Tuesday, April 18, 2006

The Market is a Strange Place

This is fascinating. Canadian Kyle MacDonald has, over the course of a year and several trades, managed to trade a red paper clip for one year of housing in Phoenix. His goal is to ultimately get a house. The internet really is remarkable. Honestly, I am supposed to understand markets, but I am not sure how to think about this. Do we believe that he could have sold the red paper clip on eBay, taken the earnings and bought something else (not on eBay), sold that on eBay, and so on and reached the same point? If not, what is going on?

It sounded like he was not selling something on ebay and using the proceeds to buy something else, but rather swapping goods in an online bartering market. This at least partially explains how he might have managed to pull this off, since goods swapping is bound to be much less efficient than a money system. If someone wanted his red paperclip and had a fish shapped pen they were willing to get rid of, even if the paperclip is only worth half a fish shapped pen the good is impossible to divide so mr. paperclip gets the whole fish shapped pen.
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