Economics and the Wentletrap

This thing of beauty and joy is a wentletrap sea shell.  They once were extremely rare, highly valued by collectors.

 People like the Queen of Sweden, the Medici family, or the Emperor Francis the first owned them, if they were lucky.  At one time, only three specimens were known to be in collections.

If you were the richest woman in the world and you loved natural history and all things oceanic, how much would you pay for something so rare, only two other specimens existed?

Naturally, they were highly valued.  Dutch traders knew the source and guarded it closely, keeping the supply limited and prices high.

If you were the richest woman in the world and you loved natural history and all things oceanic, would you pay the same price for one of a thousand existing seashells that you would for one of three?  Would you need to?  After all, some sellers would be willing to sell for less than others.

As in any market where the possible return of investment is high, there is also an equally high likelihood of unscrupulous scoundrels, so the market was gradually infiltrated by carefully crafted counterfeits (sorry, my mind naturally leans toward alliteration), which brought down the prices some, as the increase in supply both filled some demand, and also decreased it (a handful of those interested in collecting due to the rarity of the item would be less interested in that item as it became somewhat less rare).
The counterfeits were mostly cunning and beautifully handcrafted pieces from China.  The professor who told me this story tells me that the counterfeits were discovered when a collector accidentally dropped his precious wentletrap shell and stepped on it, and recognized that the pieces were not limestone, but rice paste sculptures.

Eventually, wentletrap habitats were discovered by other traders, and it turned out that they weren't that rare after all, and whereas a single wentletrap once sold for thousands and thousands of dollars, you can now purchase a set of three for twelve dollars on ebay.

It's a lovely little illustration of the law of supply and demand, which you may remember from school, or you've discovered it yourself at the gas tank, while shopping for picture books for Five in a Row, or when competing for an appointment with everybody's favorite chiropractor.

But what makes it an even better illustration is this luscious little fact- those worthless counterfeit wentletrap shells are now more rare than the actual wentletraps, and are highly valued collectibles.

What does this have to do with the government and economics?  Like the wentletrap, the U.S. dollar has no intrisic worth or value of its own. Unlike the wentletrap, the dollar's value is determined partially by government decree - and by the fact that citizens of this country and around the world agree to accept this decree and play the game as though the monopoly money our government prints were real money.

If the government just begins printing off more money, a solution I have heard more than one ill informed voter suggest as an answer to the debt crisis (see also here, here, and here, or just search the phrase and see how often it gets asked), then, just as wentletraps flooding the market brought down the price, or value, of wentletraps, then the surplus dollars are also reduced in value.  Oh, a dollar will still be called a dollar, but the purchasing power will be diminished.  What you once could buy for one dollar will now require two (but your earning power will not be doubled), or four, or six.



Hmmmm.But this is not the only way the government can (and does) reduce your standard of living.



More on Wentletraps here and here.http://www.mitchellspublications.com/guides/shells/articles/0075/

more on why the government cannot just print more money here.