Free Markets, Part Two
Michael Kolar sent me this e-mail in response to my post about Tulipomania yesterday.I learned an early lesson about popular delusions and their effects on markets at a surprising age- in 5th grade. The topic of the delusion: marbles.
Marbles were the national pastime for a while on our playground. Though of course we didn't recognize it at the time, a classic free market sprung up around the trading of various types of marbles. "Cat's eyes" were worth two regular marbles, "jumbos" were worth 5; the varieties escape me now, but there was a widely accepted value scale for any given marble.
One day a kid named Lee got hold of a whole bag of mini marbles- they were really small, maybe a tenth the size of an ordinary marble, and they were all in clear bright colors and looked really cool. Lee would bring a few at a time to school, and started spreading the word that they were really exotic- worth a whopping 11 marbles. We'd never seen mini marbles before, and the cultural delusion took hold. For the next few weeks there was a market frenzy surrounding mini marbles, and kids staked the value of their entire collection on the quantity of minis in their holdings. Lee leaked his bag of minis into the market a little at a time, and brought home untold quantities of marble wealth.
One day a kid from a whole different playground showed up on our marble fields. He hadn't seen minis before and wanted to trade for a couple. We told him they were worth at least 11 to 1, and he sneered at us- "Those aren't worth no 11 marbles! Look at the size of them, they can't be worth even one! I'll give you 2 to 1 just for a couple." Standing firm on our delusion, we sent him packing back to his own playground, presumably with its own alien marble market. But his tiny insinuation of doubt festered in our economy. The mini market suffered a sudden collapse and minis became almost worthless.
Lee made his killing and never said another word about it. I've no idea where he is today, but I'm sure he's doing just fine.
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