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How the Economy Really Works

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There is a lot of confusion about how the economy really works. So here is a three minute lesson to clear things up. We find ourselves on an island with four people on it. On this island, the use rare shells as money to make purchases, each person has their own occupation. There is a farmer, a builder, a clothes maker and a fisherman. The same, as any other economy, but simple so we can see how things work, when the builder want to fish for dinner, he buys one with the shell. The fishermen may need a new short, so takes that same show and by short. The clothes maker may want some tomatoes, so buys them from the farmer with the same shell. The farmer now needs a new room on her hot, so gives the shell to the builder in exchange for his work. Notice, what happens here. The builder has the same shell, he started with. The money situation has not changed, but also noticed everyone got what they wanted. Everyone is richer or better off, even though they do not have any more money.

Things work, this way on the island. Until one day, thousands of shells wash up on the beach. The islanders are excited and gathered them by their huts. They all feel rich, because they have lots of money. The when the builder tries to exchange a show for some tomatoes, the farmer does not want the show. Neither, do the others because they all have enough. No one needs anymore, so the shell’s become worthless. The only thing that remains valuable is the product or service each one has to trade. They will still be able to trade, what the maker do, that the shells are worthless why? Because wealth is not found in money, money’s just a point system to keep track of who owes, who value. Wealth is created when we create valuable products or services to trade. Wealth is created by creating value.

We can have all the money we want, but if no one is making valuable products or services to buy our money’s worth less. Whether you live on an island or countries have millions, this principle never changes. Wealth is always created by creating value. The wealth of the individual community or country depends on the value it can create. To learn six more principles that will help you create your own value.

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