How to Teach Austrian Economics to the Neighbor Kids
A mom in the neighborhood recently made trouble. Macroeconomic trouble. Here is a way to spot such trouble, and how to help nurture the goodness in our economic way of life.
A few months back her boy went door to door, confidently introducing himself, explaining his purpose, and handing us a detailed flier: “Twelve-year-old boy willing to work.” He was trying to earn money to go to sailing school. I was impressed. My wife was impressed. We told our kids to be impressed.
There is virtue in hard work and initiative, and such virtue is doubled when it involves tweens and teens. I commend the boy and the mom—both of whom were complete strangers to me.
But then things turned bad. Not with the boy—he was great. I called him to bring our empty trash cans back up to the house one day when we would be out of town. I promised him ten dollars upon my return. He was thrilled and he performed the task with what I imagine was great alacrity. Never have my trash cans been so well brought up to the house.
Things turned bad when I got the text from Mom: “It was an easy task. No need to pay.”
A Dangerous Underlying Premise
I concede that the task was easy and ten dollars was very generous. Heck, I probably could have negotiated the boy down to five dollars! That he actually had a reservation wage of zero was both remarkable and a missed opportunity to avoid transgressing child labor laws.
I also readily concede that charity and neighborliness are lovely and important. But this was something else. The mom’s sequitur was “easy; ergo, free”—an analogue to the more familiar “hard; ergo, expensive.” In this, she had slipped into economic (and moral) reasoning that is everywhere in society and everywhere dangerous. Economists call it the labor theory of value.
In simple terms, the theory states that the amount of hard labor put into a product or service is what determines its value (and price). The harder the work, the more value generated, and thus the more the worker should be remunerated. Sounds innocent enough.
Indeed, so easily does such logic enter into the brain that it is deeply embedded in our moral sensibility. It is the intuition telling us that the hard work and commitment of teachers ought to be better remunerated. It is the impulse telling us that the per-throw, per-word, per-hour, and per-post earnings of, respectively, athletes, actors, CEOs and Instagram personalities is unjustly high.
The mom clearly calculated the effort of the boy and was embarrassed that the effort did not align with the remuneration. She wanted the boy to learn the value of hard work. What was there to learn in this easy-money situation? Maybe something unseemly.
Neoclassical Economic Perspective
I saw the learning opportunity differently. His mom and I were going to wrestle for the soul of this child and for the future of our economic order.
Value, as most economists recognize since the marginal revolution of the late nineteenth century, is not actually determined by calculating the number of hours of production. Rather, value is determined by the customer—by how much the customer appreciates the product relative to availability. Value is inherently subjective.
In what will be known as the “trash can debacle of 2023,” I clearly and dearly valued trash can service. Trash cans on the curb would signal absence and invite ne’er-do-wells to break in and steal my lovely tchotchkes and shiny baubles. I would have paid twenty dollars. Geesh, maybe more!
The boy got lucky by my conundrum. But this luck was not without merit. He was an entrepreneur. He came up with the idea, developed excellent flyers, and then built up the courage to go door-to-door and look complete strangers in the eye and make an impression. He also had to remember that between prealgebra and LEGOs he had to retrieve trash cans in the cold. Heck, he was probably anxious about it for days!
The labor theory of value errs by directing us to calculate the most visible. But there was much more benefit to me than could be gleaned in the easy movement of empty objects. And much more went into moving those empty objects than walking the twenty yards to my house. As Roman philosopher Seneca (and renowned football coach and plagiarist Vince Lombardi) stated, “Luck is when opportunity meets preparation.”
An Alternative Morality
Thus my moral contribution to this child’s upbringing: Your value is in your whole person, not in just your “labor.” Your ideas will have value in today’s society. Your gumption will have value. Your character too. Figure out what the world appreciates. You will earn well and improve the lot of others.
Adam Smith saw morality in such wealth-seeking spirit. The twelve-year-old boy was my butcher or brewer or baker that day. He did not offer me services out of a charitable spirit, but rather out of a selfish spirit to get to sailing school. And that is ok. Look at the outcome, not the intention. He effectively provided me alms (or what economists call “consumer surplus”).
Smith was born three hundred years ago this year. His kind of moral thinking threatened the monopoly of political and spiritual leaders of his time. It does the same today. Alexandria Ocasio-Cortez would like you to think that we often exchange money for the alienated souls of laborers. Pope Francis insists that labor transactions are “win-lose” events between haves and have-nots.
My exchange with the boy says otherwise. In markets, we exchange wants for provisions, needs for fulfillments, and dreams for realizations. We are all have-nots becoming haves, and haves providing to have-nots.
In the end, I paid the boy and did not preach. The morality of the market is often learned simply by participating in it.
If the boy and I continue to do business together this year, we will both be better off. Moreover, to ensure continued transactions, he will likely keep himself upstanding and I will likely avoid being a boor and a brute (this article notwithstanding).
This upcoming year my neighborhood will experience a demonstration of Smith’s invisible hand as well as Montesquieu’s doux commerce. It is a demonstration replicated over and over across free societies—one where diverse strangers meet, solve each other’s disparate problems, and behave in ways that lend to tolerance, democracy, peace, and trust.
Such a society is a cause worth donating to. So find that neighborhood kid willing to work, and make sure to pay. You will be nurturing the miraculous sentiment that trade has its virtues. In doing so, you will be paying it forward for all of us.