Shangri-La and Lost Horizon

I'm not sure why, but today I starting thinking about one of my favorite exchanges from the film Lost Horizon (1937). I remember reading the book in high school. Pay attention to what is (and isn't) said, and what is (and isn't) implied.

Robert Conway has stumbled upon the lost utopia of Shangri-La, where everybody is youthful and happy, there is no war or violence, and the weather is always perfect. Chang, a leader, is showing him around, fielding his many questions about their perfect way of life:

CONWAY
By the way, what religion do you follow here?

CHANG
We follow many... To put it simply, I should say that our general belief was in moderation. We preach the virtue of avoiding excesses of every kind, even including -- the excess of virtue itself.

CONWAY
That's intelligent.

CHANG
We find, in the Valley, it makes for better happiness among the natives. We rule with moderate strictness and in return we are satisfied with moderate obedience. As a result, our people are moderately honest and moderately chaste and somewhat more than moderately happy.

CONWAY
How about law and order? You have no soldiers or police?

CHANG
Oh, good heavens, no!

CONWAY
How do you deal with incorrigibles? Criminals?

CHANG
Why, we have no crime here. What makes a criminal? Lack, usually. Avariciousness, envy, the desire to possess something owned by another. There can be no crime where there is a sufficiency of everything.

CONWAY
You have no disputes over women?

CHANG
Only very rarely. You see, it would not be considered good manners to take a woman that another man wanted.

CONWAY
Suppose somebody wanted her so badly that he didn't give a hang if it was good manners or not?

CHANG
Well, in that event, it would be good manners on the part of the other man to let him have her.

CONWAY
That's very convenient. I think I'd like that.

CHANG
You'd be surprised, my dear Conway, how a little courtesy all around helps to smooth out the most complicated problems.

Later, the characters find out just what Chang meant when he said that, as a rule, his people were moderately honest.