L. Neil Smith's
THE LIBERTARIAN ENTERPRISE
Number 231, July 13, 2003
TIME TO TELL ALL
The Economics of Pokemon
Exclusive to TLE
Like many similarly-aged children, my nine-year-old daughter is heavily into Pokemon. Being an engaged parent constantly on the lookout for pop culture that undermines my attempt to turn my children into gun-toting individualists, I've watched a number of episodes and three of the four movies that have been released to date.
For the uninitiated, "Pokemon" are "Pocket Monsters," the marketing creation of Japanese animation or "Anime." They are single super-powered life forms and nominal pet/companions of the "Pokemon Trainers." The lead human characters of the program are pre-teens who spend their time collecting Pokemon in the hopes of ultimately becoming the greatest Pokemon Masters in the world.
I admit it: I don't really get it. The animation of the shows is uniformly lousy (though in this respect it differs little from any modern animation). The cultural differences between what constitutes Japanese and American entertainment is different enough that pacing and characterization is generally hard for me to follow. The dubbing is such that all the characters seem to be speaking at a breakneck pace, communicating complex thoughts and ideas almost too fast to follow.
My daughter spends an enormous amount of her thankfully ample spare computing capacity memorizing the names and vital statistics of literally hundreds of individual Pokemon. I am consistently amazed at the sheer amount of detail she manages to keep straight. She collects Pokemon cards, games, action figures, DVDs, and other memorabilia at a rate that makes me glad I'm in the computer science field.
In her particular case, it's not just a marketing success: she's the moderator of an online Pokemon forum, and spends time role-playing Pokemon on AOL Instant Messenger.
Thank goodness for broadband Internet.
Again, I don't really get the show at all. I understand her zeal: when I was her age, my parents must have been equally mystified by my ability to memorize Star Trek trivia. The frightening thing is that I can recognize that if I'd have the Internet at age nine, no doubt I'd be doing exactly what she is.
Yesterday, we were making a run to the video store to pick up Episodes IV through VI of Star Wars and the DVD of the second Pokemon movie. It seems my daughter recently discovered the audio commentary on the DVDs, and was so engrossed that she needed to rent the movies again to listen to it. On the way, she was reiterating some Pokemon trivia, and I was listening politelynot entirely understanding, but happy that she's happy.
At some point, we got onto the subject of comic books, and how, when I was her age, comic books were only a dime. This confused her, as it often does, as it doesn't make any sense that they could cost so little forty years ago: today, the average comic book is at least $2.50.
"Well," I told her, "it's inflation. Over time, government makes paper money worth less and less, and when this happens, it looks like things cost more and more."
Being the inquisitive, intelligent child she is, my daughter naturally wanted to know how government inflates money.
"Well, first of all, you have to understand about supply and demand. Do you know what that is?" She didn't, and for a moment, I wondered how I would put this in terms she'd understand. Then a flash of inspiration hit me:
"Well, think about your Pokemon cards. Some of them are very rare and some of them are common, right? Give me the name of a rare one."
"The Zapdos Holographic card," my daughter answered instantly. "You can NEVER find one of those."
"All right, how about a common one? Something you get almost every time you open a pack of cards?"
"Okay, now suppose you have a Zapdos Holographic card and I said to you, 'I'll trade you a Staryu card for your Zapdos Holographic.' What would you say?"
"I'd say, 'No way, are you crazy??'"
"Suppose I offered you fifty Staryus. Would you trade me then?"
"No way! I can get a Staryu in any pack. Zapdos Holos are really rare."
"Exactly," I explained. "That's supply and demand. There are very few Zapdos Holo cards, and lots of kids who want them. The fewer there are of something and the more people who want them, the more valuable they become. The supply of Zapdos Holos is small, and the demand for them is high, so they're valuable. The supply of Staryus is high and the demand is low, so they aren't valuable."
That clicked, and she understood, but didn't get how this related to inflation.
"Ok, you know gold is valuable because it's raresupply and demand again: there isn't much of it, and lots of people want it. You can't really make more of it, because it has to be found, so its value doesn't really change.
"Now, is there anything at all rare about pieces of paper?"
"No, that's everywhere."
"Rightpaper isn't valuable at all because there's lots of it and not that many people want paper. Now, here's where it gets complicated:
"Way back when the government first started printing money, the money was a certificate. If you had a dollar bill, you could take it to a government bank and exchange it for gold."
This suitably impressed her. She was not, of course, aware that paper money ever had any intrinsic value.
"Ok, now we know the amount of gold in existence doesn't change very much, so imagine you had a big bank vault with five hundred pounds of gold in it. You start issuing certificates for that gold: every certificate is worth a pound of gold. How many certificates could you print?"
"Exactly," I said. "And what happens if you print five hundred and one?"
"You don't have enough gold. People could start asking for gold, and you'd run out."
"Right! Now, as long as the government's paper money was actually a certificate, they couldn't print any more of it than there was gold. Because people in America might start asking for the gold, the government might run out if there were too many certificates, and people would get angry. Does that make sense? So when paper money is a certificate for gold, it's stable. It will be exactly as valuable as the gold it can be redeemed for."
Again, that made perfect sense to her.
"All right, so here's how government screwed it up and caused inflation:
"Back in the beginning of the 20th century, the people in government said, 'You know what, this whole gold thing is inconvenient. Let's just use the paper money and forget about the gold.'"
This puzzled my daughter. "Why would they do that? The paper wouldn't be worth anything, by itself."
"You're right about thatthe paper is only worth something if people BELIEVE it is and act like it is. It's not like gold, which is worth something because of supply and demand.
"As to why they did it, well, it was basically because they thought they could control what people did with the money easier with paper than they could with gold. What really happened was they made a huge mess of things.
"See, as soon as it didn't matter any more how much paper the government printed, they started printing tons of it. When the paper was a certificate for gold, they had to worry that people who show up and want their gold. When the paper was just paper, they didn't have any reason not to print money.
"What they basically did was take a Zapdos Holographic card and turn it into a Staryu by printing up lots and lots of them."
"But ... that's STUPID! Why would the government do that to its money? It doesn't make sense!"
At this, I had to smile. "They did it over a long period of time, and at first very slowly. As an example, comic books were a dime for at least the first ten years of my life. Then, as government printed more money, it became a quarter. Then fifty cents. In the last ten years, it's gone from a dollar to over two-and-a-half dollars.
"And the reason they did it, honey, is because the people in government don't understand what you do about supply and demand. All they want is power, and they see controlling the money supply as a way to get it. They're not interested in what makes sense or what's best for people, they're just interested in having something they can control for its own sake.
"There's not a government in existence that, when given the power to print money, hasn't printed it until it was worthless. Government should never have the power to print money, because it can't be trusted with that power."
Now my daughter was truly mystified. "Why don't people stop them? Like vote for people who won't inflate money?"
"Most people don't know about supply and demand."
"Waitthey don't know about supply and demand?! But I know about it, it's not that hard!"
"Well," I admitted, "you now know more about supply and demand than the average high school graduate. Remember that the same people who want to control how people spend money also want to control what they learn. If they don't tell you about supply and demand in school, that means no one will have the knowledge to try and stop them from inflating money. So I guess you can imagine why they don't want people to learn about supply and demand."
"But that's not nice!"
"Well, unfortunately, honey, 'nice' isn't something government is."
At which point, we arrived at the video store, prompting my daughter to observe, "Wow, Daddy, that was good timing! You finished that up just as we got here!"