The Parable of the Apple Farmer and the Shoemaker

Once upon a time there was a farmer who had a great harvest of apples.  Since he had more apples than he and his family could eat, he decided to go into town and exchange his apples for a new pair of shoes.  So, he put some bushels of apples into his truck and drove to town.

There, he entered into the shoe shop, where he encountered the shoemaker.  Good day! Said the shoemaker.  How may I help you?

I would like to buy a pair of shoes, and I am prepared to give you a bushel of apples for them.

Oh, said the shoemaker, my shoes are made of the finest leather, and I carefully craft them with my own hands.  My family loves apples, but I cannot sell you these shoes for just one bushel of apples.  I will need three bushels.

The farmer really needed the shoes, but he did not want to part with three bushels of apples in order to buy them, because he still needed to buy other supplies in town, and he was afraid he would run out of apples before he bought everything he needed.  He thought for a while and then offered the shoemaker two bushels of apples for the pair of shoes.

The shoemaker thought for a few moments and then agreed, and he shook hands with the farmer.  Then the shoemaker rubbed his tummy as he looked forward to many delicious apple pies, apple pancakes, and other treats that his wife would be able to make from the apples.  And the farmer jumped up and kicked his heels together as he looked forward to going dancing in his new shoes.

So, the farmer gave the shoemaker two bushels of apples, and, in exchange, the shoemaker gave the farmer the pair of shoes.  Both men walked away smiling, because they were both better off than they had been before the exchange.

Now to understand what has just happened:

(The farmer and the shoemaker will now hand out little packets containing a wheat seed and a mustard seed that will help you remember this lesson.)

How can it be that both the farmer and the shoemaker are now better off than they were before?  There are the same number of apples and the same number of shoes as there were before the exchange.  The only difference is that now the farmer has fewer apples and more shoes, and the shoemaker has fewer shoes and more apples.  If we say that they are both better off with exactly the same goods that existed before the exchange, it is almost as if  we are saying that one plus one equals three!  And yet, it is true.  Both the farmer and the shoemaker are better off than they were before the exchange, because the farmer values the new shoes more than he valued the two bushels of apples, and the shoemaker values the two bushels of apples more than he valued the pair of shoes.  The exchange has enabled those resources to go to the person who values them more.

This exchange also makes everyone better off because it enables each person to focus on doing what he does best – growing apples or making shoes – which allows each person to be more productive than he would be if he had to do everything himself.

Sometimes exchanges make people better off because they allow resources to go to a place where they are in short supply or to a person who has figured out a better way to use them.  The reasons why an exchange makes both people better off can be as numerous as the people who engage in the exchanges, and the prices at which goods and services sell send messages to the market – maybe telling the farmers to plant more apple trees or telling the shoemaker to make sandals or boots instead of shoes.

Remember, the free market encourages competition, so sellers compete with each other to provide the best value in products or services, and buyers compete with each other as well.  Sellers try to get the highest price they can for their goods or services, while buyers try to pay the lowest price.  The haggling goes on until both sides reach a point at which they believe they will benefit from the exchange and a deal is struck.

Sometimes, we see an exchange in the free market and think it is a bad deal.  For example, we may see a person take a job at a low wage that we would not accept.  We need to remember that this person is free to negotiate a better deal whenever he can find it, so this deal must be the best arrangement he has been able to find so far, and if we were to eliminate this opportunity, we would make him worse off.  It may be that he sees some benefits to this arrangement that are not obvious to us.  Maybe he has very few skills and expects to obtain training in this job that will enable him to become more productive and thus be able to negotiate a better deal later on.  Or maybe this job fits his schedule or transportation limitations better than another job, thus making it a better deal than it seems to us from the outside.

Since free market exchanges make both parties better off, any interference with these exchanges generally makes people worse off.  That is why regulations that interfere with free market exchanges often are enacted with good intentions but result in bad “unintended consequences”.  Now that we understand more about the benefits of free market exchanges, we will no longer be surprised by those bad consequences but instead will recognize that they are a natural result of interfering with the freedom of the farmer and the shoemaker to strike a deal that is best for them both.

When you imagine millions of free market exchanges taking place, you can imagine millions of people becoming better off as a result of those exchanges.  It is almost like the parable of the tiny mustard seed growing into the huge mustard plant or like the miracle of the five loaves feeding the multitudes.  Your little bag with the mustard seed and wheat seed will help remind you of the amazing benefits that occur in a free market and of the great harm that can be done when free market exchanges are restricted.

“It is good for nothing,” cries the buyer;

But when he has gone his way, then he boasts. (Proverbs 20:14)