It's the Halloween season, the perfect occasion to introduce your young children and grandchildren to the wonders of the market economy. After all, the market is a process in which individuals strive to improve their situations through trade—that is, lucrative peaceful cooperation—with others. (Today we'll ignore all the ways politicians and bureaucrats get in the way.)
As a result of their trick-or-treating, children will bring home a vast quantity and variety of candies. Of course, not all kids (or adults) like the same kind of treats. While that could bring disappointment for some children as they survey their haul, it also brings opportunities.
But before we get to the opportunities, let's note that each child, being an individual, prefers some kinds of candy to others. Every child could rank candies from most to least favorite (including those disliked entirely), with rankings subject to change. No two children's rankings would be identical.
Moreover, value can't be measured like size and weight. Valuation is subjective, internal; thus no unit of value exists. We can say, for example, that one child prefers a Butterfinger to a Twix and another prefers a Twix to a Butterfinger, but we can't measure any of this. Money prices are not measurements, but exchange ratios. Someone prefers, say, a Mars bar to anything else he could spend his $1.99 on at a given moment. We're talking ordinal numbers, grading, here (1st, 2nd, 3rd), not the cardinal numbers required for measurement (1, 2, 3).
Given the randomness of trick-or-treat candy distribution, It's unlikely that any given child's bag will contain only his or her top-ranked candies. He or she may wish the bag had more Almond Joys and fewer Kit Kats, or vice versa. What's to be done?
People long ago discovered the answer: trade. Even kids who have never heard the word economics will quickly, if implicitly, comprehend the idea of gains from trade. Parents will not have to teach this. Even a fairly young child will quickly see opportunities for mutually beneficial exchange. I wouldn't call this a "propensity to truck, barter, and exchange," as Adam Smith did. Rather, like Carl Menger, I think the possibility of gains from trade is so obvious that nearly everyone sees it unassisted.
That doesn't mean parents have no role in the teaching moment that Halloween presents. On the contrary, they can supply simple concepts even to young children, making the implicit explicit. That knowledge will serve children well as they grow into adults because free exchange is pervasive in modern life.
Imagine two children, a sister and a brother. Let's call them Cruz, a 7-year-old girl, and Cass, a 5-year-old boy—by sheer coincidence, those are my grandchildren's names and ages. Full of excitement, they've just brought their candy bags home after a hard night of trick-or-treating. They empty their bags to reveal an impressive variety of sweets. Their eyes shine with delight, but as they look over their inventories, they each see some kinds they like "less" than other kinds. Chances are their preferences differ somewhat.
They see opportunities to trade. Let's say that Cruz has a Hershey's without almonds and Cass has a Hershey's with almonds. Let's also say that Cruz loves almonds, while Cass dislikes them. Being the alert, entrepreneurial kids they are, they realize they would each be better off, in his or her own opinion, if they traded. A simple change of possession and—voila!—they have climbed higher on their personal candy value scales. The number of candy bars did not change, only the ownership. It's a miracle!
That's the simplest example; things could get more complicated. Cass might be willing to trade two Hershey's with almonds for one without or any other arrangement that strikes his and Cruz's fancies. It's up to them. It depends on their values and their candy stocks.
They will realize that when they trade, they each are happy to give up something to get something else because they prefer it to the original something. In their views, the exchange looks worthwhile or they would not trade. Each makes a psychic profit. It's win-win! That's how trade works. (Alas, some early economists labored under the misconception that when people trade, they exchange equal, not unequal, values.)
True, after the trade occurs, one or both might feel regret. We all know that feeling. The world is uncertain, and our knowledge is always incomplete. When we say trade is mutually beneficial or it would not have occurred, we refer to the moment the trade is made. Error is always possible. Hopefully, learning follows.
Parents who want to take the lesson further could point out that what the kids are doing is engaging in barter, candy for candy, in contrast to what we do at a shop, where we trade money for goods. Checks, plastic cards, and apps are other, indirect ways to use money. We use money because barter is inconvenient. It requires a "double coincidence of wants." Two people hoping to trade must each want what the other is willing to trade. If they don't, they're out of luck. Thankfully, society found a way around barter inconvenience long ago: money, a generally accepted medium of exchange, that is, a thing useful in its own right that everyone is willing to accept in trade, intending to trade it on, because everyone else is willing to accept it too. Kids can't learn about money too early.
When our children and grandchildren grow up, they will spend a good deal of time in the marketplace peacefully and beneficially cooperating, largely with strangers. How many understand that the division of labor and trade made civilization what it is and broadened circles of trust to encompass the entire world? Ludwig von Mises wrote in Human Action:
The fundamental facts that brought about cooperation, society, and civilization and transformed the animal man into a human being are the facts that work performed under the division of labor is more productive than isolated work and that man’s reason is capable of recognizing this truth. But for these facts men would have forever remained deadly foes of one another, irreconcilable rivals in their endeavors to secure a portion of the scarce supply of means of sustenance provided by nature.... No sympathy could possibly develop under such a state of affairs.
Our kids can make a good start in life by learning about trade this Halloween.
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