[*ax2+ bx + c=0 x=-b±(√b2-4ac)/2a The full solution of this general problem of the second degree can be found in any textbook of primary algebra. The Author]
“Exactly. Let’s set up the general case of a production-consumption cycle under the rules of your period and work out a few problems. Then perhaps we shall see the principles involved and be able to state a general solution which will answer all our questions about economics.”
Perry scratched his head. “Look. That’s all very well in simple algebra like quadratic equations, but in economics we deal with an indefinite number of unknowns and too many factors. How can we possibly do this?”
“We’ll cross that bridge when we come to it. All special cases in the actual world are complex, it is true, even in quadratic equations. But the general case may turn out to have pleasing simplicity. Let’s try to formulate it, and see. Have you pen and paper? Let’s write down our elements. What are they?”
Perry thought. “A factory.”
“Yes.”
“The entrepreneur or industrialist.”
“Go ahead.”
“Raw materials, and labor, and land.”
“Continue.”
“Consumers.”
“That is right, but who are they?”
“Everybody. All of the public.”
Davis nodded. “True, but this is the general case. What does that imply?” Perry looked puzzled. “I’ll tell you, then. The consumers are the people you mention plus their dependents, and no others. Even retired people enter the picture as capitalists or dependents, as well as consumers.”
“Yes, I think I see that.”
“Each individual has a dual role, appearing both on the production side and on the consumption side. Even a child appears as a producer through his father and appears as a consumer of goods purchased by his parents. We can disregard dependents from here on as they are represented economically by the head of the family.”
“How does a widow living on insurance appear in the set up?”
“As a consumer of earlier production of the deceased head of a family. We’ll take that case up later when we are ready to deal with it. Let’s get on with our set up. What else do we need?”
“A bank or banks.”
“Yes, and bankers, stockholders, bank clerks, and so forth. Will you let me lump them together as a bank and a banker, remembering of course the collective nature of the terms?”
“Okay, I guess.”
“Very well, then. Do we need anything else?”
“Not that I can think of.”
“Was the United States an anarchy ?”
“No, of course not.”
“Then we have the government, and all of the subdivisions of government, public servants, taxes, and laws, and the government as a consumer.”
“This grows complicated.”
“Not too complicated. Let’s represent government, and all subdivisions, as ‘US’, which you can think of as ‘United States’ or as ‘us’, for in the United States the government is everybody taken collectively. Public servants work for ‘US’. Now do we have all elements?”
“How about farmers and professional men? They are certainly consumers.”
“Yes, that’s true. The case of the farmer is simple. Economically speaking, he produces in the same fashion as the factory owner, using the same elements; labor, raw material, land, enterprise, and so forth. If he employs no labor but himself and his family, ‘profit’ should appear as a large item in cost, and labor wages as zero. It becomes simply a special case under the general case. The professional man appears as a different type of laborer when he is hired by a production unit, for example corporation lawyers. Professional men serving the consuming public directly appear in the production-consumption chain in a one-to-one relationship of transfer without destruction of purchasing power. When you pay a medical man ten dollars for advice, your potential power to purchase and consume doughnuts or automobiles is reduced ten dollars and that of the doctor is increased by ten dollars. There is another element we have not named however. Can you guess it?”
“Mmmmmn—no, I’m afraid not. It seems to me we’ve covered the—Wait a moment. Technique! Knowledge.”
“Exactly. Most knowledge is free to all of us. But some things are patented or copyrighted. Let’s call the owners of techniques inventors. Now we are ready to roll. If we set up our hypothetical domestic economy so that it is structurally similar in every way to the economy of your period, it should work like your period. If we change the man-made laws to those of this present period, it will work like this present period. The natural laws involved remain the same structurally. If we can distinguish between man-made rules and natural necessity, we will know what we can and what we can’t do with an economic system.”