The Red Paper-Clip Phenomenon Encapsulates Economics

Blog, May 2, 2006

Geoffrey Hamilton

A story has been making the rounds of all the major news organizations in North America. A young Vancouver internet hound wondered what he could get if he bartered a red ordinary size paper clip online. He hoped for a house, but didn't say right away. What he got was a pen. Neat. But he decided to keep on bartering with the proceeds until he was offerd something more valuable. Of course this bartering snowballed like crazy or no one would be talking about it. Today it is now magically the house.

How could anyone essentially trade a paper clip for a house? Well he didn't do that, but what he did was demonstrate the ultimate essence of economics. Business and economics are not about exchanging one value for an equal value, like labour for money, or fur coat for sex, or WB for AOL. It is about getting rid of something you don't value much for something you do and this whole thing can only be considered a game.

The reason it is a game is because we change our evaluations all the time, have no clear idea how to get what we momentarily imagine as valuable and always need to adjust our method of acquiring the 'greater' value. Ultimately, like all games, we abandon all these values because they become stale and not just because we cannot take them with us into death.

There was nothing he bartered for that was valuable to him in this case except the game itself. By this he was able to do what others thought impossible. His goal was to see what he could get and that was all. The house idea was too crazy to take seriously, but it gave him some kind of goal that at least told him the game wasn't over yet. There is no end to that type of impossible game until one gets bored with it or until no one else wants to play too.

Now, if he had planned for this all to happen, he admits, everyone would laugh, including him. Bold predictions by an internet hound that anyone could trade a paper clip for a house would put the whole internet to shame. But mistakes served him well. My former crazy landlord, for example, wanted me to look up on the new fangled internet the location of undiscovered gold fields in his home country of the Ukraine. Everyone laughed when I told them that one but can an economy grow without that kind of thinking? Both case are evidence of stupidity. The main difference is that my landlord's was never played out as it could have been. Mistakes like these two are more the life blood of economic growth than stock markets or direct investments. The Red paper clip story shows the real value of things in the economic sphere foolishness can get you anything.

Gh

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