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In the South Pacific island story, when the gold was lost, the money was lost. That was a loss of a physical substance with a unique combination of specific ph

by fexl 13y ago

In the South Pacific island story, when the gold was lost, the money was lost. That was a loss of a physical substance with a unique combination of specific physical characteristics. If it had been silver, copper, platinum, rhodium, or iron, I doubt they would have said "Oh well, we didn't really lose anything." The loss was real. Some say that gold is useless, but I find it hard to imagine that any substance which is so durable, ductile, malleable, divisible conductive, rare, pretty, non-corrosive, and non-reactive could ever be "useless" to human beings. For example, it is excellent for electrical conductors in a salt water environment. Human beings have also found that those same physical characteristics make it useful as money. There is no irony in expending effort to dig it up and then putting it back underground in vaults. That's because it is more useful in the form of bars than in the form of raw ore.

jacobparker 13y ago
I'm not sure if you intend to directly reply to TFA. Mr. Watts does dedicate a sentence to that fact (Ctrl-F "It has some value for industry [...]" - the weakness of his assertion can probably be excused based on his profession and thesis) but the point he was trying to make was that losing the gold is not something that should gum up the rest of the economy.
- fexl 13y ago
  I did see that comment. However, I was addressing Mr. Watt's conclusion from the story: "What this means then is that money is nothing but bookkeeping." I disagree. What that story means is that the people were left holding paper certificates worth exactly nothing. It is true that before the loss of gold was discovered, each individual who received a certificate and then spent it suffered no loss. He did suffer a loss upon receiving a certificate, but he didn't know it because nobody knew the certificates were worthless. He then suffered an offsetting gain when he spent the certificate. All along the way, people were suffering losses and transferring those losses to others. They just didn't know it was happening. Similarly, you might receive a counterfeit $100 bill and not know it, and then spend it at a store successfully. Only the poor sap who discovers that he holds a counterfeit and consequently decides not to spend it loses in the end. I doubt the loss of gold would devastate that economy. Some people holding large quantities of the worthless certificates would indeed be personally devastated. However, I would expect that the wealth of that society would already vastly exceed the value of the lost gold, since the people would no doubt be the owners of other physical commodities, capital equipment, trade secrets, and other forms of value. Gold, like any form of money, does not have to exist in an amount "equal to" the amount of (other) wealth in a society. That's an infantile notion. A single piece of money can be traded thousands of times per second, and can support far more economic activity than its face value would suggest. Money is traded at the margin. Therefore I agree that the loss shouldn't gum up the entire economy forever, though it could be very stunning and painful until the people recovered from their very real losses.

by fexl 13y ago

jacobparker 13y ago

I'm not sure if you intend to directly reply to TFA. Mr. Watts does dedicate a sentence to that fact (Ctrl-F "It has some value for industry [...]" - the weakness of his assertion can probably be excused based on his profession and thesis) but the point he was trying to make was that losing the gold is not something that should gum up the rest of the economy.

fexl 13y ago
I did see that comment. However, I was addressing Mr. Watt's conclusion from the story: "What this means then is that money is nothing but bookkeeping." I disagree. What that story means is that the people were left holding paper certificates worth exactly nothing. It is true that before the loss of gold was discovered, each individual who received a certificate and then spent it suffered no loss. He did suffer a loss upon receiving a certificate, but he didn't know it because nobody knew the certificates were worthless. He then suffered an offsetting gain when he spent the certificate. All along the way, people were suffering losses and transferring those losses to others. They just didn't know it was happening. Similarly, you might receive a counterfeit $100 bill and not know it, and then spend it at a store successfully. Only the poor sap who discovers that he holds a counterfeit and consequently decides not to spend it loses in the end. I doubt the loss of gold would devastate that economy. Some people holding large quantities of the worthless certificates would indeed be personally devastated. However, I would expect that the wealth of that society would already vastly exceed the value of the lost gold, since the people would no doubt be the owners of other physical commodities, capital equipment, trade secrets, and other forms of value. Gold, like any form of money, does not have to exist in an amount "equal to" the amount of (other) wealth in a society. That's an infantile notion. A single piece of money can be traded thousands of times per second, and can support far more economic activity than its face value would suggest. Money is traded at the margin. Therefore I agree that the loss shouldn't gum up the entire economy forever, though it could be very stunning and painful until the people recovered from their very real losses.