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| Arthur Laffer once said that if something doesn't work in a two-person economy, then it's not good economics. While true, this statement is not entirely useful as a model -- because not all economic realities can be modeled by using just two interacting agents. This got me thinking: What minimum number of interacting agents would succeed at being sufficient to model every economic reality known to mankind? I think the answer is: 5. Let's say you've got 2 business owners and 3 potential employees. That means that each business owner might have one employee working for him or her, and the 5th individual might be either a floater -- sometimes employed by one company, sometimes the other -- or even a bureaucrat. As a third alternative, the 5th individual could choose self-employment. That covers all of the bases. If there is greater marginal productivity of labor in one of the 2 companies -- which metaphysically allows for increased rewards -- then the floater eventual works there. An interesting fact is that there is always greater marginal productivity of labor in one of the 2 companies, the contradiction of which is so rare as to be absurd (like two 90-story skyscrapers accidentally built exactly the same, down to the last light-switch or ceiling tile). Now, what would happen in this 5-person economy if a minimum wage was set at a level above market value? What would happen if 2 of the 3 employees formed a union and demanded rewards above market value? The questions (and answers) are endless. Ed | ||||
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