Five More Economic Concepts Illustrated Through "Magic: The Gathering"

This article is intended to further develop the ideas presented in my previous article by explaining more economic concepts in the context of collectible card games. Rather than using a specific format, however, this will take a broad view of the game as a whole for illustration.

Concept 1: Money solves the problem of mutual coincidence of wants
Trading cards can be difficult. If neither party wants to trade away what they have for what the other has, no trade is possible. A medium of exchange eases this exchange process. This can be a currency used in a wider economy, or it can be a unit of account just for a specific trading forum like Pucatrade. This also provides a measurement to compare market prices of different commodities - in the case of collectible cards, it helps compare the relative market values of different cards against an outside standard.

Concept 2: Price Controls
When a sector of the economy is not directly controlled by government, it is often heavily regulated anyway. Price controls are one form of regulation that is very popular. Not only is this often a matter for direct legislation, but central banks also attempt to match inflation to the decrease in the price of a basket of commodities because they believe that price stability is somehow an essential feature of the economy.

I recently noticed that single packs of Magic cards have increased from $3.99 to $4.19 at big box stores in the area. This is about a 4% increase. Suppose government dictated that $3.99 was the price cap, and no one could sell cards packs for more. If the price reflects demand, then this creates an artificial shortage as demand exceeds supply at a $3.99 price point. If price reflects costs, then profits are legislated out of the economy, and either the cards are no longer produced, or quality decreases through cheaper printing, cheaper cardstock, and other factors.

On the other hand, if the government were to dictate that card packs must be sold for no less than $5 each, the demand at $5 per pack would be lower than the demand at $4, resulting in a surplus of cards if production remained the same. This clearly also introduces chaos into the market as production and consumption are artificially altered by legislative fiat.

We know that in the case of collectible card games, the publishers set a suggested price, but typically have no legal enforcement power. The goal of the card company is to set the price at a point that maximizes profit without excluding too much of the market, and allowing their distributors and retailers to prosper as well. This is quite different from a third party dictating prices to them.

Concept 3: Inflation
Inflation is commonly perceived as an increase in prices over time. This is a symptom rather than a cause, though. The primary cause of inflation is the constant increase of the money supply by central banks in various countries around the world. Modern fiat money isn't wealth in and of itself, since it is not a commodity outside its use as a currency. Increasing the volume of banknotes does not build wealth, it dilutes the exchange value of all units in circulation.

To better illustrate the idea, let's look at card inflation instead of money inflation. Like fiat money, cards are essentially just printed paper with equal inherent characteristics, differing only in what is printed upon them. Suppose Wizards of the Coast were to reprint a popular rare card like Snapcaster Mage. At the time of writing, that card is priced at around $50. Suppose in the next block of cards, it were reprinted en masse as a common card and became widely available. In this case, the inflation of Snapcaster Mage supply dilutes the value of existing Snapcaster mages. This means fewer dollars are required to buy a good, as opposed to fewer goods buying the same dollars. Players who wanted to use the card in decks would be overjoyed at the increased availability and lower price tag the wider release would afford.

The analogy is imperfect, since unlike fiat money, cards are not a unit of account but rather a consumer good used in a game, and collectors looking for the old edition would still pay more for that edition. Additionally, inflation of the money supply is often justified under the mistaken belief that price stability is essential to an economy, and therefore the decreased cost that results from increasing efficiency through technology needs to be counteracted by an increase in the money supply, whereas our example with cards is not related to any form of official policy or economic model. This article can only provide the most cursory of explanations, so I suggest reading the works of economists like Ludwig von Mises for a much more detailed analysis.

Concept 4: The Broken Window Fallacy
Suppose That Guy throws a temper tantrum, flips the table after a board wipe, and breaks the window at your FLGS. As the crowd gathers, inevitably someone will say, "Well, look on the bright side. At least now the glass company will make some money fixing this broken window." The murmur of the crowd will indicate that this is indeed a silver lining to the dark cloud of this destruction. This visible benefit for the glass man comes at the expense of the unseen costs to the owner of your favorite game shop, though. Perhaps he would have preferred to spend that money on a new game table, or spend it on a special event for his family, or just making the next mortgage payment on his home. Breaking the window does not create wealth for the glass man, it destroys wealth for the shop owner.

Similarly, after natural disasters, wars, and terrorist attacks, rebuilding is cited as a silver lining to the dark cloud of destruction by proving that the cost of restoring what was lost creates wealth. This is clearly absurd, but the belief persists. Replacing something that was destroyed is always at the expense of what could have been had in addition to what was destroyed.

Concept 5: The Economic Calculation Problem
Simply put, hiding the cost of goods and services distorts the market. Compare a Magic player who buys his own cards with money he has earned to a spoiled kid whose parents indulge his hobby. The former decides whether the $4 for a pack of cards, $25 for a prerelease event, $100+ for a box, etc. are a good value because he knows what it took to earn the money and what else he might need to buy with it. The spoiled kid has no direct understanding of costs or alternative uses. All he knows are that he wants his cards, and someone else provides them.

This is rather benign, but when a government provides goods and services through a centrally-planned monopoly and funds this by taxation, we have a more sinister problem. Not only do the people using the goods and services not have any way of understanding the costs, but the lack of alternatives means there is no way to measure the value provided by government. The disconnect between taxation and these services hides costs, and the bureaucracies that administer the programs have no incentive to innovate and economize because there are no alternate options for people. The citizenry aren't spoiled brats, but hostages to the whims of government, and these essential services are used as a carrot-and-stick to ensure compliance since the threat of removing these services becomes a powerful political tool.

Conclusion
“It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a ‘dismal science.’ But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.” - Murray Rothbard

It is my hope that this article has broadened your understanding of economics by using illustrations that can be readily understood. If you can grasp these basic principles, you will be better equipped to analyze the news, the promises of politicians, and the fluctuations in the market.