The baby sitting co-op story, examined in light of the original source

From Matthew Klein, here is a lengthy post about the real story behind the baby-sitting co-op example which has become so popular; think of it as analogous to Coase’s take on the lighthouse in economics.  It is not easy to excerpt, so I recommend that you read the whole thing.  “Money” does still matter, but it shows how many unconsidered aspects of the story there have been, ranging from why the shortage of exchange media developed in the first place (“contractionary fiscal policy”) to why the experts’ inflationary “solution” didn’t work out very well.  For one thing, the system ended up with too much scrip:

The price of baby sitting is constitutionally pegged at one unit of scrip for every one-half hour of baby sitting. Hence, this system of price controls means the inflationary pressure does not drive up the scrip-price of baby sitting, inflation is suppressed, and shortages are found.


Now there is great difficulty rounding up sitters for all those who want to go out. This is a classic sort of inflationary pressure—too much money (scrip) chasing too few goods (sitters).

Here is a link to the original document on the history of the co-op.


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