SCARCITY AND STRATEGY
This simulation presents the traditional economic model discussed by Adam Smith in his 1776 classic first
work of modern economics, The Wealth of Nations. Competitive industries produce homogeneous goods and offer
them on a market where demand and supply determine sales and inventories. The computer program combines the
results of all business firms to establish employment,price,wage and growth statistics for the macroeconomy.
Microeconomic studies address the competitive small firm (in the entrepreneur game) and the impact of monopoly.
Macroeconomic studies allow manipulation of a 200 year business cycle by use of spending, cetral bank, pricing and labor
market policy decisions.
Scarcity and Strategy uses an eight industry model for a product market in which industries adjust production
levels and prices to attain profitability. The labor markets operate to determine employment levels and wages.
Labor supply for three different skill levels is preprogrammed into the simulation scenarios, but may be changed
by participants. A rudimentary monetary system responds to wage and central bank changes in the money supply.
A government sector allows simple monetary and fiscal policy decisions.
Participants will find, after a short period to study the simulation, that the inherent complexity of economic
activity is simplified. Decision making and its results may be studied since the simulation may be returned to
a year prior to the policy choice and run forward without the policy.
Competition among individuals and groups is possible since the macroeconomy has an economic progress score
attached to the business cycle and the entrepreneur game will identify the profit level that results from the
management of a firm. Obviously, the competitors must begin with exactly the same conditions and run the same
number of years for an accurate comparison.
An old joke describes how economists carefully study and possibly overemphasize the areas of economic activity
that may effectively be understood 'where the light is good'. We are reluctant, as scientists, to consider areas
shrouded in darkness. The purpose of Strategy and Scarcity is to shine a new light.
ORIGINS AND BACKGROUND
Scarcity and Strategy originated from a dissatisfaction with the blind spots in economic theory.
As an economics professor at tiny Park College in the 1970's, I was continually explaining to
students the system and blackboard model workings which assumed the process of movement from one time
period to another. Models always truncate reality, thus the base question for the scientific enterprise
is the quality of relevant models. The issue for me became whether many blackboard models had assumed
much of what they attempted to illustrate, or narrowed the condition to be explained so thoroughly that
the model slept on a Procrustean bed. Moreover, the microeconomy is the basis of any macroeconomy and their
separate treatment in theory belies a potential structural flaw in our overall approach.
In any event, Adam Smith's basic model of a market system, which establishes prices by
bargaining with supply and demand, seemed an excellent place to begin year to year movement studies.
A moving model requires identification of many assumptions, procedures and mechanisms, usually quietly
skipped, in order to program a computer. Initial work on this elaborate system began during my sabbatical
year of 1980. I soon realized that to construct a moving model of a theoretical market economy, the general
equilibrium models of Leon Walras must be moved forward from one time period to the next. Skeptical assessments
of the viability of such a project were frequent, since given any substantial model, a large number of calculations
were necessary. The newly available technology of the personalcomputer was a critical aid. The ideas of Russian
mathematician Leonoid Kantorivich and the input- output tables available were helpful. Computers of that time could
solve the necessary equations in twelve seconds - a success then, but much more elaborate models today solve in a
Unfortunately, the simulation of Adam Smith's market economy required a computer programmer and a great deal of time.
By 1988, I had left teaching and the demands of life were many. The big project died for lack of money, programming
talent, development ideas and time. The computer program sat in a box on the back porch for 13 years. In 2001 ,
as I neared the age of 60, the determination to complete this major task returned, in the hope that it would be a
useful contribution to the economics profession. Brian Vogl, a fine programmer and a good friend , has brought the
technical side to life with charts and colors and code. The motivation in this effort was always a fascination
with the possibility of understanding movement in economic models and therefore the potential for effective economic
policy. Now that we have built a welfare state atop the market system, it is useful to model what may have
happened, since our ability to delude ourselves about the positive aspects of our political schemes does not change
from one generation to the next. It is rather surprising, in this huge world, that any research project would still
be viable after 40 years. Then again, given the time in development, the knowledge necessary of economic models and
the lack of monetary returns, this is the sort of basic science effort that may be overlooked. I believe both students
and professors will enjoy the new challenges posed by this model.
Dr. Steve Sturdevant