Now we've set the scene, consider this. The carpenter offers to buy the shoemaker's house for $110.
The shoemaker has just made a $10 gain on his house. How easy was that? What's to stop him from making more money from real estate? In fact, he finds out the carpenter is in the market to buy more houses and is prepared to pay up to $120 for each house.
The shoemaker spots the opportunity to make a quick buck. Knowing this, he offers to buy the butcher's house for $105, which the butcher accepts. The shoemaker then offers to sell the house to the carpenter for $120.
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The shoemaker is ecstatic, how easy is this? Cobblers to the cobbling, the shoemaker can make easy money simply buying a house from one person and selling it to someone else.
And it doesn't stop there, on he goes to the tailor and offers to pay him $105 for his house. Then quick as a flash he's off round to the carpenter's to collect the $120 from selling the house to him.
That's another $15 in profits, simply from buying and selling houses. In fact, the shoemaker is so happy with his new venture that he decides to completely pack in the shoemaking game and take up property investing instead.
Anyway, we could carry on with this example forever. But let's finish it there. We'll finish it on a happy note. Everyone seems happy, there is a boom in property prices, and no one has been harmed.
But here's the point. Take a look at the scenario above again. It's a very simplified version of what happens in any property market. If housing is as productive as we are led to believe, exactly where in the example has anything of any value been added to the economy?
To be honest, we can't see it. That's because there's no productivity from buying and selling houses. There's no more productivity in buying and selling houses than there is buying and selling shares.
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Look, I'm not saying that everything that happens in an economy must be productive. It'd be a pretty boring life if that was the single driver behind every action. But what I am saying is that if something isn't productive it's pointless - and potentially dangerous - to pretend it is.
The buying and selling of things doesn't necessarily create productivity. Buying and selling shifts capital and goods. It doesn't automatically produce anything.
Making a pair of shoes is productive, or slaughtering animals for meat is productive. The shoemaker selling his house to the carpenter is not productive. It doesn't add anything to the economy that wasn't already there.
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