Harry Potter had a profound influence on my childhood. While I was never one of those kids who expected a letter from Hogwarts on their eleventh birthday, I did enjoy the books immensely.
 
It therefore filled me with delight reading Harry Potter and the Magic of Markets by Rachel Cunliffe at CapX. Cunliffe tells the story of how the release of the sixth Harry Potter book taught her an important lesson in economics.
 
Faced with the conundrum of two daughters desperately wanting to read the new Harry Potter book first, Cunliffe’s father initiated a Dutch auction. While both daughters felt equally entitled, one was willing to pay more than the other in cash to secure the right.
 
Cunliffe recounts “The upshot was that my parents suddenly had two very happy daughters…The price was perfect, because it was the price we’d simultaneously agreed on, even without realising it.”
 
It is an important tenet of economics: that a thing is worth what someone is willing to pay for it. It is a concept even children can grasp and accept.
 
So why is it that where there are willing buyers and sellers, there are still adults who would object to certain markets? Perhaps the market for being the first in the family to read Harry Potter is just less ‘repugnant’ than others.
 
Harvard economist Alvin E. Roth introduced the concept of repugnant markets: transactions that some people do not want other people to engage in. Roth looked at a range of markets, from dwarf tossing to selling organs to life insurance. Even lending money for interest was once considered widely repugnant. While some repugnant markets have remained socially frowned upon, others have come to be accepted and valued.
 
A modern example could be the business of breast milk. The New York Times reports on the commercialisation of breast milk, where mothers are selling their liquid gold. The practice has occurred informally in the past, with women trading their milk directly to other mothers who need it, and not necessarily in exchange for money. The difference now is the formalisation of the market.
 
Objections to the practice are widespread. There are some who bemoan that many willing buyers are priced out of the market. Those who fear women will be coerced into the industry. And those who argue that that there are some things that just should not be sold.
 
The point is, not all markets will makes us feel as warm and fuzzy as reading Harry Potter for the first time. But is it worth denying mutual transactions between other consenting individuals, based on your squeamishness?
 
Resolving issues of limited supply, excess demand, and achieving simultaneous agreement is not magic. It is economics.