The Anatomy of an Economy

Jack and Judy had a farm. It wasn’t very large but it was well rounded. They grew a variety of vegetables, raised cattle, chickens, and incorporated a small dairy. They were dedicated to excellence and as a result had a very successful operation. As they grew, they added to their farm. Jack and Judy built a large barn, grain elevators and they doubled the size of their acreage. They found they could expand faster if they borrowed to finance new purchases, they did and they grew in leaps and bounds. Gradually they hired people to help with the care and maintenance of their farm and the larger they grew the more people they employed. Their dedication to excellence never wavered and it guided all that they did. Eventually, they had a large business; it produced a variety of agricultural products, and employed many people. As a result of their efforts those who supplied goods and services to them prospered, their employees and their families grew, and their community thrived as well.

Jack and Judy grew old and retired, leaving their business to their children. The focus now began to change from the production of food to one of business growth. Their children began to believe if they grew larger, they would sell more and thereby serve more. However, the dedication to excellence began to suffer because they had only so much attention they could give their enterprise. Consequently Jack and Judy’s children focused more and more on size. They financed their growth through borrowing and they grew their operation beyond anything they could have imagined. To meet increasing demand they purchased products produced at other farms, and sold them with their own. As they grew in size and scope they began to call themselves an agribusiness. All of this went exceedingly well and Jack and Judy’s children grew old and retired.

Jack and Judy’s grandchildren were taken by how much products they could purchase from other farms, and how little effort was required. Although their financial resources were now considerable, they wanted to focus on growing them speedily, with the least amount of effort. A dedication to excellence, they would reason, was what was necessary for starting this enterprise, but they were now several generations removed from Jack and Judy. They produced less, they purchased more, and their business grew beyond their grandest expectations. As a consequence, the agribusiness needed less farm workers but Jack and Judy’s grandchildren reasoned more net jobs were being produced to bring their vast array of goods to market. This was little consolation to their farming employees who lost their jobs but they were free to seek employment with those who still produced farm products. Finally, the business grew to the point where the family sold all of the land on which they formerly produced food. They borrowed more, purchased more and sold more than ever. However, they were now distributors of farm products and not the producers of it. As a distribution company the type of employees they needed and numbers of people drastically changed. No longer did they need agricultural employees of any kind, land, crops, livestock, these were commodities others owned. Jack and Judy’s grandchildren grew old and retired.

The family that inherited this large, successful agricultural products distribution business reasoned diversification would be to their advantage. If they invested in other businesses in other industries they would be in a variety of businesses at the same time. They used their resources from their agribusiness to invest in other businesses and did this remarkably well. Income from their investments soon surpassed by far their income from their agricultural business, and by virtue of their wealth and power, they began to dominate certain industries. Slowly but surely the family divested themselves of their agricultural holdings until they were purely investors. They were very concerned with the growth and profitability of the businesses they invested in because business health was the basis of their future wealth. What a partnership it was, businesses was in need of cash to grow and an investor was in need of sound investment. No longer did the Jack and Judy family business need those involved in the distribution of agricultural products, they in fact now needed only a fraction of the number of employees to run their investment enterprise. However, they reasoned, the businesses they invested in were growing and employing more people so result was still a net employment gain. Again, this meant little to the employees they discharged but they reasoned somehow it would contribute to a larger good. As investors the family was spectacular, soon others gave them their money to invest, and rewarded them handsomely. Business grew so large soon they had more of other people’s money invested than their own. Jack and Judy’s great grandchildren grew old and retired.

The family business was a dominant force in finance and others sought their advice and counsel. Businesses lined up in incredible number to give them their money to invest, and the family now became a significant force in the economy. Pressures for return on investment grew and as a result less attention was given to the health of the companies being invested in and more to the profit on the transaction. The family reasoned, if we can make more money from buying and selling our investments than we can in the growth of the businesses we invested in, we could satisfy the needs of our investors. Little by little investments were made with the focus on their eventual sale for profit rather than the healthy growth of the businesses being invested in. No goods and services were produced, funds were not invested to grow businesses but simply to grow returns on investments. Now came the age of manipulation. The family no longer produced wealth, they merely redistributed it. More and more exotic instruments became invented to manipulate wealth which grew to an incomprehensible size. Those most revered were the greater manipulators but still they contributed little in the way healthy growth. Soon the economy became centered on this artificial form of commerce. Instead of investment in business there was pure speculation for gain. Where once production was considered a noble enterprise, risk simply for profit took its place in the hearts of Jack and Judy’s ancestors. Net employment grew, not because of business growth but because of an artificial economy growing on illusion. Instead of the economy growing credit grew adding to the illusion of prosperity. People held jobs supporting the illusion, most purchases were financed, credit was plentiful and business grew. However, because the growth was artificial, no new wealth was being created and as a result the illusion not the economy was being served. The illusion had its own demands and they were relentless. Transactions no longer benefited all parties, and nothing of lasting value was being created. Soon legitimate business began to suffocate for lack of funds because the capital needed to finance business growth was being used by the financial institutions to manipulate short term profits.

Gradually, the production of goods and services moved to economies less dominated by incessant greed and here, in other lands new wealth was being created. By this time the descendents of Jack and Judy had no idea what they lost or where they lost it. They found, to their chagrin, the fruits of manipulation have a very short shelf life, and must be replenished continually. And, like a narcotic, the growth to which they had become addicted to, required an increasing amount manipulation for a dereasing amount success. Success was no longer their friend but their insatiable and relentless task master. Time went by and as the illusion grew so too did the entire economic structure that supported it.

Soon credit began to become scarcer because it was needed to support legitimate growth in other economies. Jobs, which were part of a phantom economy, began to become unavailable and unemployment rose. Those who lost their jobs and ultimately their homes were told, it was their own fault because they lived beyond their means. The offspring of Jack and Judy began to reason how they could increase employment but they had already dismantled the economy that could support a healthy work force. For in the end, it was the economy that needed to be revived, and no one could see this. Finally, when the lack of credit reached a critical point, the manipulators could no longer redistribute wealth, the illusion faded, and the economy shrunk to a fraction of its former size. What creativity was left moved to those robust economies that could support it and the estate of Jack and Judy lay in ruin.

Although the fire was all but extinguished, there remained a spark, a flicker of light that shone from Jack and Judy’s candle. What was done once can certainly be repeated. The pattern was set for those who would take up the torch once again. For those who wished to contribute to the welfare of others, who were dedicated to excellence, they could build a new economy. It required first a realignment of values, and methods consistent with those standards. If there was the courage to proceed it could be done in hundreds even thousands of places, one transaction at a time. One transaction, in which all parties gained, the people reasoned, could not be impossibly difficult. Here is where they would begin and they would continue until the light of Jack and Judy once again illuminated the land.

6 Responses to “The Anatomy of an Economy”

1. Marvin says:

   July 27, 2011 at 3:45 pm

   There are no Jack’s and Judy’s in numbers willing to start businesses today. Way too much regulation and taxes ( in addition to income taxes) are too high. The country/states are not very business friendly and total labor costs are high for a start-up to be successful. Cost of capital is expensive providing you can get it. The courage to start is just not there. It’s sad, but that’s the way I see it.
2. Harvey Green says:

   July 28, 2011 at 8:13 am

   Aloha Marvin, Thank you for your insightful comments…
3. Michael Han says:

   July 28, 2011 at 6:17 pm

   I disagree with Marvin. Although, it is certainly important to have resources to draw from, most successful entrepeneurs succeed by being resourceful and relentless. A small business owner creates value for their customers one customer at a time through focus and hard work just like Jack and Judy.
4. Harvey Green says:

   July 29, 2011 at 8:16 am

   Thank you Michael, good thought and well said.
5. Takako Friend says:

   August 2, 2011 at 8:04 pm

   Very interesting and deep. Thank you very much for your guidance. I also tend to lose focus on the core of my business, because there are so many things I would like to do.
   Thank you very much for your important time today!

   With warmest Alohaxoxox,
   Ta
6. Harvey Green says:

   August 3, 2011 at 12:06 pm

   Aloha Takako, thank you for your kindness… Harvey