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To: Ilaine who wrote (6158)	7/22/2001 9:45:58 AM
From: Don Lloyd	Read Replies (1) \| Respond to of 74559

CB - Assume two rural neighbors, Sam and Art, each of whom can survive on a diet of one ham sandwich and one cup of coffee per day. Each neighbor produces his one ham sandwich in 45 minutes and, similarly brews his one cup of coffee in another 45 minutes. In sum, each neighbor works for an hour and a half per day to make his own meal. Each neighbor realizes that by increasing the scale of his meal production, a larger meal can be made at a lower average cost of labor. In particular, making two ham sandwiches at once takes an hour, and making two cups of coffee takes an additional hour. So, in a total of two hours, each neighbor can make a meal that is twice as large for an increase in time from an hour and a half to two hours. However, each neighbor is generally satisfied with the smaller meal of one ham sandwich and one cup of coffee and prefers to use the additional one half hour of meal preparation and reduced time to meal completion sleeping in his hammock in the yard. When Samson, the son of one of the neighbors, Sam, comes home in July having completed his PhD in Economics, he brings his own food along with him in his backpack as a result of the time that the university's vending machines were accidently programmed to accept Sacagawea dollar coins as if they were really made of gold. Since Samson had worked as a summer intern for the US Mint the previous year, he was the only student who had ever tried using a 'golden dollar' from his pay envelope in a vending machine, and by chance, collected not only three lemons, but the entire contents of the vending machine. After spending six late night hours visiting all the vending machines spread throughout the campus steam tunnels, Samson had collected a full five year food supply and a greatly increased probability of contracting a case of adult onset diabetes. With his economic education, and his positive experience with money, Samson quickly realized that the slack in the neighborhood was not limited to the hammocks. It was clear that the standard of living could be improved by trade, money, and a division-of-labor economy. After much discussion and argument, Sam and Art were convinced. Sam legally changed his name to Mr. Ham Sandwich and Art changed his to Mr. Coffee. From now on the two neighbors would specialize and each would sell his surplus production to the other. In particular, Mr. Ham Sandwich would make two ham sandwiches in an hour, and would offer the second one to his neighbor for a dollar, cash in advance. Similarly, Mr. Coffee would brew two cups of coffee in an hour and offer the second one to his neighbor for a dollar, cash on delivery. To kick start the process, Samson gave his last Sacagawea dollar to Mr. Coffee, as it was covered with ugly spots and retained little opportunity cost as all of the world's vending machines had been re-programmed to recognize its true value. To summarize the new economy - 1. Mr. Coffee gives Mr. Ham Sandwich a dollar and an order for a ham sandwich. 2. Mr. Ham Sandwich gives Mr. Coffee an order for a cup of coffee and makes two ham sandwiches in an hour, delivering one to Mr. Coffee and saving one for himself. 3. During the same hour, Mr. Coffee brews two cups of coffee, delivering one to Mr. Ham Sandwich in exchange for a dollar and saving one for himself. 4. After only one hour, each neighbor has the same meal that used to take an hour and a half to make for himself and Mr. Coffee still has the Sacagawea dollar that he was given by Samson. Each neighbor now has an extra half hour per day to sleep in his hammock. With the extra half hour of onerous hammock sleep per day, after a few weeks the two neighbors realize that a second meal per day, produced by a now efficient economy, may not be such a bad deal after all. They decide to double the level of economic activity by producing and consuming two meals apiece per day, each taking one hour to produce, separated by 12 hours. When Samson returns the next year for a visit, he is shocked by the doubling of economic activity. "How can you operate at a higher level of economic activity when I didn't increase your money supply?", he exclaimed. Sam replied, "You mean that little metal disk with the pictures of the indian squaw and the eagle that you gave Art?". "Yes, except the pictures were of a Native American and an endangered species of bird." replied Samson. "Well," said Art, "we never did quite understand the purpose of exchanging that back and forth, and we quit after a week when we forgot one time and the taste of the sandwiches and the coffee was just as good." Regards, Don