Slashdot Mirror
Bank Run in Second Life
Jamie found an interesting bit about a bank run in Second Life. The recent ban on gambling combined with a $12k theft from the 2L stock market has caused people to try to get their money back. The article mentions that this could supposedly affect 8.5M players even tho most estimates of actual hard core players in the system are in the 5 to low 6 figure range.
Yes and no. That's a subset of the reason. The larger reason is that it's illegal in general to demand payment in some other form of currency in preference to the US dollar. That's what the phrase "this note is legal tender for all debts, public and private" means. It means that, if you're going to do business in the US, and if you're going to engage in a financial transaction, you may not refuse the US dollar as a currency to complete the transaction.
It is not legal to require payment in pounds sterling, gold bars, or years of indentured servitude.
Basically, the US dollar is worth anything because the government says it is...which is, ultimately, a function of the citizens of the US saying that it is. Which, ultimately, makes it no different than gold (except, of course, that the finite supply of gold is imposed by the universe, while the finite supply of dollars is imposed by the Fed).
Reality has a conservative bias: it conserves mass, energy, momentum...
Um. Nope. The US dollar is worth something because it has a limited supply.
My snot has limited supply too, but it's not worth anything.
The GP was right for the question he was answering: why do the unbacked, limited-supply US dollars have value? Among other things, because you can pay taxes with them. I would add further, that so many debts are denominated in US dollars. This cascades into a sort of network effect: X people accept dollars, because they can pay debts with them, so MOST people accept dollars because they will be buying from someone, somehow connected to those X people.
And no, debt in and of it self is not morally objectionable. There's nothing wrong with businesses taking out loans for productive purposes for example. The reason a lot of economists like currency based this way is that you don't have to hold productive commodites (like gold, which can be used for hi-tech equipment) out of production, just so it can be used as money.
Your point about government inflating the currency is well-taken, but you're exaggerating its impact. As long as people know the approximate range by which it will expand the money supply, they will demand an interest rate on their lending that eliminates this effect. It's only the *ununsually excessive* expansions that can have distortionary effects, and people's expectations are pretty well adapted based on history.
Apology to Ubuntu forum.
The gold standard is terrible, leads to recessions, and in general unnecessarily constrains the economy. Here's a hint: if you think money is generally created by printing more currency, you obviously don't know what the hell you're talking about. Even if you understand how money is created, you still may not. For a thorough debunking of the gold standard, read this: http://web.mit.edu/krugman/www/goldbug.html
l
For an introduction on how money is created, try this: http://ingrimayne.com/econ/Banking/Commodity2.htm