Friday, July 28, 2006

How well do you really understand how the world works?

Russell Roberts (who ranks equal to Don Boudreaux in the genius rankings) poses a fantastic question on his blog:

An American tourist goes to a remote island for a vacation. The natives live by a barter system-they have no money. When the tourist tries to pay for his lodging with a check, the owner laughs at first, but then decides that the design on the check is quite attractive and agrees to accept the check in return for lodging. This happens again when the tourist pays for food and some native artwork. The checks are never cashed. They begin to circulate on the island as money, replacing the barter system that had existed before.

If the checks are never cashed, who pays for the vacation of the tourist? Or is it free?


Answering this question really does force you to think about concepts like "value" and "wealth" and ask yourself about the meaning of "money".

Some attempts at the answer (and Russell's answer) are here. Russell's answer can be found by searching for "Posted on July 24, 2006 06:41 PM"

2 comments:

Wilko said...

Nothing to do with your post but can we have an update on your investments?

As I shall potentially be taking the plunge myself soon, I`m interested to see how your little experiment is going...

Richard Brown said...

Your wish will soon be my command....