. Even though it was a slack time, I’m sure we
could have earned more money on either day by weaving cloth and selling clothes. Just as last time we
had a load of mushrooms we didn’t know what to do with- this time we had a mass of overripe plums.
MAN: Too true - rich man, poor man, beggar man, bankrupt. You know, I remember thinking that- the
first time people would have paid three times as much for my plums.
WOMAN: And I remember thinking, “I’d have sold all my mushrooms, if only I’d been charging half
the price”
MAN: Right, and at half the price- I’d have sold all my plums the next day.
35

WOMAN: And the next day, I could have sold all my mushrooms at three times the price. “Oh, well,”
we said, “That’s life.”
MAN: And then we suddenly had a thought. Why should it be for life
WOMAN: We’d always done things in the same old way.
MAN: But why should we always charge 10 cents a bowl
WOMAN: True, we always had. Everybody always had.
MAN: Why couldn’t we change it
WOMAN: We couldn’t.
MAN: We could, there was no law against it. This is what we said to ourselves: “Look, how much did
we make on the first day”
WOMAN: Well, 10 bowls of plums at 10 cents that’s 100 cents, 10 bowls of mushrooms, another 100
cents – so 200 cents altogether.
MAN: And how much could we have got by adjusting the prices Let’s see. I could have got 30 cents a
bowl - 300 cents.
WOMAN: And if only I’d cut the mushrooms down to 5 cents, I’d have sold the lot!
MAN: And you had 60 bowls worth.
WOMAN: That’s right. Hey, that makes 300 cents!
MAN: Right, so just by changing the prices we could have made 600 cents instead of 200 cents.
WOMAN: And today we could have done just the same. We took 200 cents today, but we could have
got 300 cents for 10 bowls of mushrooms at 30 cents, and 300 cents for 60 bowls of plums at 5 cents.
MAN: So we said to one another, “Why don’t we try it”
WOMAN: “After all,” we said, “…they can’t kill us for trying.”
MAN: And so we did. Next time we managed to find lots of ripe apples, but we also found the season’s
first peaches, so we charged 30 cents for the peaches, and 5 cents for the apples. When they saw what we
were doing- people were surprised. At first, they were a bit angry at the high price of the peaches. So I
told them they didn’t have to buy if they didn’t want to. But some people, who’d had a very good week,
could afford it. Others wanted them so much- they were prepared to do with less of something else. And
between them they bought up all the peaches despite the price. “There we go, they’re lovely!”
WOMAN: And at my end of the stall people were really pleased to find such good cheap apples. It’s
true; the Farmers were selling nice apples, too but at 10 cents a bowl. 5 cents is a very different matter.
They didn’t buy all of them mind, so I offered the last lot at 2 bowls for 5 cents - 2.5 cents a bowl is a
bargain some people couldn’t refuse. See
36

MAN: And there we were at the end of the day. There’d been no fights or scrambles for peaches, no
apples left to rot. And instead of the 200 cents we’d probably have made if we’d not adjusted the prices,
we got nearly 600 cents to show for our troubles.
WOMAN: It’s an unavoidable fact of life that goods have to be allocated somehow. And we’d
discovered for ourselves that the price of goods can prevent fights or long queues on the one hand, and
huge surpluses on the other. Am I right, or am I right And it all goes towards demonstrating a general
principle that applies to marketing anywhere. It makes no difference whether it’s fish or furniture, kettles
or computers, boots or books. Nothing has an absolute price or an absolute value. Take any commodity
you care to mention- no matter how ordinary. Its value always depends on the circumstances.
MAN: Take water, for example. In a country near the equator it can be very expensive, because it’s
difficult to come by. And in the middle of the desert near an oil well in a country like this, a barrel of
water can cost more than a barrel of oil. This chap is selling water and he’s doing very well. But in these
same places dates can be so common, have so little value, that scarcely anybody bothers to pick them.
WOMAN: On the other hand, there are some countries where dates are rare and expensive delicacies.
Yet in these same places, water might cost next to nothing, because it’s so easy to come by.
MAN: However, water is as essential to life here as it is anywhere on earth. If you live on the edge of a
lake you might have thousands of times more than you need, so its price isn’t high. Just because
something is high in demand doesn’t automatically mean it’s expensive. The balancing point is price. It
regulates on the one hand - supply - and on the other hand – demand.
WOMAN: The fascinating thing is: that if you go to any market or any shop, every price you see on
every single thing that’s for sale has a story to tell. It tells you, for example, how plentiful or how scarce
something is in relation to the number of people who are not only able to buy it, but are willing to buy it.
MAN: Comparing prices can tell you a great deal about different things with similar characteristics. An
avocado can weigh the same and may even have the same nutritional value as a potato, but the different
price of each can tell you how much more difficult one was to produce than the other, or how far it had to
travel and how much people want it.
WOMAN: Changing prices make another interesting story. The way the price of cherries and of salmon
changes between early May and late June can tell you a great deal about when cherries grow best, or
about how easy it is to catch salmon or when the season is open or closed.
MAN: But what price tells you about something has nothing to do with its absolute value. Price can only
tell you about value relative to a particular place at a particular time - it’s the relationship between supply
and demand.
WOMAN: It’s like a pair of scales. The price pointer is in the middle if demand is on the right and
supply on the left. When demand is great and supply is small, the pointer will move to a higher price, but
when supply increases and demand decreases, the pointer moves to a lower price. And this tells us the
first simple but important law of demand.
MAN: The higher the price, the smaller the quantity that will be demanded.
WOMAN: Or, if you prefer…
37

MAN: …the lower the price, the greater the quantity that will be demanded.
WOMAN: It’s a law that applies to this and every other market you can think of.
38

Supply, Demand and Price
2. Price and the Producer
MAN: “Lovely plums, lovely juicy plums. Get your lovely juicy plums, roll up then, roll up!” We’d
learned a lot from the market; in particular we learned how the price of what we had to sell affected the
behavior of the people we were trying to sell to, the consumers. We’d found that raising the price reduced
the amount people wanted to buy. It acted as a sort of rationing system.
WOMAN: Yeah, and on the other hand we’d also found something else. Lowering the price of an item
increased the amount people wanted to buy. It acted as an incentive. But the truth is- it isn’t only the
consumer whose behavior changes as the price goes up and down. The producer’s behavior changes, too.
And our behavior certainly changed, “Alright, come and get it, come and get it! Oh…forget it.”
MAN: It all began that day. I’d been out with the children. We’d walked further into the hills than I’ve
ever been in my life before. And just guess what we found
WOMAN: Hmmm, it really wasn’t the time for guessing games.
MAN: A cave!
WOMAN: A cave Who wanted to talk about caves when the meal they’d been cooking all morning
was stone cold- and the shawls they’d been making all week had to be got ready for the trader.
MAN: I asked you if you knew what it was made of. Well Well
WOMAN: Who cared what a rotten old cave was made of If you knew that unless we sold the shawls
to the trader we’d have no money left for food, hot or cold.
MAN: It was made of salt, dear!
WOMAN: Oh, what was
MAN: The cave! The cave made of salt, I explained, that we could sell salt on the market. I felt sure that
we’d do very nicely from it.
WOMAN: Oh, who could possibly be so stupid! We already had enough salt to last us for a month.
The trader brings sacks full every time he comes. It only costs 10 cents a bowl. We couldn’t possibly
compete with his prices. You see, we’d starve unless we could think of something better than that. It was
much better to make clothes and blankets. That way we got a decent amount of money for a decent day’s
work. You’ve got to admit I’m right!
MAN: Yes, but all the same I thought it was worth a try. After all, soon everybody would be wanting to
salt down meat and fish for the winter. So, I took my salt to the market next day. But nobody took any
notice of my salt. They said it was crazy to try and sell it at that price. I should have known, of course.
My wife was quite right. She usually is.
WOMAN: Yeah, and since one of us had to earn some money, I took the shawls to the trader. And
although we couldn’t sell our salt at our asking price, people needed it badly. There was a crowd waiting
39

to buy it from the trader, so they could preserve their fish and meat for the winter. But, do you know
what There was a shock in store for everybody! The trader didn’t have any salt, and he told us why.
MAN: His village salt mine had caved in. It had been terrible, the whole tunnel was blocked. They
didn’t even have any salt for themselves, let alone enough for trading. Now, if we only knew where we
could get some…
WOMAN: Yes, if only we knew where…
MAN: If we only knew where…
WOMAN: Just a minute.
MAN: Where’s she off to
WOMAN: Look! Why ‘scuse me, ‘scuse me, look!
MAN: Oh, that’s good stuff!
WOMAN: Yes! Oh, yes! Yes! Ooh, that’s lovely!
MAN: Well, we got the message soon enough.
WOMAN: You see the whole of the village needed salt badly.
MAN: No salt for the fish and meat surplus would mean that by next spring, there’d be nothing left to
eat.
WOMAN: It was a long hike to the cave and hard work when we got there.
MAN: But it was wonderfully clean, high-quality salt.
WOMAN: Yes, but the question was: Would we be able to sell it at a price high enough to make all that
effort worthwhile
MAN: And the answer was, could we not! Oh, ho, ho! Here they come!
WOMAN: Yes! Even at that price we could have sold 10 times as much.
MAN: So, naturally, we decided to get a whole load more of it. The trouble was, of course, we weren’t
the only people to realize that if you were onto salt, you were onto a good thing. We had company.
WOMAN: That awful Shepherd family had caught on. They were all there, digging away at our salt.
MAN: But even at 40 cents a bowl, salt was still well worth selling.
WOMAN: But the trouble was- everybody else realized it.
MAN: It soon began to look as though our whole village had turned to salt mining.
40

WOMAN: Yet, the surprising thing was: That the price of salt still made it worth our while to go through
the trouble of fetching it from the caves.
MAN: And another interesting thing was- that now we’d stopped weaving, there were fewer shawls
about, and their price had got higher and higher. Things continued like that for a few days. Then, the
market seemed to have settled down.
WOMAN: Prices didn’t go up much.
MAN: And they didn’t go down much.
WOMAN: The price of salt stayed at 15 cents a bowl.
MAN: Stayed at 15 cents, that is, until our salt bubble burst.
WOMAN: Yes, it was that trader again.
MAN: They’d re-excavated their salt mine and what’s more, they’d found a rich new seam. Now he was
offering it cheaper than ever.
WOMAN: You want 5 cents a bowl
MAN: And there’s plenty more where that came from.
WOMAN: Oh, so there was only one thing left for us to do.
MAN: Reduce the price yet again. Again, salted fish
WOMAN: Yes, salted fish again.
MAN: Who wants to struggle five miles to a salt cave, to dig for salt which scarcely brings in enough
money to keep the children fed
WOMAN: Well, was there any alternative
MAN: Was there any alternative
BOTH: And there it was!
WOMAN: The price of shawls had made it worthwhile thinking about starting weaving again. So, I sat
down at me loom and I began to work hard. Oh, I’d forgotten how much I enjoyed this! What happened
on that occasion was this: When the supply of salt ran short the prices rose, and that encouraged more and
more people to produce it. This increased the supply- and as more and more salt appeared on the market,
its price dropped but soon it reached a stable level.
MAN: Then when the supply rose yet again, the salt miners found that it wasn’t worth the effort and they
stopped mining, and went back to their previous job- because it brought in more money than mining.
WOMAN: Ah, I’ll soon have this one’s finished. We saw in the last program how the market was full of
messages for the customer about the present state of supply. These are scarce here today, but those are
41

plentiful. These are expensive and difficult to produce and distribute, but those are cheap and easy. And
we saw how high prices ration scarce goods, while low prices clear plentiful goods.
MAN: But the market place is simultaneously sending messages back to the producer about the present
state of demand. A busy stall tells the producer people want more of these than they can get. On the
other hand, a slack period in the market tells him people don’t want these very much, with the result that
high prices stimulate increased production, and low prices cause reduced production.
WOMAN: So, price is always acting to encourage producers to produce the right balance of what
customers want to consume, and to keep adjusting to every change in supply and every change in demand.
It happens everywhere. Behind every price in a store there is a volume of information, experience,
calculation and judgment. The manufacturer has worked out his production costs, estimated how many he
could sell at various prices, and picked the price that gives him the biggest profit.
MAN: But he’s competing with all the other manufacturers, and if his sales volume starts to drop, the
message will get back to him fast. If it’s a big change- it may mean a big rethink, and a big change in the
price.
WOMAN: It might even put him out of business. A lot of manufacturers of hand-wound watches had to
do big rethinks when electronic watches came onto the market at a fraction of the price.
MAN: But it also works the other way. In the 1970s, during the UK bread strike, bread prices shot up.
But people still wanted to buy bread. This stimulated others to hire trucks and import loaves from
Holland. At the normal price, transport costs were too high to make bread importing worth anyone’s
while. But when scarcity doubled the price, it was a very different story.
WOMAN: In the same way, the quadrupling of world oil prices in 1974 made other kinds of energy
production more attractive to producers. Offshore oil, coal, nuclear power, wind power, they all had been
rated too expensive, but that only meant compared with oil. So, when oil prices shot up, it became worth
people’s while to pay the extra production and distribution costs, because they could now charge pricesthey
never could have charged when oil was cheap.
MAN: The high oil price did what high prices always do-- discouraged and rationed the consumer, but
encouraged and stimulated the producer.
WOMAN: What happens is this: When the price is high, people are encouraged to produce a lot.
MAN: But after the first rush, you won’t get many customers, because the high price puts them off.
You’ll have a lot of unsold goods. As the price drops, fewer people think it’s worth producing. But more
people think it’s worth buying, and so it goes on.
WOMAN: About here, you reach a point of balance, a price which stimulates the production of just
about the amount that customers will buy at that price. If the price goes on downwards, more and more
producers will be discouraged, but at each falling price stage- more and more people will want the goods.
MAN: That’s when you get fights, queues and black markets. This price, the one in the middle, is called
the equilibrium price, the price most goods settle down at.
WOMAN: So, just as we saw in the last program that there’s a law of demand. There’s an equally
important law of supply…it’s this:
42

MAN: The higher the price offered, the greater the quantity supplied…
WOMAN: Or if you prefer…the lower the price offered, the smaller the quantity supplied.
MAN: And like the law of demand, the law of supply applies to this and every other market you can
think of.
43

The Mixed Economy
MAN: Do you remember that day we set out on our great journey
WOMAN: Oh, I certainly do. And all because somebody started a rumor that there was a hidden
village- where people made a kind of cloth entirely different from the sort we make.
MAN: We discovered that it was more than a rumor. There really was a hidden community, and it was
quite unlike ours. Hello there! (Echoes)
WOMAN: Hello (Echoes)
MAN: Hello there (Echoes)
WOMAN: Hello (Echoes). We had a surprise, I can tell you. They were strange.
MAN: I hope they’re going to be friendly.
WOMAN: I do, too. Look, they’re coming our way!
MAN: Just stand and smile.
WOMAN: Hello, we brought these… (Uhh, say hello.)
MAN: I’ve got one, too.
WOMAN: …to greet you, lots of you have come to greet…oh-- they’re for me
MAN: Oh, that’s nice!
WOMAN: Oh, lovely.
MAN: Oh, I get one too! Oh, look at me! I look like a…
WOMAN: You with flowers around your neck!
MAN: Lovely. But they were wonderfully friendly.
WOMAN: Would you believe it They didn’t use any wool at all to make their cloth; they used this
fiber. It grew on plants. Cotton, they called it.
MAN: The amazing thing was that their cloth-making machinery was very like ours.
WOMAN: It’s true they didn’t have such an efficient foot treadle on their spinning machine. But the
turn shuttle on their weaving machine was twice as fast as ours was. It’s amazing!
MAN: Look at that! And the finished cloth – oh, that’s really something!
WOMAN: Yeah…so we had an idea – we decided to offer to buy some of their cottonseed.
44

MAN: But would you believe it They didn’t understand what money was. They’d never even heard of
it.
WOMAN: So I asked them how they managed without money on market days.
MAN: And the funny thing was: They didn’t even know what a market was. Would you credit it
WOMAN: They didn’t seem to want anything to do with our money, did they
MAN: Not at all. I checked to make sure they didn’t all produce small amounts of different things
inefficiently like we did in the bad old days. They agreed that they did specialize. Some produced cotton,
others pots, wheat, others sheep…and so on. “It’s more efficient that way,” they said.
WOMAN: But the big question was: How did they share everything out
MAN: They explained.
WOMAN: It starts with a council of elders. They decide how much of everything the village is going to
need next year: how much beef, how much cotton, how much fish…and so on. Then they produce a plan
for the whole village, saying how much of what product each family has to produce each year. When the
produce is ready- it all goes into the village store.
MAN: “Aha,” we said, “People like your Fisher family must be honest as anything, but some people
cheat you know, like those awful Shepherds in our village.”
WOMAN: Oh, they’re shocking they are!
MAN: Horrible!
WOMAN: Can’t trust them for a minute. “No,” they told us, “the guardians see there is no cheating.”
They allocate so much of each product to each family, the ration they’re given is the basis of the original
plan.
MAN: “But,” we said, “supposing you don’t grow what you’re told to, or don’t like what you’re given”
WOMAN: “Well,” they said, “you can apply to the elders for a change next time. And in any case, most
people have their own private patch where they grow things they especially like. And if they exceed their
production quota, they can keep some to swap with other families.”
MAN: That does make a certain amount of sense, you know.
WOMAN: Yeah, it does.
MAN: But we explained to them that that was the way we once ran the whole village, and that now we
have an even better system, and we don’t have to do what we’re told.
WOMAN: “How” they asked.
MAN: “Come and see,” we said.
45

WOMAN: So they did. And this is our village.
MAN: …and that’s Mr. Mason.
WOMAN: Oh, yes, hello!
MAN: …and the Shepherds are over there.
WOMAN: Umm.
MAN: We explained how everybody grows what they like, and brings it here to the market. We used to
swap our goods, but that became too complicated. We solved that problem with money. It’s the price of
the goods that keeps the balance between supply and demand. Nobody tells anybody what they have to
produce or what they have to consume. Simple, you see
WOMAN: “Yes, but…” They weren’t fools, our new friends, they could see problems.
MAN: “Is it possible,” they said, “for one person to pay another to do a job”
WOMAN: “Yes,” we said.
MAN: “Well, in that case” they said, “then the employer must tell the employee what to produce. That’s
right, isn’t it” And you’ve got to admit it’s a fair point.
WOMAN: “And who,” they asked, “took the decision to build the road”
MAN: “And who is responsible for building this bridge to the meadow Who is going to build that
watchtower we’ve been talking about”
WOMAN: “And what happens when there is a wheat blight or a fowl pest, and one family has nothing to
take to the market”
MAN: We explained that we sorted some of these things out at the village meeting. Everybody who
turns up has a right to a say. We eventually come to an agreement how much everybody will chip in to
pay for things like that.
WOMAN: “Ah, but supposing you don’t agree” they asked.
MAN: Well, we just do. We have to.
WOMAN: “You have to” they said, “In that case, it’s just like how our council of elders plan. You
contribute what they decide, and they distribute it how they choose.”
MAN: The truth is we both work the same way, both of us have some voluntary exchanges, and both
have some planning and allocation. The only difference is we do things in different proportions.
WOMAN: What we have seen is an imaginary illustration of the two principle economic systems. This
village is an example of a market economy – a system based on voluntary exchanges with a price
mechanism taking care of many allocation problems. But even the best markets can’t take care of
46

everything. And we saw how hardship and public amenities were taken care of by central direction and
compulsory contribution. And that will take care of the tower!
MAN: The cotton-growers’ village was the opposite – a planned economy based on central direction and
control; but even there planning couldn’t take care of everything. And a simple voluntary exchange
system had grown up side-by-side with the planned economy.
WOMAN: There you are.
MAN: Oh, look at that! That’s a prize winner!
WOMAN: Oh! Thank you very much!
MAN: It’s the same in the modern world. The old Soviet Russia was one of the most extreme examples
of the planned economy. The government set a 5-year plan and every industry had quotas and targets.
The farms were collective farms- producing for the state to a plan laid down by the state. And everybody
had a job allocated to them. But even in Soviet Russia, people were allowed to produce their own food
when they met their state quota, and there were free markets where they could sell it.
WOMAN: Equally, most people would point to the United States as a prime example of the free market.
But the U.S. takes billions of dollars in compulsory taxes from the citizens to provide them with centrally
planned and controlled services: roads, police, schools, health, public housing. Curiously, a lot of these
are also provided by the market: commercial security guards, turnpike roads, private schools, private
hospitals, private homes. They exist side-by-side.
MAN: The truth is: that although the market economy and the planned economy are two opposite
solutions to the problem of allocating scarce goods and services, there is nowhere in the world where you
will find either in it’s full state. Every economy is a mixed economy. What makes systems so different is
the balance each one strikes between central control and market forces.
For a list of additional resources to use with this video go to
www.izzit.org and click on The Foundations of Wealth video.
47

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