Thursday, September 29, 2016

Answering Michael

September 29, 2016 At 6:35 AM
Let’s say that the first group of colonists rip a space suit and need a new one. Space suits are expensive, transporting them to Mars isn’t free. These colonists do represent a market, but in order to supply that market, they have to produce new wealth to trade for that space suit. Even if there were pure refined gold just sitting there waiting to be scooped into bins, you could not bring it back to earth and sell it for a profit. How are the colonists going to pay for that space suit, or anything else they need?

Great question Michael and the answer is simple.

A colonist damages his (or her) personal spacesuit beyond the ability of martian industry to repair. He contacts a colonist on earth preparing to leave for mars arriving perhaps a year in the future (a 3 month trip available every 26 months.) They discuss what the martian needing the suit can produce on mars in that year to trade for that suit and come to terms. That colonist doesn't have to personally produce these items since they can trade for some or all of those things with other martians. Meanwhile what suit does the colonist use? There will be spares that he can borrow or rent during that time. But being like most martians he may not even need a suit for that year because martians usually live in a comfortable shirt sleeve environment throughout the year. They also have the option of moving between such environments in sealed vehicles.

Where does wealth come from? Understand that export is not required.

Anyone thinking this isn't workable doesn't seem to realize this is already how it works on earth. If you can't afford the cost, you do without.


Mike said...

No, export is very much required, that is not the way it works on earth, study history and economics. Let us consider life in the early colonies. People did pay for their transport in a way very similar to what you describe. They signed on and allowed themselves to become indentured servants to anyone willing to pay the cost. But the person on this end had to have produced something to pay that cost, fur, lumber, tobacco, sugar, whatever. The new immigrant could not just borrow money for his transport in the expectation that the shipper never wanted to be paid back. Indeed, the shipper would want to be paid very quickly.
Let us consider another example. Out west somewhere, in the 19th century, is a spot of desert ground where there is absolutely nothing. No one lives there, nothing grows there. Along comes a prospector and finds gold. Within weeks a town has spring up. There are prospectors and miners pulling spendable gold out of the ground. There are stores supplying their need, for mining equipment, food, clothing, liquor and entertainment. The owners of those stores mostly borrowed the capital to establish them. All those goods, which can not be manufactured on site, are being shipped in in return for the gold which is being shipped out and sold for profit. Eventually, the local veins of ore are tapped out. This happened in many places. When that happened, the miners and prospectors, no longer able to produce wealth with which to buy the things they needed, moved on, leaving the storekeepers behind. The storekeepers could get by for a while, trading with each other, but their main market, and the source of the actual wealth, is gone. First the ones selling mining equipment close up, absolutely no demand for that. Then the others, without the spendable gold coming in, are no longer able to service their debts and obtain new credit to bring in additional goods, not that there is anyone to sell to anyway. So, one by one, they close and move out, leaving a ghost town behind. It is every bit as empty as it was before. No one lives there, because there is absolutely nothing of value to bring people there. Well, that is Mars. There is absolutely nothing, no thing, that can be produced on Mars and shipped back to the earth and sold at a profit. There could be ingots of pure, refined gold just sitting there and they could not be recovered profitably. Thus, without an economic basis for its existence, the colony will ultimately devolve into people sitting around twiddling their thumbs, waiting for the next supply ship, until Earth decides not to spend any more money endlessly sending supplies and getting nothing in return.

ken_anthony said...

Thank you for your comment Mike. It shows intellectual honesty.

It's extremely important that you understand Bill Whittle's point in his video regarding where wealth comes from. The thing that confuses people is that...

1) import/export is trade.
2) all wealth comes from trade.
3) but not all trade is import/export.

Which is just me restating the fact that while import/export is nice to have it is absolutely not required to build wealth. So let's look at your statement in that light.

It is actually earth history that is leading you astray. On earth import/export is relatively easy so you hardly ever see an example without it. But not seeing those examples doesn't mean it isn't there. Actually import/export is generally bulk trade, but wealth is actually built one tiny person to person trade at a time.

Indentured servitude is a possible model, but it's not Musk's model. He just wants to sell tickets.

Your mining town example is another where you miss the fundamental economic principle that everything is a choice. On earth, the right choice is almost always import/export, not because it's the only option, but because it's the best option. On mars, the best economic option is ISRU.

You make a great point about borrowed capital. How might it work on mars? Indirectly.

On earth it's a very direct procedure. On mars, you have to add a step. A person, if they could pay the freight somehow could directly order from earth, but that's prohibited because the cost of transmitting payment (export) is too high (although if Musk is returning ships to earth empty, that cost just went way down.) Instead, colonist leaving earth pay on earth directly (that's just a normal non import/export transaction.) When they get to mars a second trade is made, this time martian to martian (again no import/export involved.)

Value itself however, can be traded without any import/export. Say I have a company on mars and finance it by selling stock (which can be done by anyone anywhere as long as they have a data connection.) That stock can be traded after IPO so it's real money. Where's the money that bought the stock? It's still on earth in an account somewhere. It can be used to buy equipment from earth to mars, but again the better option will usually be ISRU except for low mass, high tech. items which can be bought from the personal property of incoming colonists. It may take generations for that stock ownership to be repatriated to some martian, but that doesn't matter at all.

Would you agree that your key point is...

"until Earth decides not to spend any more money endlessly sending supplies and getting nothing in return."

Earth is not spending the money. The colonists buying tickets are.