Rich Guest Paradox

[WanderingGaze22]

There is a very poor quaint little town where everyone is in a huge debt with someone but with no money to pay for it. There is a hotel which is hardly seeing any business anymore. It will shut soon down. One day, a very wealthy guest shows up and they want to spend a night there. However before they confirm, a tour of the hotel is required. The receptionist asks for a security deposit which the potential guest can take back in case the rooms are not satisfactory. As luck would have it, this is the exact amount that the hotel owed to the chef as salary for three months which they hadn’t been able to pay. The cash is given to the chef.

The chef saw that this was the exact amount of cash he owed the grocer for months of groceries he hadn’t been able to pay for. He paid the grocer. The grocer realized it was the exact amount he owed the doctor for treating his wife. The doctor in turn paid the money to the nurse for two months of service he couldn’t pay for. The nurse was new to the town so she had been staying in the hotel for a few days before she found a house to rent. She couldn’t pay the hotel at that time. The money she received from the doctor was exactly what she owed the hotel so she paid. Now the hotel had got back the exact amount they had paid the chef and the guest has finished his tour of the rooms. Turns out they doesn’t like it. The security deposit from the hotel is taken and the tourist leaves, never to be seen again.

So everyone's debt has been paid, but nothing is different from before. No one has earned anything. But now everyone is happy.

Did the debt really exist at all? If the guest hadn't given the security deposit, would the townspeople have resorted to seeking outside resources such as work in another town?

[Ecurb]

The "deposit" is a red herring. A owes B $1, B owes C $1 and C owes A $1. They get together and decide, "Let's call it even and not bother paying." Each of them has equal assests and debits. Of course people are happy when they pay or collect a debt: it's onerous to owe, and uncertain to be owed. But there's nothing mysterious about the scenario. They could agree to the same thing with no deposit and no money changing hands.

[Terrapin Station]

Money, debts, earnings in terms of money, etc. are just ideas. We can have different ideas.

This is a good example of why I wouldn't have a traditionally money-based economy.

One different idea that I feel it's good to have is that when someone needs something, we work together to provide that thing for them as we can. (This isn't exactly a new idea--it's what communities like the Amish do more or less). If we all do that for everyone else, and especially if we can incentivize doing it by rewarding the people who work the hardest and/or smartest at it with scarcer resources, we'd be much better off.

[Thomyum2]

The rich guest's interest free 'deposit' is exactly what the Federal Reserve Bank does by giving money to the banks to infuse a supply of money at necessary times to keep the economy operating. The downside, of course, is that if you do this too much it causes inflation as everyone needs to adjust their prices to compensate for the increasing demand created by the larger supply of money if no additional good or services are being produced to offset it.

[Thomyum2]

It also occurs to me that what the hotel did by using the deposit to pay their debt would be unethical and illegal in most societies, and usually would fall under the category of "embezzlement", not to mention that they're putting the guest's deposit at risk without their consent and without compensation, and basically is operating a bank without a license or regulatory oversight. Should the chain of events the OP describes not have resulted in the money returning to the hotel by the time the guest was due to have their deposit refunded, then the hotel would have been in a difficult position indeed, and much worse off than when they started it all.

So to answer the OP question - yes, the debt really did exist. Borrowing money, as was done here, is one way to repay debt, but it usually doesn't come for free since there's always some level of risk involved.

[Alias]

Did the debt really exist at all?

No debt actually exists. Lending and borrowing are aspects of money and money is a made-up entity, like unicorns.

If the guest hadn't given the security deposit, would the townspeople have resorted to seeking outside resources such as work in another town?

They could simply revert to the reality-based barter or co-op or communal system of goods and services.

[LuckyR]

The "deposit" is a red herring. A owes B $1, B owes C $1 and C owes A $1. They get together and decide, "Let's call it even and not bother paying." Each of them has equal assests and debits. Of course people are happy when they pay or collect a debt: it's onerous to owe, and uncertain to be owed. But there's nothing mysterious about the scenario. They could agree to the same thing with no deposit and no money changing hands.

Great summary of the particulars involved. The OP would have been more interesting if the hotel was not owed money.