Can a Two-Year-Old Grasp the Free Market?

ChildPhoto by Steven Stewart of his son.

The essence of a free market is exchange — you and I raise our utility voluntarily by exchanging things with which we are endowed. I wonder how early people learn this idea in a free-market economy.

My five-year-old grandson had a Mylar helium-filled balloon, and his two-year-old brother had another one. They were fighting over them and my wife asked the older boy how he got his.

His answer: “We traded for it.” (There had been no fighting before — that trade was voluntary.)

The two-year-old then said, “I want to trade.” I believe the older boy understood the nature of exchange but the two-year-old did not — he just expressed his wishes (his demand). Do kids in non-market economies learn the idea of exchange at this age? I wonder.


I would say that the kid is used to be given what he wants, without having to work for it. This applies to most people until about college age, now that I think about it. But I'd think the older kid got used to exchange and compromise.

Paul K.

I posted a comment previously, but it appears to have been rejected. So, I'll try again:

I really don't understand the sequence of events you're attempting to describe. As commenter #17 said "I don't know what this means". I understand the final question, but it would be greatly enhanced if the story could be followed.

Did the 2 year old start with two balloons, to the 5 year olds zero? Did the 2 year old then (presumably) say "I want to trade", and the 5 year old took one, trading nothing back in return? And then, when questioned about it, the 5 year old explained this "trade" and the 2 year old said "I want to trade", not knowing what that meant? That's about the best interpretation I can make, but it seems pretty weak.

Or is it something completely different?


Better question:
Does -anyone- actually grasp the concept of the free market?
I don't think there is a better way to start an argument then to get two economists in the room and mutter something about free markets or taxes.


My 2 year old (actually 27 months) has just recently learned to understand a "bribe" as other posters here have called it. She will agree to do something unpleasant like taking a bath if I promise her chocolate milk afterwards.

She doesn't yet understand a trade in the economic sense. I've tried to get her to understand that I will give her a new toy if she gives up the one she is holding. She doesn't get it. She sees more toys and wants them all.


Small children probably understand pure economics better than the rest of us, and they are probably better subjects because they are not confused by many alternatives. A child is instinctive, and self interested, and would be much better to observe in an experimental situation than an adult, provided the game is simple enough for both to understand.

Kevin in McLean

I have a two year old. I also have a 5 and 6 year old. The think everything's free. Is that what you had in mind?


I dont know what this means, but anyway,

My eighteen year old granddaughter might not understand trade, but she understands that her older 3 year old sibling only has two hands to horde what she had. After he grabbed both things she had, she picked up a favorite of his, he dropped what he had to get what was his favorite, and then she quickly ran off with what she wanted in the first place. She smirked. I laughed.


@NSK- I don't think your children are "overvaluing" time spent playing video-games, rather, the utility they gain from those activities far outweighs a free dinner, toy or ballgame. Oh to be young...


My parents messed me up at a very early age with "The Little Red Hen" story.

Guess I got the message because now at an advanced age of 60, I'm one of those vicious capitalist millionaires.


With my 8 and 6 year old boys, we are able to "barter" using time allowance on the Nintendo Wii and/or the Nintendo DS. It is amazing how these 2 items are considered to be of so much value .. far greater than "take you out for dinner", "take you to a ballgame", "get you a toy", etc.

So, my opinion is that children do understand trade. The equitability of the trade depends on the value each party puts on the item each desires.

So, I can get my kid who loves candy so much he would love to eat it for breakfast, lunch and dinner, to sacrifice it just for getting to play the DS for 2 mins (yes, 2 mins!!).

Zach Pruckowski

Paul K. -
As I understand it, each child had a balloon to begin with. The 5yo (5 year old) thought the 2yo's balloon was better ("the grass is always greener on the other side of the fence"), and so proposed a 1-for-1 trade, to which the 2yo agreed. The 2yo didn't understand that trade means "get something and give something". He (the 2yo) just wanted to "get something" (the other balloon). Ten seconds later, the 2yo wants "his" balloon back, but refuses to give up the "new" balloon. Thus the fighting.

Rich Wilson

"Once he's gotten that result, he sees no further reason to comply."

That's quite understandable. What he doesn't yet grasp are the future consequences of failure to comply. It's all about now.

MIke Pone

We have identical twin 2 year olds and they understand "trade" in the sense that they can say "I want to trade" to try and get what they want. But most of the time they don't fully grasp that they need to give something else up in the trade.


Well, my son is 22 months old, so I can tell you what I observe in him:

When the terms are clearly spelled out (you do/give me this, you get that) he can understand the proposal and follow through.

But once he's gotten what he wants, he'd like to go back and still do what he shouldn't, or have back the item he traded for it.

So he certainly doesn't understand the idea of any transaction as "final."

What he understands is that there is a way to produce a result he wants by *temporarily* doing what is requested of him. Once he's gotten that result, he sees no further reason to comply.


What he understands is that there is a way to produce a result he wants by *temporarily* doing what is requested of him. Once he's gotten that result, he sees no further reason to comply.
- Posted by Tzipporah

I know many adults that work that way.


I guess parents have enough trouble trying to teach their kids to share


Isn't this part of the test for intelligence in other species?


First of all , cute..
Second of all , trade is instinctive. one can control it , by no matter which way, but not learn or unlearn.

Jeff S.

"Can a 2 year old grasp the free market?" I would say no. But can a 2 year old understand trade? Yes, depending on how you define that. My 2 year old most definitely understands the desire to improve her current situation, bargaining, trading, greed, ruthless determination, wanton destruction of anything that stands in her way, revenge, and uninhibited selfish consumerism.

Oh noes! I'm raising a capitalist!


I'm sure it is as natural as a bribe. Oh come on what else do you call it when you tell a kid that if he behaves in the grocery store you'll let him pick out something he wants.

Odd that the little buggers never go for the grapes in these little deals.