Throughout the start of the movie the monsters are told again and again that touching a kid would/could kill them.
Eventually everyone finds out that isn't true, but the movie never gives a reason as to why the touching-a-kid-will-kill-you propaganda is a plot device in the first place. What gives?
It might have been a hoax by the CDA, but for a completely different reason--playing the long game. Keeping monsters scared of children keeps monsters from touching children, or interacting with them within arms-length.
Because here's the problem with children: they grow up into parents.
I remember being afraid of monsters as a little kid. My parents couldn't do anything to help me, either. But in the years since then, I was able to convince myself that they weren't real, just creaks, tricks of the light, and my own overactive imagination.
Imagine what would happen if I, and my whole generation, remember monsters getting up in our face at night, and us being able to see them clearly, and us knowing, without a shadow of a doubt that they were real.
When my daughter was afraid of monsters, my experience told me that they weren't real. To help her, I gave her a flashlight that turned on for a minute every time she squeezed the trigger. If I remembered that monsters were real from my childhood, I would have been sleeping on her floor every night, curled up with my Louisville Slugger. A generation of parents like that would have put Monstropolis into an energy crisis for a century, easy.
By keeping monsters afraid of humans, Monsters Inc. was able to exploit human children in a pretty horrible way for their own gain. It's not stated in the movies, but that seems like a strong motivation to me. Society would have a hard time basing its energy consumption on terrorizing Boo if it knew that she was an adorable little girl who was perfectly harmless. The change to laughter as a source of power would engender a corresponding change in monster society's view of human children as well, it seems.
To be clear, I am not trying to imply that Monsters Inc. kept monsters afraid of human children out of any sort of malice toward them. Instead it seemed like exceedingly grim practicality. Their society needed energy, and the discovery of Scream allowed life as they knew it to continue. Keeping the status quo was worth the injury caused to the human children, and the depiction of those children as toxic deathtraps was a way to keep monsters complacent about the fact that the children were being exploited for their gain.
There does not seem to be any information about the start of this myth in any official sources that I've been able to find.
Some probable reasons could be:
1. Children really are toxic - when they're sick with human diseases.
Perhaps, at some point in history, probably when measles, mumps, poxes and scarlet fevers were a serious danger, some Scarers brought diseases back from across the door. The monsters clearly have very limited understanding of humans - perhaps they 'discovered' that the 'common cause' in all those cases was that the Scarers touched kids or their things, and those flying Scarers who didn't touch anything got "poisoned" less, and came to the seemingly logical conclusion that it's children themselves that are toxic. And the myth perpetuated to the 'present' hysteria causing levels.
2. CDA perpetuates the myth to maintain the separation between the human and the monster world
The movie shows us that the monsters are not only kind of clueless when it comes to humans, despite the fact they've been in deliberate contact with that world for centuries at least, they are probably also technologically not nearly as advanced - the only way to generate energy they've been able to find in their civilization is from human kids! And then their entire economy seems based on getting that super-rare resource.
We also see what happens when a unscrupulous businessman realizes kids aren't actually toxic - he feels no qualm in kidnapping to get that rare resource.
Since the CDA seems to know more about all the stuff than other monsters in the film, it is not inconceivable that they may also be aware of the true destructive potential of humans, and the kind of wrath they could visit on the monsters if they discovered that not only were they real, they'd been kidnapping and torturing human kids.
So what's the best way to keep human-monster contact minimal? Make that contact have consequences too scary to even contemplate - note no one really seems to know how kids are toxic or dangerous, just that they are and everyone imagines their own worst scenarios - stimulated fear of the unknown at its best.
Mixing the two makes it even more probable - Maybe the myth initially spread due reason #1 centuries ago, but then CDA carefully inculcated that fear for reason #2.
The main problem I see with the often suggested fan-idea that the reason for the propaganda was so the monsters wouldn't feel bad about scaring little kids is there would be much more efficient ways to achieve that.
The rumor-mongering authorities could de-"humanize" the humans - they obviously can't even walk or talk properly and they look weird - they're just animals! Scaring them is really necessary for the growth of those interesting creatures, and the screams are actually screams of joy! Or just make the power extraction business classified so that the general public doesn't even know it comes from human kids. Or even what human kids are.
In the end of the movie, they switch to making kids laugh primarily because laughter is 10x more powerful, not because 'scaring those kids would be bad'. Even with all the experience with Boo, if SCREAM really was the only way for monsters to get energy, I can't see that entire civilization saying 'screw it, let's go back to the Stone Ages, because that's better than having to make little non-toxic kids scream a little!'
In real life we can be quite complacent about inconveniences suffered by distant others (kids or no) when it comes to getting our own creature comforts; I can't see it being significantly different for the monsters.
I don't believe that there is a canonical explanation, but the impression I received was that the Children Detection Agency promulgates the belief to help protect the source of power, the children. By forcing an entirely hands-off approach, there is no physical evidence, especially no injury, that might lead to the human world cutting off all access or launching a counter-offensive.
I always thought it was simply that, the more contact humans have with monsters, the less scared of them they will be. (This is also true of monsters who are human.)
Two points which I believe are the most valid:
To make sure monsters don't kidnap human children to their world and try to extract energy forcefully; works protecting both the human and monster world (from humans).
So that the professionals don't 'feel bad' and don't let morals and emotions hinder their efficiency.
