Saturday, November 18, 2006

Milton Friedman and the Pencil

In Free to Choose, the influential 1980 PBS series written and hosted by Milton Friedman and his economist wife, Rose, there is a short (less than three minutes) sequence that has become legendary. In it, Friedman explains that no single person can manufacture something as simple as a pencil:

When I saw this video on YouTube earlier today, it struck me as resonant of Leonard Read's famous essay, "I, Pencil." Read was the founder of the Foundation for Economic Education (FEE), which was the first free-market think-tank in the United States -- preceding the creation of the Mont Pelerin Society, American Enterprise Institute, Hoover Institution, Heritage Foundation, Cato Institute, and Future of Freedom Foundation.

On FEE's web site, Dr. Friedman gives credit to Read and "I, Pencil" for inspiring that segment from Free to Choose. He wrote in 1996:

Leonard Read's delightful story, “I, Pencil,” has become a classic, and deservedly so. I know of no other piece of literature that so succinctly, persuasively, and effectively illustrates the meaning of both Adam Smith's invisible hand—the possibility of cooperation without coercion—and Friedrich Hayek's emphasis on the importance of dispersed knowledge and the role of the price system in communicating information that “will make the individuals do the desirable things without anyone having to tell them what to do.”

We used Leonard's story in our television show, “Free to Choose,” and in the accompanying book of the same title to illustrate “the power of the market” (the title of both the first segment of the TV show and of chapter one of the book). We summarized the story and then went on to say:

“None of the thousands of persons involved in producing the pencil performed his task because he wanted a pencil. Some among them never saw a pencil and would not know what it is for. Each saw his work as a way to get the goods and services he wanted—goods and services we produced in order to get the pencil we wanted. Every time we go to the store and buy a pencil, we are exchanging a little bit of our services for the infinitesimal amount of services that each of the thousands contributed toward producing the pencil.

“It is even more astounding that the pencil was ever produced. No one sitting in a central office gave orders to these thousands of people. No military police enforced the orders that were not given. These people live in many lands, speak different languages, practice different religions, may even hate one another—yet none of these differences prevented them from cooperating to produce a pencil. How did it happen? Adam Smith gave us the answer two hundred years ago.”

“I, Pencil” is a typical Leonard Read product: imaginative, simple yet subtle, breathing the love of freedom that imbued everything Leonard wrote or did. As in the rest of his work, he was not trying to tell people what to do or how to conduct themselves. He was simply trying to enhance individuals' understanding of themselves and of the system they live in.

That was his basic credo and one that he stuck to consistently during his long period of service to the public—not public service in the sense of government service. Whatever the pressure, he stuck to his guns, refusing to compromise his principles. That was why he was so effective in keeping alive, in the early days, and then spreading the basic idea that human freedom required private property, free competition, and severely limited government.

If "I, Pencil" is not required reading in high school economics classes, then Milton Friedman's 3-minute summary of it should be shown to students in its place. In just a few words, he explains how and why the worldwide market works, why cooperation is better than autarky, and why freedom is better than centralized planning.

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