I, Pencil and the Free Market, by Hillsdale
College Online Courses, 10/14/15
Dr. Wolfram talks about the extraordinary
power of the free market
to answer what is known as “the information problem,” or in other words, how to
supply precise amounts of goods to different places all over the world, without
oversight.
The following video is a clip from
Hillsdale’s Online Course:
“Economics 101: The Principles of Free Market Economics,” featuring Gary
Wolfram, the William E. Simon Professor of Economics and Public Policy.
Transcript: Gary Wolfram: Leonard Read, in 1950, wrote an
article called, "I, Pencil," which became rather famous. In it,
he points out all the coordination that's
required for a pencil to be made, and how markets solve the problems of getting
lumber from the Pacific Northwest, and rubber from Malaysia, and all the parts
of a pencil assembled.
Milton Friedman also spoke of this in his book and his
television series, "Free to Choose." It's interesting to know that
Adam Smith wrote much the same thing about a woolen coat in Wealth of Nations in 1776.
Read and Smith point out that a market is able to bring together
producers of all sorts of parts and allow those parts to be assembled into a
product that, in the case of a pencil, is so inexpensive, we don't even know
how much a pencil costs. If you open up your drawer, there are pencils. They're
sort of like manna from heaven; they just show up. You can't even remember that
you bought them. That's how inexpensive they are. It is truly amazing.
I want to go beyond this, to not only notice all the
coordination that happened, but how markets work to solve what is called the
information problem.
Suppose that I, as the president, said, "I want the czar of
pencils to make sure that everyone has enough pencils, because it's so vital to
our educational system." Think
about it. If you were to be appointed the czar, how would you ensure that every
retail establishment in America, at every moment in time, had exactly the right
amount of pencils? Anyone could walk into a Costco in Menominee, Michigan, or a
K-Mart in Mobile, Alabama, or a Walmart in Phoenix, Arizona, and there'd be
pencils. And there won't be boxes and boxes and shelves and shelves of pencils,
but exactly the right amount of pencils. Enough that you can figure out,
"Yeah, I'll choose this one over that one," but not so many they're
just excess wasted supply.
Could you realistically do that for the millions of retail
establishments in America? Not just today, but August 15, and October 10, and
December 23, every single day of the year. Your intuition is, "No, I
probably couldn't do that," and you'd be correct. What's interesting to
notice is that the market does, in fact, do that. Every day we'll wake up, and
there'll be exactly the right amount of pencils. And exactly the right amount
of Starbucks coffee, and exactly the right amount of peanuts ... Exactly the
right amount of everything. You'll be able to find a vast array of goods in a
town as small as Hillsdale and a city as large as New York City.
Why is it that markets provide the exact right amount of
everything at every moment in time when a central planner can't? If you'd like
to know, tune in to Lecture 6 of Economics 101.
Norb Leahy, Dunwoody
GA Tea Party Leader
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