‘Free to Choose’ Explains Principles of Economics with References to ‘Pencil 1’

Leonard Read wrote a story entitled “I Pencil” which the Freedmans refer to in their book, “Free To Choose”. The story was written to demonstrate two things, how one man cannot make a pencil alone and how the process of economics works.

To make a pencil, you need California lumberjacks and millers; graphite, zinc, and copper miners, from Ceylon and elsewhere, for the lead and ferrule at the top of the pencil; and factice producers in Indonesia for the eraser.

You need all these men and yet none of them did their job in order to achieve a pencil. Each man saw his work as a way to get the goods and services he wanted, and every time we go to the store and buy a pencil we exchange a bit of our services for the incredible amount that each of these men contributed towards the pencil.

That is economics, the distribution of income. It works on a personal basis as well as world wide, because it has its’ own language which every person speaks around the globe. The language is called the “pricing system.”

Dramatic messages can be sent through the pricing system. For instance, let’s say a foreign steel producer just got a subsidy to sell in the United States below cost. American steel producers who can’t compete with the new low prices will have to cut back, and lay off employees. However, American companies who buy steel will have left over money and be able to expand and hire more employees. The sudden loss in jobs and the sudden rise will balance out when you have a proper economic system.

What is a proper economic system? It is a prosperous one. In order for a society to prosper economically, it must have both command principles and voluntary cooperation. History demonstrates that neither the command principle nor voluntary cooperation can form a prosperous society without the other.

An example of the Command principle can be found in communist countries, which rely on central planning. These countries experience political repression and economic stagnation.

Our country was once based almost entirely on voluntary cooperation; and command principles, like the tariff, were enforced simply to achieve a working government. In a free economy, transactions take place between private entities and the transaction does not take place unless all parties believe they’ll benefit from it. Taxes, social security, welfare, public schooling, and unions can all be encroachments on our freedom.

We have strayed from complete economic freedom, but still come much closer than any other country has. Look through history and you’ll realize that the United States is an “economic miracle.” It has combined human freedom, the freedom to follow our objectives, with voluntary cooperation. The theory was that in working for his own good a man can promote a better society. The steel manufacturers weren’t thinking they’d solve the unemployment problem, but in a way they did simply through free trade.

The Freedmans quote Justice Louis Brandeis, who said “the great dangers of liberty lurk in insidious encroachment by men of zeal, well meaning but without understanding.” It is imperative that we try to understand our economic system and why it is so important. Economic freedom is an essential requisite for political freedom, and if the government takes hold of economic and political power we will have a tyranny. Reliance on people to control their own lives is a sure way to a great society, and if we educate ourselves in the matters of economics think what a great society we would have. As a people we are still free to choose between a large or small government, between prosperity and stagnation.

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