Passionate about liberty and want a chance to win $4,000? Check out our video contest!
columns

This is part of a series

February 2016

Free Exchange and Promoting Human Well-Being

A few remarks on gains from trade, restrictions on economic freedom, and sugar-free grape gum.

 

The best thing about associating with academic economists is learning about all of the various activities they use in their courses to teach relevant concepts. Over the past few years, I have started using variations of these games in my own courses to help my students in philosophy identify and reflect on issues related to ethics and the promotion of human well-being.

One of my favorites is the trading game. If you are unfamiliar with this game, it involves distributing assorted candy to the class and having them identify how satisfied they are with what they have received. After recording their answers, they are allowed to trade with their classmates, recording how satisfied they are now with what they have once everyone has traded as much as they desire. This game makes it very easy to show them the connections between free exchange and promoting human well-being.

I use a number of iterations of the trading game. In one, the students can start off with differing amounts of candy, including none. Students with none are given a piece of paper and told that they should do what they can to acquire whatever they want. In another version, students are restricted from trading with certain people (e.g., men and women cannot trade). In a third version students are given three pieces of candy and ten nickels. They can buy and sell candy at whatever price they see fit, including buying it from “the state” (me) at 30 cents a piece.

A variant of this last version taxes the students at ten cents per trade, with each student paying five cents or one student paying the entire amount. In this version, it is possible to use the taxed revenue to provide the “poorest students” (i.e., the ones with the least amount of candy) with additional candy at the end. The discussion gets very interesting when you secretly instruct a student to eat his candy during the game so that he can be the poorest (or one of the poorest) at the end.

No matter what version is played, the results of the game are fairly consistent. Students recognize that free exchange makes people better off without having to inject additional resources into the system. They recognize that barriers to unlimited free trade, be it regulations like not allowing men to trade with women or taxes on trade that restrict the number of trades that can be made, are detrimental to the maximization of well-being.

In games where students start off with the same amount of candy, no one thinks it is unfair when someone has more or less than others do at the end, and nearly everyone thinks it is unfair that any “tax revenue” collected is used to give more candy to those with the least amount. If you use any tax revenue to distribute candy back to the one with the least, and this person happens to be the one you instructed to secretly (or not so secretly) eat his candy throughout the game, the outrage you will see from the students is rather amusing (especially from the self-proclaimed “liberals”).

While it may be tempting to draw a connections between variations of the trading game and the state’s implementation of social welfare programs, it is important to keep in mind that there are reasonable differences between this game and reality. In most versions of the trading game, everyone starts with something. People can use their labor to turn that something into something else.

But in the variants where some students start with nothing, it is very difficult for those students to turn that nothing into something. (One of my colleagues who played this variation of the game reported that one of the students resorted to blackmail in order to get some candy.) Similar problems can be observed with students who start with candy that no one wants. (I learned through the trading game that sugar free grape gum is not popular with college kids these days. Go figure.)

Perhaps the more important difference between the trading game and social welfare programs is that in the case of the game we are dealing with bars of candy within a controlled setting. Whether or not someone acquires more Mr. Goodbars has no influence on his long-term health or well-being, either physical or mental. The same is not true for the goods distributed via social welfare programs and much of what is exchanged in our society.

Someone who is born with the equivalent of sugar-free grape gum finds himself in very difficult circumstances, and instead of merely ending the game with a couple of packs of gum, he is looking at the possibility of going without adequate food or shelter. Like the student who blackmailed her friend for the Kit-Kat, it should not be surprising that people in our community use undesirable means to acquire what they want if they believe there is little chance for those things to be acquired legitimately.

While the trading game allows students to learn fairly easily the connection between free exchange and the promotion of human well-being, it also is a clever way of beginning the discussion of morality and markets, and to get the students to consider under what conditions free exchange should be restricted. My next post will examine this question of when we may want to restrict the buying and selling of certain goods or services.

This is part of a series