Three men are sailing to a free market economics conference when their boat sinks. They swim ashore to a deserted island. All 3 agree that rather than band together, they will have superior outcomes if they treat the island as a new economy. They divide the land into thirds. Each man grows crops, catches fish, evaporates seawater for salt, catches and stores rainwater to drink, and builds their own shelter from palm trees.
Each man eats bucket of crops and a bucket of fish every month. Each man drinks 4 buckets of water a month. Man A is able to grow 2 buckets of crops on his plot alone each month. The crops are harvested all at once each month. Man B is able to catch 2 buckets of fish while fishing only part time. A bucket of fish will go bad after an hour so the men must salt cure the fish to last longer. It takes a bucket of salt to cure a 4 buckets of fish. A bucket of salt needs 1 week to make using large broad leaves left in the sun to hold the seawater.
Enter Capitalism: Comparative Advantage
Man A is an excellent farmer and fisherman. Man B is an excellent fisherman, Man C is an excellent capitalist. Lacking currency, the men decide to simply barter goods. Man A realizes he will eat the most if he devotes all his time to farming rather than fishing. Man B, while not as good of a fisherman as Man A, realizes he will eat the most by devoting all his time to fishing and trading fish to Man A for grain. Man A rents land from Man B and Man C in exchange for grains. Making salt is not very time consuming so Man C spends some time making everyone salt in exchange for a small bit of fish. He spends the remainder of his time catching fish. Man C still earns more grains from renting his land to Man A than farming even though Man A only gives him half the crop grown.
True Capitalism Step 1
Man C sees an opportunity. He convinces Man A to destroy all the trees on his land with broad leaves so that the land produces more crops. Man B is uninterested in this as he knows that he needs to the leaves to make salt for his fish sometimes. Man C offers to buy the leaves instead at a rate of 1 bucket of crops for all the leaves that will grow that month and Man C will do the work of getting the leaves. Man B accepts this offer.
Man C climbs the trees, takes the leaves, and cuts the branches to inhibit future leaves from growing. Then he makes as much salt as he can. With his stockpile of salt stashed away, he has cornered the market on salt.
Man B is unable to cure his fish without salt and any big catches will spoil. Man B, after hauling in a large fish asks Man C to sell salt but Man C reports, his store of salt fell into the water and he is starting over. Man B now sells his fish at very low rates to Man A. But Man A has no salt and can only eat so much fish. Man A and Man B attempt to make salt using flat logs but it’s not as productive. Man B sells a great portion to Man C, but Man C knows he doesn’t room to cure all the fish before it goes bad. The back half of the fish goes to waste.
Step 2
With no way to cure the fish, Man B’s income has gone down considerably. Fishing is very erratic as well so Man B is not catching fish every day. Man A abandons some of his crops to spend time fishing and making salt as both commodities are now more valuable than crops. Man C pays Man B the crops promised earlier. Man C offers to purchase the neglected crops from Man A for a small sum of cured fish. Man C is also able to buy a large share of crops with his cured fish. Man C offers to buy a portion of Man B’s land in exchange for fish and crops. Man B auctions off his land and Man C easily outbids Man A.
Step 3
Man C has all this extra salt and still doesn’t have all the land. So Man C spreads the salt on Man A’s land, killing the crops, likely for several months to come. Man A’s contract with Man C to work the land has just ended and Man C has chosen not to renew. Man A attempts to buy farmable land but Man C won’t sell for any price. Man A eventually runs out of food and must sell the parts of his land that still don’t produce. Despite being the best fisherman, Man A cannot produce enough salt to save his fish. Man C and Man B bid for Man A’s land. Man C is easily able to outbid and get all the land offered. Man C now offers to rent out his land to Man A to farm in exchange for 75% of the crop harvested.
Step 4
Man C stops renting out his land and does not give out any salt. Eventually, Man A must sell his remaining land little by little for food. Man C looks at his island home, complete with a large hut on former farmland, the small huts of his employees, and the large plate of food he enjoys every night. The other two men are busy toiling to notice him giving the “A OK” sign to a passing ship.