From the Bench: August 2011

August 15, 2011 | Blog | Dale A. Brill, Ph.D.

The sight of young Gideon in the distance, again standing behind his card tables, broke the tight grip that frustration had locked on my face. The blazing July heat and humidity dissipated as I approached my favorite 11-year-old neighborhood entrepreneur.

“Hello, Gideon.”

“Hi!” he replied, only looking up long enough to acknowledge me before returning to the business of sorting dozens of baseball cards on the table.

“Looks like you’ve given up the lemonade stand for trading baseball cards, huh?”

“Yes, sir. I was afraid I might get arrested,” he said.

“Arrested?”

“Yes, sir. My mom told me about three girls in Midway, Georgia. The police came and made them shut down their lemonade stand because they didn’t have permits and licenses. It was in the news.”

“That’s too bad,” I replied while scanning Gideon’s card collection.

“What’s the matter?” he asked, apparently noticing the physical reaction I had to seeing what looked like a Ryne Sandberg card with 1983 in the corner.

“Is that a Ryne Sandberg rookie card?” I stammered.

“Think so. My mom said I can’t trade that one though. It’s too valuable.”

“That’s good advice. Do you know how much it’s worth?” I asked.

“A lot.”

“Yep. A lot.” I confirmed.

“Do you know why?” I pursued.

“There aren’t many of them and people want them.” He passed the test.

It was difficult, but with the help of my impatient Australian Shepherd, Allie, I pulled myself away from wonder of a Ryne Sandberg rookie card and wished Gideon luck in his trading. As I turned to walk the balance of the block to get home, a grin spread on my face at the realization that this aspiring businessman already understood the essence of the free market. Could he possibly also understand inflation?

I whipped back around reaching into my wallet to grab a dollar bill. “Gideon, how much is this dollar worth to you?”

“Is that a trick question?” he replied.

“Sort of,” I acknowledged. “Let me ask it a different way. If I told you that there were only 1,000 of these dollar bills in the entire world, but that one year from now there would be 2,000 of them. Is this dollar bill now worth more to you or less to you?”

Gideon thought for a moment and said hesitantly, “That dollar would be worth less.”

“Why?” I asked

“Because there will be twice as many. Like my baseball cards, if there are a lot of them fewer people are willing to trade for them,” he answered.

“Gideon, congratulations. You understand the concept of inflation perfectly,” I said.

“Inflation?”

“Inflation is the increase in the number of dollars. When we print or otherwise do things that increase the supply of dollars, we make those dollars worth less,” I explained. “And when dollars are worth less, it takes more of them to buy other things that you want. Things cost more.”

“Then inflation can’t be a good thing,” he said matter of factly. “So, if things are going to be more expensive, I should buy as much as I can now to get them while they’re cheaper.”

“Well, Gideon. That actually makes things worse, but let’s save that discussion for another day.”