What Halloween Can Teach Us about Economics

Halloween seems to surpass Christmas in terms of kids’ excitement level. Kids spend months preparing their costumes, and thrill to every detail of the ceremony: pumpkins, scary things, and of course candy. For the children, too, there is the attractive fact that parents are not all that happy about Halloween with its goblins, gore, and gluttony.

But, a deeper lesson to be drawn is that there is also an economic dimension to Halloween that goes far beyond simply demanding property with menaces, however lighthearted.

Unlike at Christmas, where kids must only be good little citizens all year in order to be showered with gifts from their beneficent Guardians, at Halloween, kids must actually work in real time for their candy.

Because there is no taboo in place about trading one’s proceeds, the kids also have a chance to participate in genuine market experiences.

For starters, they work hard on their costumes, under the very real expectation that those who hand out candy tend to be more generous to those with better costumes. Nor is the labor done there, for it clearly continues with the long walk around the neighborhood, with the prospect that each house visited will yield a gain of only one or two candies, at most.

This in itself forms an interesting feature of the ritual, since all of these same kids have lots of candy back at home that is being given out to other kids even as they tramp through the cold October evening. What could be the point of seeking out abroad what you already have at home?

There are two reasons: first, though the kids may not consciously recognize it, they surely appreciate the candy more if it represents something they have to go seek out for themselves, and second, by mixing their labor with the process of candy acquisition, they have a greater sense that the candy partakes of qualities of duly earned, private property.

No child really believes that the bowls of candy at home really belong to him or her, but, by contrast, the candy that the child collects from the neighborhood is said to be his or hers exclusively, even if mom or dad still oversees the overall patterns of distribution.

The candy you collect is yours, a product of your own efforts, and nothing can quite replace that feeling of merited ownership. And yet, the real thrill is far from over.

What children truly adore about Halloween is what takes place after the candy has been brought back to home base: the trading. Here is where the excitement begins.

No child can fully control what he or she is given, so it is up to that child to make exchanges with others in order to obtain what he or she really wants, and to do so in a strategic manner so that overall wealth is enhanced.

This process of trading can last for about 30 minutes, at which point, the children conclude that they have come as close as is possible to what they want. I’ve seen this in real life. During the 30 minutes of active haggling, nine kids sat around the dining room table and participated in a hectic, yet orderly — if complex — interchange, bearing a good deal of resemblance to a Wall Street trading floor.

Some traders shot up and shouted prices, deals, proposals, results, changes in preferences, new resource discoveries. Other traders remained quiet and moved with great subtlety and surprise. The more strategic the plan, the more impressed the other kids were by it.
It was fascinating to watch as the trading began slowly and as the first barter relationships began to form.

One for one; two for one; three packages of Nerds for one popcorn ball; two Snickers for one candy necklace; a Blowpop for two pieces of caramel; and so on.

All children brought to the table their own subjective sense of what was valuable — a sense which was strongly influenced by the corresponding opinions of the other players, but one which also added to it a degree of prediction concerning just how the subjective values of others would stack up.

It wasn’t long before barter relationships, even those involving 3 or 4 simultaneous transactions, did not suffice.

What those around the table needed was some means to achieve indirect exchange. They needed to hit upon a good which everyone would desire to possess because of its more certain, onward marketability among all the other kids.

This entity did not need to be highly valued from the outset by everyone present. What the kids only needed to notice was that there was something which a sufficient number of their group tended to want more than any other competing candy on offer.

It was a short step from there to the dawning of a realization would occur to one or two kids. These would then try to acquire that particular candy, not to consume it themselves, but to use it to trade it for whatever other candy they really wanted to enjoy.

As more and more of the participants copied them, this one candy would come to play a role in more and more indirect exchanges. Child A would accept it from Child B for a less desired kind of candy and would instantly swap it again with Child C who happened to have the goodie he or she really preferred, but who hadn’t wanted any of A’s originally proffered treats.

This way, this one candy would come to posses a quality none of the others had. It would come to be money.

In general, money, whatever specific form it takes, tends to have a high value per unit of weight and yet it should be split into units small enough to cope with any scale of exchange. It should ideally have a fixed supply. Above all, it must be the one thing most readily accepted in settlement of a trade because the acceptor knows it is something which can, with the highest available degree of certainty, be used to facilitate additional future trades.

There is no way to know ahead of time what will fulfill this role; only the market process itself will reveal this choice.

In the case I saw, the popcorn ball would not work since there were only four of them and these were not divisible into smaller units. The Twizzlers did not pass the test because only one child had any knowledge of what they tasted like and hence no one else had any concept of their value.

Though this problem might seem an intractable one, as it happened, it only took a few minutes for everyone to discover what would become money for the evening: a micro-size Three Musketeers bar.

Before people realized the true measure of its usefulness, a 3M would trade for as little as a Smarty package. But, then, it began to rise in value — selling for the Smarty and a Tootsie Roll.
Once it became clear that 3M was the commodity of the most use in exchange, it didn’t matter whether you actually liked it or not. You were happy to trade the candies you didn’t much care for in order to obtain a 3M simply because this could then be traded again for something which really did make your mouth water.

Once the 3M became money, its own value was seen to rise as a consequence. What was occurring was that this extra property of “tradability” was being added to the underlying demand for it as a consumption item.

Indeed, by the end of the session, this value reached such a height that it became an instant legend as, at its peak, one solitary 3M changed hands for no less than three Tootsie Rolls and a Tootsie Pop!

Once this money was settled upon, it became much easier to price such candies as Reese’s and Kit Kats, which had previously had an illiquid and uncertain market.

Now they began to sell for one-half and one-quarter of a 3M, despite the fact that they had started out with much the same intrinsic value as a snack item. From there on, their prices hovered within a narrow trading range, roughly comparable to that of a small Tootsie Roll, while Snickers did slightly better than all of them.

Extreme scarcity led to very high prices — anything up to four 3Ms in the case of Jolly Rancher hard candy. Skittles, too, were highly prized and sold for as many five 3Ms. Reese’s “Inside Out” sold at a premium over the plain variety.

However, showing that scarcity is not just a numerical concept, the parents of all these kids had long discouraged gum chewing, so despite the gum’s similar rarity, no one wanted it.
In fact, the price quickly fell to zero where it was eventually given away free to the one child who was permitted to chew it.

Thankfully for the future of civilization, even that child soon lost interest in it!

Interestingly, the advent of money also encouraged the kids to think beyond the immediate trading round. Instead, they began to acquire a surplus, to be saved for successive rounds where it was hoped better terms might be on offer.

The kids soon adopted different strategies.

Some started saving (“hoarding”) 3Ms to trade them in at the end of the trading session, speculating that the goods price of 3M would continually rise.

Others would acquire this valuable thing solely in order to consume it (this money, after all, originated as a consumable good and so it remained).

But mostly — and this was the satisfying part for those anxious to observe the entrepreneurial discovery of money — kids would acquire 3Ms solely to facilitate other exchanges.

Outside observers might imagine the following: let’s say someone arrived at the scene and threw down 100 3Ms on the table. All kids know precisely what would happen. The price of 3Ms would tumble. Each one would purchase far less than it had before.

The “inflation” might be so extreme that 3Ms might even cease to be money — the good everyone wants to acquire in order to acquire other goods — and some other candy might take its place instead.

Imagine the chaos that would ensue, as the kids came loudly to bewail their recent exchanges of worthwhile candy for this now devalued commodity.

Imagine the loss of innocence as they saw honest bargains frustrated and vowed to be more cautious of extending their trust upon the market.

Imagine the general loss as trading once more became scattered and choices were again restricted as the idea of money fell into disrepute.

But, fortunately, no Halloween bogeyman from the Federal Reserve Candy Factory came to ruin their game. So the kids could remain free to trust in the soundness of their candy unit.

At last, the kids became exhausted by this frenzy and the market closed — not because someone sounded a bell, but simply because, in general, everyone came to see that each was as satisfied as they were likely to be with what they had.

Once the trading had ended, the status of the 3Ms promptly reverted to that of a purely consumable item, since the end of the trading game signaled the loss of their monetary properties, leaving them just a plain candy, much like any other.

Some kids left with a far lesser quantity of candy than when they first arrived, but that did not prevent them feeling far wealthier because now what they owned was a much closer approximation to their ideal mix.

As for the other kids, well, they were astounded to discover that their own bags were far heavier than before, that they too felt wealthier — and that nobody was complaining to mom about the fact!

Indeed, all children left the table with smiles and happiness, each feeling as if he or she had gotten a great deal.

What a stunning achievement!

After all, the available physical resources were unchanged. Nor had anyone planned or policed the trading. It had all happened spontaneously.

One was left wondering at the true magic of that Halloween — namely, at the transforming effect of something as simple as the opportunity for free exchange, for the chance to derive mutual benefit from the difference in tastes between individuals.

In this, at least, Halloween was all about treats, and, despite what the opponents of the exchange economy will tell you, there was no trick about it anywhere you looked.