## Macro-economic modeling (3)

### June 22, 2010

Refer to an earlier post for background.

Baseline + skilled services

In this scenario it is assumed that (a) people desire various services and products in addition to requiring food (e.g., tailored clothing, home construction and maintenance, professional entertainment), and (b) some of those services and products can be provided only by a gifted few, so that a competition between the landowners for the skills of those few drives the price being paid for their work beyond subsistence level.

Without assumption (b) the effect of assumption (a) alone would be merely an increase in the consumption of the landowner’s household (2000 calories per day for each [unskilled] non-farmer employee), which would translate into an increased number of farmers per landowners household (20 more farmers for each non-farmer position, according to the baseline scenario), but would create no additional effect, since no person other than the landlord would have income to dispose on the luxury products or services. Assumption (b), however, implies that some of the luxury providers would themselves gain disposable income which they would spend on purchasing luxury items and services for themselves. This creates a middle class where none existed before.

To quantify assumption (b), let us assume that each landlord employs u unskilled employees, who are paid 2000 calories per day, and s skilled employees who are paid 4000 calories per day. The unskilled employees consume their pay in full, while the skilled employees consume 3000 calories per day, and pay the rest to an unskilled employee who performs services for them (each unskilled employee works half time for the 1000 cpd that the skilled employees can pay).

In this scenario, therefore, the total number of unskilled non-farmer employees per landowner is u + s / 2, each of which consumes 2000 cpd, while the landowner and the skilled employees consume 3000 cpd.

Using the baseline figure of 100 excess cpd per farmer, this implies that there would be 30 (1 + s) + 20 (u + s / 2) farmers per landowner. Since this number must be smaller than the number of available farmers, this limits the total number of non-farmer workers. Keeping a staff of a few dozen skilled and unskilled employees would require hundred or even thousands of farmers. Thus, it may turn out that the landowner would be left unsatisfied since there would not be enough farmers around to feed all the non-farmer workers he would like to employ. Therefore, contrary to all the previous scenarios considered, the limited number of people per landowner becomes the limiting factor for the total amount of food produced (and thus for the total activity). This situation become less likely in the next scenario.

Baseline + skilled services + technology

In this scenario the assumptions of the skilled services scenario and the assumptions of the technology scenario are combined. Under those assumptions, each farmer (trained to use the farming machinery), produces surplus of several thousand calories per day (the exact number depends on how well the engineer is compensated) – say, 6000 cpd. Thus, feeding the u + s / 2 unskilled employees and s skilled employees requires merely (3 (1 + s) + 2 (u + s / 2)) / 6 – i.e., one sixtieth of the number of farmers required to feed them without the machinery. Each farmer (+ machinery) produces enough calories to feed himself, a non-farmer skilled worker and a non-farmer unskilled worker (in addition to paying the engineer and producing materials to offset equipment depreciation). It now becomes again less likely that the limiting factor for the total production (food or otherwise) is the available supply of people, and more likely that it is the limited propensity of the landowner to consume that limits production.