two producers model

Let’s take a look at a very simple social arrangement where capitalist relationships are established:

a) the tools and materials are owned by two businessmen, Richard and Robert, whose companies produce bread and milk, respectively;

b) production -the process of elaboration of bread and extraction of milk- is carried out by two workers, David and George. David works for Richard and George for Roberts in exchange for wages.

capitalism production distribution

The total population equals 16 persons divided into 4 families. For the sake of simplicity, in this first model each family consists of an equal number of members, 4.

A currency that we’ll call “the foody” (F) will operate as means of exchange. Wages, salaries and products will be paid in foodies

The following assumptions, conditions and restrictions will apply:

a) the time frame is one economic day;

b) production will satisfy the total demand of the population. Assume that each person needs at least 1 piece of bread and 1 glass of milk daily to survive;

c) the 2 workers receive the same wage -one foody per hour (1F/hr). This compensation allows them to satisfy their families’ minimum needs: 4 pieces of bread and 4 glasses of milk per family;

d) the working day is at least 8 hours;

e) owners receive a salary for their administrative and managerial work in the firm, twice the wages of the employees, so each owner receives 16 foodies. They consume what the company produces and acquire it in the market -i.e., they buy their own product;

f) Twenty four pieces of bread and 24 glasses of milk reach the market;

g) workers are unable to save, so their wages are 100% destined to satisfy the needs of their families;

h) owners don’t save either -i.e., their salaries go fully into consumption;

i) neither company generates a profit -revenues equal costs;

j) the market clears, everything is sold.

The wages of David and George are the same, enough (remember: they don’t save) to buy 4 pieces of bread and 4 glasses of milk each:

w1= 4b + 4m = 8F

w2 = 4b + 4m = 8F

where b and m are the prices of one piece of bread and one glass of milk, respectively.

The salaries of the owners is:

s1 = 8b + 8m = 16 F

s2 = 8b + 8m = 16F

The consumption of each worker’s family is:

CW1 = 4b + 4m = 8F

CW2 = 4b + 4m = 8F

The consumption of each owner’s family is:

CO1 = 8b + 8m = 16F

CO2 = 8b + 8m = 16F

Richard company’s production-cost is

pc1 = 24F

and Robert company’s production-cost is

pc2 = 24F

Richard company’s revenue is

R1 = 24b

and Robert company’s revenue is

R2 = 24m

Because nobody saves, all income from work  is spent: 48 foodies are spent in bread and milk. Thus

24b + 24m =48F or b + m = 2F

Since neither company produces neither a profit nor a loss,

24b = 24F and 24m = 24F

Therefore,

b = m = 1F

 

 

 

 

 

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