One Red Paper Clip and the Power of the Market

Matthew 25:14-30 is one of several Biblical passages upholding market principles:

“It will be as when a man who was going on a journey called in his servants and entrusted his possessions to them. To one he gave five talents; to another, two; to a third, one–to each according to his ability. Then he went away. Immediately the one who received five talents went and traded with them, and made another five. Likewise, the one who received two made another two. But the man who received one went off and dug a hole in the ground and buried his master’s money. After a long time the master of those servants came back and settled accounts with them. The one who had received five talents came forward bringing the additional five. He said, ‘Master, you gave me five talents. See, I have made five more.’

“His master said to him, ‘Well done, my good and faithful servant. Since you were faithful in small matters, I will give you great responsibilities. Come, share your master’s joy.’ (Then) the one who had received two talents also came forward and said, ‘Master, you gave me two talents. See, I have made two more.’ His master said to him, ‘Well done, my good and faithful servant. Since you were faithful in small matters, I will give you great responsibilities. Come, share your master’s joy.’ Then the one who had received the one talent came forward and said, ‘Master, I knew you were a demanding person, harvesting where you did not plant and gathering where you did not scatter; so out of fear I went off and buried your talent in the ground. Here it is back.’ His master said to him in reply, ‘You wicked, lazy servant! So you knew that I harvest where I did not plant and gather where I did not scatter? Should you not then have put my money in the bank so that I could have got it back with interest on my return? Now then! Take the talent from him and give it to the one with ten. For to everyone who has, more will be given and he will grow rich; but from the one who has not, even what he has will be taken away. And throw this useless servant into the darkness outside, where there will be wailing and grinding of teeth.’ “

The returning master would probably have heaped high praise on Kyle MacDonald, the blogger who traded a red paper clip all the way up to a house. Mr. MacDonald’s success demonstrates the power of the market to meet material needs and increase prosperity.

The market is the arena where buyers and sellers enter into voluntary exchanges in which each party gives the other something in return for something of greater value to himself. By following that simple principle, Mr. MacDonald was ultimately able to obtain a three-bedroom house for a paper clip.

An Associated Press story recounts Mr. MacDonald’s trading saga: He started by trading the paper clip for a fish-shaped pen, which he then traded for a ceramic knob, then a camping stove, a generator, a beer keg and Budweiser sign, a snowmobile, a trip to the Canadian Rockies, a supply truck, a recording contract, and then a year’s rent in Phoenix. Surprisingly, he then traded the rent for an afternoon with rock star Alice Cooper, which he next traded for a snow globe featuring the band Kiss; he traded the snow globe for a paid speaking role in a movie directed by Corbin Bernsen, and finally traded the movie part for a three-bedroom house in Kipling, Saskatchewan.

Why did this work? Why did seemingly weird trades get Mr. MacDonald his house? Why did Corbin Bernsen trade a movie part for a snow globe? Why did the town of Kipling trade a house for the role?

Because the value of material things is subjective. People base the value that they place on any good or service on the satisfaction that they expect to derive from it. Parties trade with one another because each one expects to gain more satisfaction from what he obtains than from what he gives up. Corbin Bernsen is an avid snow globe collector; the Kiss knick-knack was worth more to him than the movie role. Kipling, a dwindling town, is betting that reinvigoration stimulated by publicity will be worth more than the cost of the house (estimated to be below $50,000 Canadian).

The market is win-win. Because each party benefits from voluntary exchange, the market system provides the best arena for meeting material needs and desires.

Trade is the lynchpin of the market system, the action that ignites the system’s power to increase prosperity.

But for trade to take place, two key conditions must be present.

First, there must be private property. People have to own something to trade it. Mr. MacDonald owned the paper clip; Kipling owned the house. Otherwise, they could not have traded them.

The other key condition for trade is the capacity to contract. People have to be free and able to agree to exchange with one another. Mr. MacDonald’s effort would have failed if he hadn’t been free to trade his paper clip or if Mr. Bernsen hadn’t been able to trade his movie role.

In a free market system, there are no restrictions on the freedoms necessary for exchange. That’s why when civil government diminishes these freedoms, it diminishes prosperity, like a “worthless servant”.