Halloween Economics

Every Halloween children engage in the single largest simultaneous generation of mutual profit and yet not a single dollar changes hands. As the lights go out on the front porches the opening trade bell chimes for the time honored post-Trick-or-Treat ritual known as “the trade”. Twizzlers, Snickers, M&M’s, lollipops all change hands multiple times. The absolute quantity of candy changing hands is static, only ownership changes. Yet when all trades are complete everyone is happier than when they started out. How then can this apparent zero-sum game produce a positive output not just for some participants, but for all participants? The answer is quite simple: all value is subjective.

The Halloween candy market mirrors the real world in microcosmic fashion. Each participant starts out with a random distribution of candy; some may have more and some less, but all have something. In the same way each of us is born into this world with differing abilities that carry with them advantages and disadvantages (i.e. some are born into candy rich or candy poor neighborhoods to extend the metaphor). This process may be “unfair” but all have something to offer each other. But, what all have in equal proportion is the human propensity for general dissatisfaction with whatever they do have and therefore each has a desire to improve his or her condition. So, people have X but they want Y, and in order to achieve Y they will use X to get as much of Y as they can. Of course trade is usually never that simple. Sometimes to get X you must trade Y for T and T for R and R for U and then U for X. But the point is that with each completed trade both participants have a profit; that is, both place a higher value on the item(s) obtained post-trade then the items they had pre-trade. Profit is merely our subjective assessment of having gained an increase in satisfaction when we consider our post and pre-trade mindsets. Were there not an anticipated increase in satisfaction then naturally we would not have engaged in such a trade. Of course it is not impossible to deliberately trade away something we hold in high esteem for something we hold in much lower esteem, but it would be foolish. But do not misinterpret that as meaning that a “sacrifice” is foolish. In fact if done willingly it is not possible to “sacrifice” something. The one “sacrificing” does receive something of greater value in the exchange; the satisfaction of benefitting the one for whom they willingly “sacrifice”.

Because all value is subjective it makes it difficult (if not impossible) for a third party to judge the outcome of a trade. To use the candy example, if a parent who detests Tootsie Rolls witnesses their child trade away all of their Hershey Kisses for Tootsie Rolls, then that parent will indignantly conclude their child has been “ripped off” and may attempt to intervene. But since their child loves Tootsie Rolls and the other kid loves Hershey Kisses then both kids are now much happier because of their swap. Both children have profited from the trade but the parent believes one child has gained and the other has lost. This demonstrates the utter futility of believe a third party can “regulate” economic trade by substituting their own subjective opinion for the equally subjective opinion of the market participants. For example, imagine what would happen if a parent decreed a minimum wage of sorts. House rules say jawbreakers must trade for at least two Hershey Kisses. But, jawbreakers are so universally disliked that the market rate is actually 10 jawbreakers for one Hershey’s kiss. What do you imagine would happen to the kids with lots of jawbreakers? That’s right, no one would trade with them because no one would be willing to meet the decreed price minimum. This market intervention and subsequent distortion causes decreased profit not only for the kids with jawbreakers but for all other participants that now are barred from trading with them. Intervention robs all of the maximum satisfaction that could have been achieved.

Fortunately the state has yet to get involved in exerting control over this chaotic and unregulated candy free market. Each Halloween we are witness to the simple beauty of the natural equilibrium of increasing satisfaction achieved by those able to freely engage in uncoerced and unregulated trade.