A Productive Economy Is A Trading Circle

Tyler Durden's picture

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

The destructive consequences of a parasitic Tyranny of the Wealthy and Majority have yet to play out, but they will, and sooner than most believe possible.

One of the core concepts of my work is that our state-cartel dominated economy is fundamentally a vast parasitic skimming machine that redistributes the nation's earned wealth to two constituencies that support the skimming operation: those at the top of the financial pyramid (i.e. super-wealthy cronies who fund the political careers of the political elite) who constitute a Tyranny of the Wealthy, and state dependents who constitute a Tyranny of the Majority, i.e. they will support the political elites that guarantee their share of the swag, regardless of the consequences to the nation or the economy.

In other words, these two self-serving groups see the productive economy as the host that the state feeds off to fund their swag: at the top of the pyramid, the swag is unlimited nearly-free credit issued by the Federal Reserve and various tax breaks; at the bottom of the pyramid, the swag is unlimited free services in the form of social programs such as Section 8 housing, easily gamed disability for life, food stamps, free medical care via Medicaid, etc.

The destructive consequences of a parasitic Tyranny of the Wealthy and Majority have yet to play out, but they will, and sooner than most believe possible. Those being sucked dry will never have the wealth or votes to reform the current system, so their only choice is to opt out and choose to live as independently of the state-cartel Status Quo as possible.

This parallel economy is the community economy, the resilient, decentralized, entrepreneurial sectors of the economy that not just survive without state subsidies but thrive outside centralized dependency on the state.

What is the foundation of a productive economy? Correspondent Jeff W. provides an intuitively insightful answer: trading circles.

Here is Jeff's explanation of trading circles:


The trading circle is a concept I came up with in order to try to think clearly about economic issues.

Key definitions/observations include:

A trading circle is any group of people who trade with each other on a regular basis.

I use the term "trading circle" instead of "local economy" because it helps me picture the actual traders involved.

Unless you are Robinson Crusoe, you participate in a trading circle.

Money, of course, is a medium of exchange. People trade their goods and services in the trading circle using money as a convenience.

People have to work AND trade in order to survive. Government counts time away from paid work as leisure time, but you have to go to the grocery store and trade your cash for food if you want to survive.

Activities needed for basic survival are not leisure. Trading for basic necessities is part of the work humans have to do (unless they are Robinson Crusoe).

Trading circles can be growing or shrinking, becoming richer or poorer.

To picture a simple trading circle, picture a few people on a remote island: one fishes, another makes clothing, another builds huts. They trade with each other. Specialization of labor benefits everyone.

People are entering and leaving the trading circle all the time. The trading circle is co-operative, but it is also harsh and unforgiving. Participants want their rivals kicked out. Adam Smith wrote, “The rivalship of competitors, who are all endeavoring to jostle one another out of employment, obliges every man to execute his work with a certain degree of exactness.”

Traders participate in the trading circle as equals, though some may do hundreds of times the business as others. Every participant is allowed to trade. Exceptions to this rule are a king, who does not get his money by trading but through taxation or money printing, and a moneylender, who trades valuable money for promises written on paper. Both the king and the moneylender claim legal rights over their subjects/debtors that ordinary traders do not claim.

People do not get rich outside a good trading circle. Put Warren Buffett in Bangladesh and he will struggle just like everyone else. Your fortune depends on belonging to a good trading circle.

The trading circle is self-correcting in terms of dealing with gluts and shortages. Participants move from one line of work to another according to the advantages they see.

The trading circle tends toward efficiency, improved quality, and reduced prices. It is a progressive institution in that sense. Its free operation tends to make everyone richer.

A trading circle must guard against thieves. Today, America's trading circle, however, is basically owned and operated by thieves.

America used to be known for having good quality products at low prices. That was back when our trading circle was functioning properly.

Sick people, the very old, and the young do not directly participate in the trading circle. Society must make provisions for them (such as having strong families to take care of them). If the young are not cared for properly, society does not survive.

Robots tend to kick people out of the trading circle.

People who are dependent on the state are only partly in the trading circle. They are consumers but not producers. The same goes for government workers. They are thus not full members of the community like the full participants in the trading circle.

All businesses want to skew the rules of the trading circle in their favor. It is thus necessary to have someone in charge of the trading circle who is above it all and whose commitment is to its fair operation. (Editor's note: this is the definition of good governance.)

A good community tries to find niches for the young people in the trading circle. The trading circle may be an unforgiving competitive environment, but the community in which the trading circle resides need not be such an environment.

The trading circle works best when everyone focuses on his own self interest. Altruistic and charitable work should take place outside the trading circle.

A corrupt government kicks everyone out of the trading circle who is not an insider or who does not pay bribes. This leads to higher prices and reduced quality, which is the usual condition of most trading circles historically.

When I think about an economic issue, I always ask, "How does this affect the trading circle?"

A person's niche in the trading circle as a producer and seller is primary; his role as consumer is secondary. If you have a good niche as a producer, you automatically have the means to be a consumer. This is another way of expressing Say's Law, which is that supply creates its own demand. If you lose your niche as a producer, your ability to be a consumer is impaired because you have lost your income.

A person often obtains his niche by degrees. In the old days, there used to be unpaid apprentices, paid apprentices, journeymen, and masters. The master craftsman was a guy who had earned a solid niche, and he usually employed journeymen and apprentices.

A person's niche is dependent on profitability. Many people are hanging on to their niche by a thread, being very close to being driven out by financial losses. Government-imposed burdens on the trading circle have the effect of pushing people out of their niches and into failure and poverty. (Government tries to solve this problem through cartelization.)

Success of the trading circle hinges on business profitability. That is where all the factors come together to determine if a person can stay in his niche or whether a new niche can be created.

A niche in the trading circle must be continually earned. Even if you inherit a business, you still will have to work to ensure its survival. Earning a niche in the trading circle is like physical exercise: no one can do it for you. Government can give you a half-participation in the trading circle, where you are a consumer but you don't produce anything.

Since taxes and inflation harm full participants, there is no free lunch in adding government-supported consumers. Government cannot give you a niche as a producer--or they can only do it through the corrupt act of giving you an unfair advantage. 

Thank you, Jeff, for explaining the concept of trading circles. One way to understand why our economy and society have become unsustainable is to grasp the difference between an economy based on productivity and a level playing field and one based on debt-funded consumption and a corrupt playing field tilted to benefit the few and buy off the many.

That's the economy we have now, and it's the fundamental reason why a systemic financial crisis that disrupts the state-cartel Status Quo between 2020-25 is so predictable.

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pods's picture

2020?  I like the optimism.


El Vaquero's picture

Yeah, Weimar took a few years to go from bad policy to a fucked currency.  We've been at it for a few years.  The specific circumstances are different, but the shenanigans are there today none the less.  

Vampyroteuthis infernalis's picture

Robots tend to kick people out of the trading circle.

BS! Someone has to design, build and maintain the robot. Power is also not going to magically fall out of the sky either. 

hedgeless_horseman's picture



A person's niche is dependent on profitability.

Here is a niche that has nothing to do with profitability paying $196k for a Financial Writer...

SafelyGraze's picture

our idea of "trading circle" is kind of a vertically-integraged company-store model

you are an employee of a corporation

you are paid less than the value of your labor, so that the difference accumulates as profits and dividends and capital assets for the board and shareholders to give their progeny to spend on hookers and blow

you spend your pay in the company store; see above for a summary of how that part works

if you attempt to start your own company or your own store, you will be taxed or jailed or undercut or otherwise run out of town

also, you can rent a place to live. we have numerous rental properties to choose from.

we can also lend you some cash so you can buy a car and take a vacation.

the rogenfelders 


RaceToTheBottom's picture

What if you are both a hooker and an employee?  Can you double dip, so to speak?

JR's picture

Snoopy : “I play for whoever owns the supper dish.”

There exists two sides to the world of finance 2014: the economics as experienced by the people and the lie that is perpetrated by the oligarchy and the hundreds of thousands of its indentured propagandists.  The better the liar (financial writer et al.), the higher the enumeration.

The only wonder here is that after struggling through the university and looking forward to ones career, that these people would sell their lives in exchange for eventual bondage.

The real tragedy is the willingness of these financial wizards to help take away the liberty from the rest of us.

InjectTheVenom's picture

Long rope.  Long lampposts.  

El Vaquero's picture

So long as the rope is short and the lampposts are tall.  

0b1knob's picture

So its a circle jerk, and the productive people are the anchor men?

insanelysane's picture

I posted a few weeks ago that I had the realization that the qualities that make a good free market capitalist are the same qualities that make a good pure communist.  You need people that are producers.  Takers upset the apple cart in both systems.

El Vaquero's picture

Except communism on any large scale requires force, because somebody is going to say "NO!  You aren't taking my shit!"  It needs buy-in to work, and even then, it is going to have problems with valuations without a capitalist economy to mimic.

BigJim's picture

 I posted a few weeks ago that I had the realization that the qualities that make a good free market capitalist are the same qualities that make a good pure communist.  You need people that are producers.  Takers upset the apple cart in both systems.

Not really. In a capitalist system, if you don't produce, you starve (barring philanthropic intervention). In a communist system, you might very well starve even if you are productive.

Of course, in both systems, it's possible to become a rentier where you can do quite well for doing little or no work. Which is why resource taxes make more sense than income taxes.

dontgoforit's picture

Long leeches - seems they're winning on both ends.

Sucking our blood and shitting our money.

q99x2's picture

Someone in the trading circle is paying for me to exist.

I prefer to think it is my ancestor from the 12th century. His name was Q99X2.

Thankyou whoever you are.

The Most Interesting Frog in the World's picture

We should bring in the fucking Thai army to straighten some shit out!

Atomizer's picture

The SEC is watching Porn instead of monitoring HFT and insider trading. We're back to 2007 wall street bailout crisis. Fuck off UN,BIS, and IMF cunt rags looking to create a new world order.


You fucked up the petrodollar by government over-regulations. Now you’re looking at new emerging  markets saying FUCK YOU federal reserve bank.


read this post 10 times over.



BeetleBailey's picture

I knew Robinson Crusoe. He shopped at Trader Joes.

G.O.O.D's picture

he got a hit of e. coli

and now he is no moe.

grunk's picture

I saw a werewolf drinking a pina colada at Trader Vic's

And his hair was perfect.

Oh regional Indian's picture

Trading circle souds too Koombayah for Fight Club, no?


Jack Burton's picture

His first sentence sums up for me perfectly what our American economy has become. It really bothers me when people try and defend the current economic and government system as free market capitalism which must be allowed to play out as it is a natural result of free markets. That is such BS! It is all rigged, show me the Free in this market. Even the very stock price shares of companies are manipulated by the Fed. Banks are bailed out, while bankrupt individuals fail and sell off all assets.

The result of this economy of corruption is stripping most people of the fruits of their labor in a bankrupt skimming system. Interest rates sum this corruption up. 0% billions for bankers and other their allies. 0% for hard working savers. MUCH higher for students, car loans, mortgages and small business loans. The rich get free money, the hard working people and businesses pay much higher rates.

This is not capitalism or free markets. What we have to today is defendable only by the elites who profit from it. And all these huge corporations are using their control of government at ALL levels to strangle small business and any competition coming up. Right down to city planning boards who kill small business but give tax free zones to corporations.

G.O.O.D's picture

You are free to not participate?

El Vaquero's picture

Nope.  Don't pay your property taxes and see what happens.  When you're living under a bridge as a result, don't obey the police officer when he tells you to leave and see what happens.  You WILL participate, comrade.  

G.O.O.D's picture

Wrong. You are still free to get beat down, tazed, maybe killed and tossed. What part of freedom are you not familiar with? Do you love this country or what?

arby63's picture

I would tase you for a piece of candy numnutz 

El Vaquero's picture

I don't know why you got junked for that.  It's the right idea, just tough to do.  

Colonel Klink's picture

Zzzzzzzzzzzz, please wake me when it starts ramping up.  I've grown weary of the wait.

OC Sure's picture


"Money, of course, is a medium of exchange. People trade their goods and services in the trading circle using money as a convenience."

The tyranny of modern economics is counting on you to adapt their terms and lies. Money is not a medium of exchange; currency is. The currency conducts the unit of measure and the source of that measure determines if the currency is money or counterfeit. Our currency is a combination of money and counterfeit:

"The modern definition of money that defines money as a medium of exchange is wrong. That it is a medium of exchange is a characteristic of money but it is not the essence of what money is; it is not money's nature since it indicates nothing of its cause. What we choose to describe something as does not define what it is; a thing is what it is first and then defined correctly in accord with that fact. Modern thieves depend upon their victims to not understand the difference between money and counterfeit; they depend on their victims' preoccupation with the perception of the units themselves and not the conception of why the units became necessary at all and how that necessity determines which units originate as money and which units originate as counterfeit.  The thieves count on their victims not knowing that money was conceived to satisfy the need for people to exchange the products of their disproportionate work. The unit of measure was then introduced as the means to equalize the disproportion. Having this knowledge is the key to understanding money and counterfeit."



JR's picture

“Inflation in the modern world is generally due to the heavy monetization of government debt, which floods the markets with ‘purchasing power’ before any goods have been created to absorb the extra ‘money’ that has been spread around. But the basic economic phenomenon has a thousand dependent social consequences.

You cannot debauch a currency without undermining a society in all its root ethical, religious, artistic, military and political assumptions. The ‘something for nothing’ syndrome ruins different characters in different ways…

“Inflation has created pauperism, destroyed public morals, and changed the country from a democracy into an oligarchy where 30,000 bureaucrats and politicians determine all our lives. Down the road looms the tyrant who will assuredly come following a final inflationary blow-off spasm. – John Chamberlain, book review of The Menace of Inflation, 1977

When nations inflate to “achieve growth,” the “growth” doesn’t happen. “What does happen is a decline in essential capital investment and a fall in the standard of living…”

America is decaying, along with her decaying currency and imposed immorality…

OC Sure's picture



Well, sort of.

Inflation is another term of tyranny that hides the devastation of modern economics.

Inflation of what?

Inflation of money [productive work] is GOOD; it increases purchasing power.

Inflation of counterfeit [theft] is BAD; it decreases purchasing power.

To say inflation without defining which currency, money or counterfeit,  keeps the lies alive.

Stop the counterfeit, stop the theft; Stop the theft, stop the tyranny.


JR's picture

"Martin Wolf flatly stated in the FT recently that the 'low-risk-seeking saver' no longer served a useful purpose in the global economy, and he approvingly quoted John Maynard Keynes with his call for the 'euthanasia of the rentier.'" – Detlev Schlicter

First, we must identify the “parasitic Tyranny of the Wealthy.” Government economists don’t use helicopter gunships to steal the people’s money. Fed dollars, a bought media, and bought politicians are enough. Case in point: Martin Wolf is identified for his financial tyranny today by Mark Thornton (Mises.org):

The chief economics commentator at the influential Financial Times, writes Thornton, Martin Wolf “has reached an all time low with his recent editorial (“Wipe out Rentiers with Cheap Money,” 5/6/14), where he argues that the cheap money policy used by central banks was here to stay, so get used to it.

“What makes his conclusion so tainted is that he understands the consequences of this policy. He even invokes the famous remark of Keynes regarding the 'euthanasia of the rentier' where he supported the ruination of people who earn interest on their savings.”

Sound money and savers are no longer needed, the rulers contend, because central banks can print their own money, out of nothing, to loan or exchange for the world's goods and influence.

The problem with identifying government-supported economists like Wolf as the parasitic and tyrannical vultures that they are is that they are part of a world network of central bank fellow travelers working in tandem -- including prominent international entities such as the IMF, the World Bank, the ECB, and the Federal Reserve  -- is that the names tend largely to be Jewish. Thus, attacking Larry Summers, Bob Rubin, Jack Lew, Martin Wolf or Ben Bernanke et al., means that the network fights back with charges of anti-Semitism. And, so, the challenge of identifying ones enemy means going against a mountain of propaganda and vast networks of politicians all around the western world, owing their positions to the central banks.

At any rate, here’s more from Thornton’s column today, criticizing Wolf for classic Keynesian logic: ”[S]olve the problems of debt and monetary expansion by engaging in more debt and monetary expansion.

“With governments reluctant to expand spending further he concludes that we are stuck with the second-best solution of a cheap money policy consisting of ultra low interest rates and quantitative easing. Besides, he notes, the ‘cautious rentier no longer serves a useful purpose.’

“Wolf is the unabashed mouthpiece for the ruling power elite. He clearly and correctly describes what this policy actually accomplishes — cheap monetary policy hurts most people in the economy, particularly workers and savers and redistributes wealth to the ruling elites. The losers from easy credit policy include the broad categories of insurance, pensions, and households. This long known result was recently confirmed in a study, referenced by Wolf, by the McKinsey Global Institute…

"The winners from cheap money policy are the government, large corporations, and large banks in the US. Low interest rates clearly benefit borrowers with lower interest rates and governments, banks, and corporations are the biggest borrowers. In general, artificially low interest rates benefit capital and hurt labor. Cheap money policy by central banks helps banks, like subsidized flour policies would help bakeries. Banks are also helped by most forms of government bailouts.

“The easy money policy makes it easy for large corporations to borrow large amounts of credit at very low interest rates. It also forces stock prices up as alternative forms of savings, such as certificates of deposits, yield a real negative return. It has also made it very cheap for corporations to buy back their stock and to leverage their balance sheets. The stock market bubble is the direct effect of the cheap money policy of the central bank.

“Mr. Wolf and central bankers around the world have the idea that cheap money policies can increase stock prices and that this will lead to sustainable increases in investment, consumer spending, and increased aggregate demand. In reality, cheap money policies cause economic bubbles that are inherently unstable and subject to crash. It should be obvious that harming the workers and savers of society to benefit the wealthy ruling class is no way to get the economy back on track. Therefore, cheap money policy is a scam of gigantic global proportions…

 “The horrible irony here is that when Keynes wrote approvingly of the euthanasia of the rentier class, he was speaking of a powerful class of monopoly capitalists and aristocrats. When Mr. Wolf speaks of the euthanasia of the rentier he is actually targeting ‘insurance, pensions, and households,’ with a policy that has enormous financial benefits to the class of people that Keynes was targeting for extinction!”


zaphod's picture

And people mock me for escaping the central bankers by exiting their system and moving to gold and yes bitcoin.

Ghordius's picture

+1 savers are hurt more than workers. who profits most? hedge funds, inerestingly, thanks to derivatives

ebworthen's picture

"Put Warren Buffet in Bangladesh..."

Yes; in his boxers with a pair of sandals, and no glasses.

Nostradamus's picture

Where would we be if all the myriad government agencies and programs that exist throughout America today were to suddenly disappear?  In the third world, that's where.  Look at the S&P 500 right now.  It could very well close at 1900 or higher this week.  That would be a new all time weekly high; just the latest of the many all time highs achieved over the past year or so.  Yet, we still need a <0.25% Fed funds rate and we still need QE.  Or so they tell us.  To me, something feels broken, like the gears are grinding and the engine is overheating.

arby63's picture

Every Damn component is broken. We have followed the banksters and thieves into the abyss.

Melodramatic? Nope, realistic.

This nation is in dire straits. We are fatter, weaker, more dependent and dumber than EVER!

We are broken alright---BEYOND repair.

Hunker down; hoard, and hope for the best.

Oh, and fuck you Bernanke, Yellen, Obumfuck, and the rest of you scumbags.

The future is very perilous 

aleph0's picture

@CHS  .. rather long winded

In short : Govt.s of today are simply  "Legalized" Mafia.

lasvegaspersona's picture

Certain items like gold have a long and universal history of being the very best trading asset one can have. It is small and compact, hideable, valued, recognizable and identifiable. I like it.

You cannot (usually) eat it but that is not what it is for...don't eat your iPad either. There appears to be a good deal of confusion about how to handle some of these items.

ghostzapper's picture

Charles - how do you get the 2020-2025?  I'm not saying you are incorrect I'm just interested in the rationale.  I'm fully transitioned intellectually and personally to the reality that this is in fact intentional but the question of timing definitely intrigues me.   


I could say what makes it last that long (what would that be 8,000 on the Spider) and I could also say what specific events would make it happen sooner. 

VWAndy's picture

Go long skills and the tools needed to produce. Then sit back and wait. Lets see what this trading circle looks like without the fruits of labor.


kchrisc's picture

I would add to his great article and insights that a very useful tool to use when thinking about economics is to remove money. Not barter and all of its problems, but just think of people being paid and paying with units of their production and using that as money, indirect exchange. I.e. treat parts of production as "fungible."

So an auto-worker may be "paid" part of a car a day, and might might pay a part of a car for some milk, etc.

This assists in highlighting the true behavior and function of an economy without the confusion of money.


kurt's picture

So a Trading Circle is like the 69 position in sex

While the Government and Mafia dryhump both you and your partner's ass

Mediocritas's picture

The trading circle tends toward efficiency, improved quality, and reduced prices. It is a progressive institution in that sense. Its free operation tends to make everyone richer.

That's a myth, just another manifestation of the "free-markets are God" fundamentalism that underpins neoliberalism:


Reality is this:


Further reality is that human trading circles aren't circles at all, they're networks and the thing with networks is that they do NOT tend towards efficiency, they instead tend towards congestion, aka a higher entropy state. It's called Thermodynamics:


That is the reason you're using TCP right now to read these words. Closer to optimal flows (low entropy network state / low energy information transfer) require management:


The current system, that everyone laments, is in a natural, high entropy state due to a breakdown in the active governance / regulation needed to maintain a lower entropy state. It's a law of nature that democracy degrades into dynasty (congestion of monetary flows / accumulation of inherited wealth). The system is simply dying a "heat death".

That, incidentally, is why velocity has been in decline since the neolibs took over in 1980 and set about "freeing up the market" (notably the Greenspan, Bernanke era). A healthy trading network has high velocity and doesn't look like this:


They killed the network, creating congestion at nodes (wealth accumulation), simply by "freeing it" with dogmatic (rather than sensible) deregulation and privatisation, leaving it to degrade into a more natural state (dynastic oligarchy). Money flows best (trading is best) in the hands of many, not in the hands of a few, and you counterintuitively do not achieve that with lassez-faire.

I fundamentally agree with CHS and his readers, that a healthy society is a free and fair society, and we agree on what constitutes both free and fair. Where these guys need to focus is on delivery, how do you actually get such a system, and here they come up short repeatedly, often, as in the case of the reader submission here, essentially embracing the very same philosophy that caused this mess in the first place.

Delivery always butts up against the eternal problem: "who watches the watchers"? How are the system protectors kept uncorrupted? Yes, we DO need system protectors, just try surviving without an immune system, or living in society without a police force. The answer is clearly provided by nature: the protectors must depend for survival on the health of the system they protect.

This is why democracy almost works, and certainly works better than other systems. Politicians are supposed to be the protectors and depend, for political survival, upon the votes of citizens, those votes being a proxy for the health of the system. Clearly there are flaws, an obvious one being that political survival, as it stands, depends on the health of a sub-system, not the whole system, manifesting as vote-buying by the wealthiest lobbyists. Another is that votes proxying for system health do not necessarily reflect system health (ie, politicians buy votes with deficit spending).

The solution I propose is direct democracy without any politicians (elect policies, not parties or people), making full use of modern communications technology to be 24/7 realtime.