The Economics of Ponyville

Economics is not just the study of satisfying insatiable wants with limited resources, as so many Econ 101 textbooks contend. Economic science encompasses all human behavior: people acting rationally to reach objectives. Those objectives include such everyday dilemmas as deciding which checkout lane at the supermarket will be fastest, dating and finding the right person to marry,voting, and protecting one's property.

~~ Doug French, The Freeman, 1997

Economics is often called “the dismal science” and given how most people think of the subject it’s not difficult to see why. The quote above from Doug French, however, highlights that everyone thinks in economic terms on a daily basis, even if they don’t realize it. Economic concepts are all around us and can be easily identified if one is looking out for them.

Believe me when I say that I was as surprised as anyone to find economic concepts in Episode 87 of the cartoon series My Little Pony: Friendship Is Magic in a story called “Trade Ya!” In fact, if I had tried to imagine the most unlikely medium for economics, I doubt I could have topped that.

My daughters enjoy the show and a line I overheard from the next room piqued my interest enough for me to pull the episode up later and watch the entirety of it for myself. In the episode the ponies attend the Rainbow Falls Traders Exchange, which is essentially a flea market. However, exchanges can only be made by barter. The line that initially caught my attention was this one from the main character, Twilight Sparkle, reflecting upon her responsibilities as the one in charge of the Exchange: “But all I’m supposed to do is settle disagreements over whether a trade is fair or not. And since the rule is that a trade is fair as long as both ponies get what they want, there’s never been a disagreement.” After that, the ponies pair up and explore the Exchange.

Rainbow Dash is determined to trade for a first edition of one of her favorite books, but the owner refuses when she offers a lucky horseshoe in exchange. The owner of the book, however, offers to exchange the book for a creature called an orthros--if Rainbow Dash can get it. Predictably, the owner of the orthros doesn’t want the horseshoe either, but will trade for a lamp. The lamp owner won’t trade for the horseshoe and from there you can guess where this is going. After multiple attempts, they finally find a pony who wants a rusty old horseshoe.

This lengthy bartering process highlights what is known as the problem of coincidence of wants. Murray Rothbard explains the problem in his magnum opus, Man, Economy and State:

This problem of the lack of “coincidence of wants" holds even for the simple, direct exchange of consumers' goods, in addition to the insoluble problem of production. Thus, suppose that A, with a supply of eggs for sale, wants a pair of shoes in exchange. B has shoes but does not want eggs; there is no way for the two to get together. For anyone to sell the simplest commodity, he must find not only one who wants to purchase it, but one who has a commodity for sale that he wants to acquire. . . . [S]omeone with a less divisible commodity, such as a plow . . . can­not divide his plow into several pieces and then exchange the various pieces for eggs, butter, etc. The value of each piece to the others would be practically nil. Under a system of direct ex­change, a plow would have almost no marketability in exchange, and few if any would be produced.

Whether intentionally or otherwise, the writers of this episode of My Little Pony have highlighted the inherent problems in a barter economy. The Exchange, of course, would be much more efficient in facilitating trades if the ponies had a medium of exchange that would be widely accepted by most or all ponies, i.e., if they had some sort of money. Due to their lack of money, Rainbow Dash is forced to gallop all over the Exchange tracking down what the owner of each item wants until she happens to find one who will trade for her horseshoe.
Meanwhile, Twilight Sparkle is about to trade all of her unwanted books for a broken pen when Pinkie Pie rushes in to try to stop her, asking her whether she really wants the pen. Twilight says “not really,” but she’s running out of space in her library and wants to get rid of the books any way that she can.

This small incident highlights that value is subjective. As author and economist Robert Murphy puts it “value is in the eye of the beholder, and hence voluntary trades are win-win activities in which both parties benefit by giving up something of lesser value in exchange for something of greater value.” Twilight Sparkle attaches greater subjective value to creating space in her library than she does to the old books; the would-be-buyer pony obviously values the old books more than the pen.

Although it might appear to an outsider like Pinkie Pie that a trade leaves one party better off than the other, it is only the parties to an exchange that can determine whether they are better off. In that respect, the rule of the Exchange mirrors what ought to be the rule in real life, i.e., if both parties get what they want, then the trade is fair.

In those small ways, My Little Pony subtly introduces its viewers to some basic economic concepts. I doubt that Doug French had cartoon flea markets in mind when he wrote about the everyday nature of economics, but I think this episode serves as a good reminder that we are almost always making economic decisions, even when we don’t think in those terms.