Systemic Failure in 4 Easy Steps: How to Win a Beer on the Back of a Napkin

November 5, 2011 at 11:57 pm

Here’s a quick and easy way to illustrate systemic failure in capitalism in a bar over drinks.

Before beginning, you may want to place a beer bet with your friend(s). Something like “I bet I can prove to you on the back of this napkin that capitalism needs government.”

Here’s the setup for the scenario:

Two trappers are trapping animals in the wilderness. The trappers have 2 options. They can work hard and trap, or they can poach or steal from their neighbor.

To illustrate, draw a chart similar to the one below on any standard white restaurant napkin:

(Credit to Joseph Heath for the original explanation).

Again, your situation is that you have two trappers working in the wilderness.
They have two options: (1) set traps, or (2) poach from each other.

If they both decide to trap all day, each catches on average two animals a day.

Draw in Each 2 or something similar in the box where A and B both decide to trap.

If, however, one of them traps while the other poaches, then the poacher gets two animals, the honest trapper none. And, the poacher doesn’t have to work as hard.

Draw in A2 and B2 in the boxes where one steals and the other traps.

Obviously, in the situation where one decides to steal, very quickly there’s no incentive for the other trapper to work.

So very quickly, he may decide to steal as well. This leads to the third situation where both trappers decide to poach.

In this case, everyone goes hungry because no one is trapping.

Everyone acted in their own best interest, but overall the system breaks down.

What’s the point?

In order for markets to function correctly, people must refrain from all sorts of criminal behavior: stealing, not paying, lying, coercion and so forth.

It’s in everyone’s best interests to abide by these rules. But that doesn’t mean they’ll do it.

This is why we have government. This is why we have to have rules and why they need to be reinforced.

There is no such thing as a “free” market.

(DISCLAIMER: I have actually gotten a couple beers out of this. I have also pushed someone to the point where he hit a religious wall and in the interest of preserving our friendship, I bought him a beer. So be careful in how you present your argument and in how much you have to drink :). The idea is not to get into an “I’m right, you’re wrong” type of situation, but to help teach people about capitalism and economics.)

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