An anonymous lesson about monkeys and markets

For those who claim that unregulated- or even, partially regulated- free markets can work on a macro level, I suggest first reading this story which seems to be anonymously authored but may have originated here in the internet version, and given the currency might indeed be a much older tale in India (we forget, but before the Socialists and the English, India had a 2000 year history of free markets and the dangers therein).

Here's one modern version:

Once upon a time in a village a man appeared who announced to the villagers that he would buy monkeys for $10. The villagers knew that the jungle held countless monkeys, easily caught. The man bought 2 thousand.


As the supply diminished, they become difficult to catch, and villagers returned to their farms.  The man announced that he would pay $20. The villagers renewed their efforts and caught 1,000 more monkeys.

The supply quickly diminished, but before they returned to their farms the man increased his offer to $40 each.  Monkeys became so rare that it was difficult to even see a monkey let alone catch it. But they caught 500.

The man now announced that he would buy monkeys at $100! However, since he had to go to the city on some business his assistant would now buy for the man.   The man departed.

Then the assistant told the villagers, “Look at all these monkeys the man has in that big cage.  I will sell them to you at $50 each. When the man comes back you can sell the monkey’s back to him for $100.” The villagers queued up with all their saving to buy the monkeys.  The assistant took their money. They never say either the man or his assistant again.

They now owned 3,500 monkeys. They were paid $60,000 to catch them, and bought them back for $175,000.

This is the danger that all markets, even regulated ones, face: They do not have anti-fraud devices built into the system, so the anonymous buyer can become the anonymous seller- then disappear entirely, leaving the citizens of a nation-state holding the bag. Moral hazard leading to socialization of risk, we'd call it today. But which is more at fault? The con man was acting rationally based on the information he had. The villagers acted rationally based on their information. The assistant surely acted rationally based on what he knew. All parties were acting in their rational self interest.

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