Wednesday, September 30, 2015

Wealth and Poverty

Imagine two islands, islands A and B, located within a boat ride of each other, each having 10 people stranded on them. The people on island A and B are completely unaware of the existence of the other island and the people on them.  On island A and B some people are more skilled at fishing, or climbing for coconuts, or building huts or fire, or weaving clothing, as mentioned in the earlier post.  One day a ship has an accident, and two sailors are lost at sea. Sailor 1's wallet contains $150 in one dollar bills. Sailor 2's sea chest contains $3,000 in one dollar bills. Sailor 1's wallet washes onto island A. Island A's inhabitants find the money, and use it to help them trade their goods and services with each other, reaching a point at which each person on the island has money in the range of $10 - $20.  On island B, the sea chest washes up, and their inhabitants likewise use the $3,000 to help them trade their goods and services with each other, so that soon most of the inhabitants of island B have money in the range of $150 - $450. In both islands, members climb for coconuts, fish the sea, weave baskets and clothing, and build huts and fires, but use the money so that they are not limited to simple barter.

Now -- which island has wealthier people?

Imagine that one day after this, island A discovers island B and they send boats back and forth -- does island B, having far more money than island A, buy all of island A's coconuts, fish, huts, and assume mastery over island A?  Or does island A, realizing that their currency of trust no longer has the same value, adjust in a different way?

-- Should island A assume the money of island B has the same value after the merge as before, and give up their goods and services to island B believing in the intrinsic value of the money?

-- Should island A force the members of island B with the most money to give up some of their money to the poorest members of island A?

-- Is there another way for island A to maintain its quality of living in the face of the currency disruption?

 -- When members of island B visited island A and paid larger amounts of money for island A's goods and services than they were used to, was island A made richer or poorer?