WEBVTT 00:00:00.960 --> 00:00:03.000 - What's going on here? 00:00:03.000 --> 00:00:04.380 - Just making a trade. 00:00:04.380 --> 00:00:06.500 - A pencil for a phone. 00:00:06.500 --> 00:00:08.760 Are you insane? 00:00:08.760 --> 00:00:11.250 A pencil isn't worth as much as a phone is. 00:00:11.250 --> 00:00:13.510 - You're right, it's worth more. 00:00:14.200 --> 00:00:17.980 FEE presents Common Sense Soopbox with Seamus Coughlin [upbeat music] 00:00:18.210 --> 00:00:22.560 - You would really trade a phone for a pencil, why? 00:00:22.560 --> 00:00:23.490 - I don't know. 00:00:23.490 --> 00:00:26.490 I just like this pencil more than I like that phone. 00:00:26.490 --> 00:00:27.930 That's why I made the trade. 00:00:27.930 --> 00:00:30.240 - But, but you can't just trade two things 00:00:30.240 --> 00:00:32.640 that don't have equal value. 00:00:32.640 --> 00:00:35.220 - Oh, these two items definitely aren't equal in value. 00:00:35.220 --> 00:00:36.630 People only trade two things 00:00:36.630 --> 00:00:38.520 that are more valuable than one another. 00:00:38.520 --> 00:00:41.640 - What, more, how is that possible? 00:00:41.640 --> 00:00:43.290 - Bob, don't ruin this for me. 00:00:43.290 --> 00:00:44.340 - Remember when I explained 00:00:44.340 --> 00:00:46.110 that economic value is subjective? 00:00:46.110 --> 00:00:47.760 - Nah, I wasn't in that video. 00:00:47.760 --> 00:00:48.870 - I remember it. 00:00:48.870 --> 00:00:50.550 - Well, this is a similar concept. 00:00:50.550 --> 00:00:52.770 Things are worth what people are willing to pay for them. 00:00:52.770 --> 00:00:54.570 The reason I was willing to trade my phone 00:00:54.570 --> 00:00:55.440 for Sarah's pencil 00:00:55.440 --> 00:00:56.940 is because I value her pencil 00:00:56.940 --> 00:00:58.620 more than I valued having my phone. 00:00:58.620 --> 00:01:00.060 And she only wanted my phone 00:01:00.060 --> 00:01:02.430 because she valued my phone more than her pencil. 00:01:02.430 --> 00:01:03.360 For a trade to work, 00:01:03.360 --> 00:01:06.420 there has to be some kind of gain for both parties involved. 00:01:06.420 --> 00:01:08.370 Otherwise, there'd be no reason to trade. 00:01:08.370 --> 00:01:10.620 And if we viewed the item we already owned 00:01:10.620 --> 00:01:12.960 as more valuable than what we were asked to trade it for, 00:01:12.960 --> 00:01:14.580 we definitely wouldn't wanna trade it. 00:01:14.580 --> 00:01:15.990 So when we choose to trade, 00:01:15.990 --> 00:01:17.010 that means each of us 00:01:17.010 --> 00:01:19.170 values the thing we got out of the exchange 00:01:19.170 --> 00:01:21.330 more than whatever we traded it for. 00:01:21.330 --> 00:01:22.710 And that means, in a way, 00:01:22.710 --> 00:01:24.420 both of us are actually wealthier 00:01:24.420 --> 00:01:25.830 than we were before the trade. 00:01:25.830 --> 00:01:28.560 So just by trading, we've created wealth. 00:01:28.560 --> 00:01:31.030 - That makes sense, but why, 00:01:31.030 --> 00:01:34.920 why would you find this trade valuable? 00:01:34.920 --> 00:01:36.000 - It's really bothering you, Bob, 00:01:36.000 --> 00:01:38.580 and I find that enjoyable. 00:01:38.580 --> 00:01:40.820 - Huh, but phones cost so much money 00:01:40.820 --> 00:01:43.560 and pencils are so cheap. 00:01:43.560 --> 00:01:45.220 - It's not all about dollars and cents. 00:01:45.220 --> 00:01:48.360 You just don't know why something is worth what it is 00:01:48.360 --> 00:01:49.240 to another person. 00:01:49.240 --> 00:01:50.970 Maybe I just hated having a phone 00:01:50.970 --> 00:01:53.430 and happened to need to write something down. 00:01:53.430 --> 00:01:56.370 Maybe my grandfather gave her this pencil before he died. 00:01:56.370 --> 00:01:58.960 Or maybe this is some kind of special limited edition pencil 00:01:58.960 --> 00:02:00.570 signed by Babe Ruth. 00:02:00.570 --> 00:02:03.330 - Why would Babe Ruth sign a pencil? 00:02:03.330 --> 00:02:05.520 - So people would know it was his, Bob? 00:02:05.520 --> 00:02:08.730 Or maybe the whole reason this trade was worth it to me 00:02:08.730 --> 00:02:11.970 was so I could make this point about trade creating wealth. 00:02:11.970 --> 00:02:13.690 Either way, you're gonna have to get used to the fact 00:02:13.690 --> 00:02:16.650 that not everyone values things the way you do. 00:02:16.650 --> 00:02:19.080 - Oh my, what a trade. 00:02:19.080 --> 00:02:20.100 - What? 00:02:20.100 --> 00:02:23.760 - What an exquisite pencil. 00:02:23.760 --> 00:02:25.050 - Told you. 00:02:25.050 --> 00:02:27.500 - Howdy, everyone, thanks for watching. 00:02:27.500 --> 00:02:31.270 For more content like this, check out fee.org.