Working on an Island

DealConsider three individuals who are living on an island. Imaginatively let’s call them Gus, Carl, and Zeke. 

 Now, through a lot of risky hard work climbing trees and picking fruit, Gus has accumulated quite a stash of coconuts.  However, since Gus has been busy climbing trees, he has had no time to construct a hut in which to live.  In contrast, Carl has no coconuts but is known throughout the island to be a wizard at hut construction. 

 Gus and Carl realize gains from exchange are there for the taking, and they meet to negotiate a mutually agreeable contract.  Behaving as if they were free individuals, after some negotiation Carl agrees to build a hut for Gus in exchange for 7.25 coconuts per hour.  Of course, Gus and Carl are happy with their deal or they wouldn’t have agreed to it in the first place.

 Enter into the picture, Zeke.  Zeke is not a party to the trade and is really unaffected by Gus and Carl’s exchange.  However, Zeke is at heart nothing if not a frustrated bureaucrat and loves things like meetings, extensive discussions, “Robert’s Rules of Order,” and other such nonsense. Zeke is a weird bird who derives personal satisfaction from making and imposing rules upon others.   In particular, Zeke greatly enjoys ensuring that Gus and Carl adhere to his set of laws.  It is Gus and Carl’s unending misfortune that they are fated to share the island with Zeke.  (Apparently Zeke has a prison and monopolizes the island’s most sophisticated weaponry, which means Gus and Carl must take Zeke’s mandates quite seriously). 

 After overhearing the negotiations between Gus and Carl, Zeke decides that 7.25 coconuts per hour is not a “fair” wage, and that the compensation paid by Gus must be at least 9 coconuts per hour.  Also, glancing markedly at his weapons, Zeke reminds Gus and Carl that he is the law on the island.  He even goes so far as to suggest that the higher wage will stimulate the island’s economy, since Carl will be wealthier if he gets paid more coconuts.  Finally, Zeke gently reminds them that they must, of course, not forget the transaction tax to him of 1 coconut per hour—after all, regulation, enforcement and quality weapons don’t come for free!

 Evaluating his pile of fruit, Gus decides it just isn’t worth it.  He doesn’t want to pay 9 coconuts per hour, and calls off the transaction. Zeke has no problem with thwarting the exchange, his only concern was that no work gets performed at a wage he decides is “unfair.”  Carl is apparently hardest hit—he really wanted to eat.  After the deal is nixed, Carl is sometimes overheard grumbling that he wishes Zeke would get his nose out of his business.  Gus contents himself with quietly thumbing through weapons catalogs.

 (By the way, if you like island parables, you will enjoy Capital as Money.)

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