Friedman Explains The Point

by Don Boudreaux on October 20, 2007

in Complexity & Emergence

Here’s a two-and-a-quarter-minute clip of Milton Friedman explaining why no one in the world knows, no one in the world has ever known, and no one in the world can ever possibly know, how to make an ordinary commercial-grade pencil.

Grasping the point of this explanation is as fundamental as anything you can ever learn about the nature of the economy and modern society.

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Lee Kelly October 20, 2007 at 8:24 am

Since we're sharing. Click here.

Gil October 20, 2007 at 8:50 am

Bleh! A better description is that the vast majority of people involved in the ingredients of a pencil don't really understand or even need to know the overall process of the pencil. Or to mass produce pencils at an affordable price requires each step reduced to simple small increment that a worker only contributes one small part to the overall process.

Yet to say no one knows how to make a pencil at all is ridiculous! Duh! Of course there's an overall process. Have Libertarians forgotten in the modern world of specialization that people in ye olde times many made whole objects from basic ingredients?

In the case for those who might actually want to make a pencil:

Gil October 20, 2007 at 8:52 am

P.S. The video "Use Of 'N-Word' May End Porn Star's Career" is heaps funnier. X)

Xmas October 20, 2007 at 8:53 am

This clip is a much better Onion clip.

At least in the context of the above video and this blog.

Sam Grove October 20, 2007 at 11:44 am

Yet to say no one knows how to make a pencil at all is ridiculous!

He didn't say "a pencil", he said: "this pencil". Could you make a pencil exactly like the one he is holding? For the price you can obtain it at a store?

No way.

Mark Fox October 20, 2007 at 11:48 am

Lee Kelly: The linked illustration is useful only if I can assume basic ingredients obtained from a cedar forest, lumber mill, graphite mine, glue factory, metal press, rubber plantation, and paint factory. Perhaps you could point us toward more diagrams?

Grzesiek October 20, 2007 at 1:02 pm


You want to do some real good? Pass this on to Congress.

lowcountryjoe October 20, 2007 at 2:01 pm

Yet to say no one knows how to make a pencil at all is ridiculous! Duh! Of course there's an overall process. Have Libertarians forgotten in the modern world of specialization that people in ye olde times many made whole objects from basic ingredients?

A completely integrated industry for just one product – a pencil — and one sole laborer/owner!? That's fascinating: it would be so nice to go back to the good ol' days. I might be able to make a rudimentary bow and arrow in about three days; now that's progress. By the way, how long do you suppose it might take for that one person to mine the graphite, get the wood, make the glue, shape the metal, assemble the ingredients for the eraser, and so on and so forth?

Reuben Moore October 20, 2007 at 3:09 pm

I wonder what such a pencil would cost?

Lee kelly October 20, 2007 at 3:22 pm

Mark, I posted to The Onion, I assume you meant Gil, right?

Paulo October 20, 2007 at 5:51 pm

"Yet to say no one knows how to make a pencil at all is ridiculous! Duh!"

poor soul…. I hope, for your own sake, that you were making a joke. If not, forget it, go to the forest and start chopping. Do not EVER again buy a pencil, a notebook, a computer, a magazine, etc….

you surely know how to make them all, right?

Mark October 20, 2007 at 8:01 pm

Before he goes to the forest to start chopping, he should make sure he builds the ax first.

Simon Clark October 20, 2007 at 8:50 pm

"Yet to say no one knows how to make a pencil at all is ridiculous!"

Friedman did not say that no one knows how, he said "there's not a single person in the world that could make this pencil".

However, whilst peopel do know how to make A pencil, nobody knows how to make THAT pencil. I'm sure I could go into the woods and cobble together a primitive writing implement, but no single person on the planet knows how to make the pencil Friedman is holding. Take the graphite alone: no single person knows everything required to mine the graphite and make it into sticks. Consider how many different jobs there are in a mine: miner, foreman, lift operator, crane operator, truck driver, train driver, machine operator, mechanic, engineer, quality controller, manager, human resources manager, bursar, accountant, receptionist, secretary and so on and so forth. Add to that all the different jobs in the factory that built the pencil, the farm that made the rubber, the company that cut the trees, the mine that dug out the ore to make the brass, the foundry where it was turned into metal and so on and so forth. I doubt there's a single person in the world who knows both the forumla for the paint used on that pencil, and how to operate a drill in a graphite mine, let alone the thousands of other skills.

And we can go further: consider the knowledge required to make the machinery on which the pencil was built, the saw which cut the wood, the drill which mined the graphite, the fertiliser used to grow the rubber, the hard hats that the miners wear and the uniforms that the retail clerks who sell the pencil wear.

Gil October 20, 2007 at 10:16 pm

Well I guess Libertarians can go forth and demolish the Creationists' arguments that the Universe was intelligently designed.

But really how would a pencil-making company work if those at the top didn't know the steps and parts to make a pencil? Do you feel that if you admit to some sort of micro-planning you'd open the door wide open for Socialists to rush in and trample you?

Yeah, yeah, I get your points about how technology allows for greater specilization and finer tools that can create better objects than in the days of hand tools and artisans.

vidyohs October 20, 2007 at 11:05 pm

Good question:
"But really how would a pencil-making company work if those at the top didn't know the steps and parts to make a pencil?"

There is a huge difference between "knowing" and "making".

Those at the top could probably recite the steps and parts, but how many could go down to the shop floor and do hands-on labor and actually make the pencil.

I know the parts and the steps in putting the parts together is self explanatory just on examination of the pencil, but could I make one? Different story.

I could make a crude one, but it would not be economically feasible for me to do it.

brotio October 21, 2007 at 2:30 am


In Gil's and Muirgeo's world it doesn't have to be economically feasible. They want a pencil. You have money. They live in a democracy and outnumber you, so they have the government take your money to build them a pencil. It's free! Don't you see?

shawn October 21, 2007 at 9:53 am

gil…have you watched the clip?

Gil October 21, 2007 at 10:55 am

Yeeessssssssssssssss, I have watched the clip.

Marcus October 21, 2007 at 11:21 am

Ironically, Gil's posts reveals what the fundamental problem of central planning is which is the perception that it can actually be accomplished. He honestly beliefs that the knowledge of how to manufacture the pencil in Mr. Friedman's hand can be known.

He finds it incredulous that the management at the pencil company doesn't know. Of course they must know! How else could they have made it?

What is missing in the Mr. Friedman video clip is his discussion of the miracle of prices and how prices simplify all that complexity. In fact, prices do such a good job of simplifying all the complexities of manufacturing a pencil that it is very easy to deceive yourself into believing you could know how to make the pencil in Mr. Friedman's hand.

But, all the management at the pencil company have to know is the price of the metal for the metal sleeve, or of the material to make the erase or of the graphite. They need not have a clue as to how the metal or rubber or other material get produced. How the ore is mined, how the equipment to mine the ore was manufactured, how the trains to haul the ore were made or even how to lay the railroad tracks to carry the train that hauled the ore.

All the management at the pencil company know is the price of the metal and the graphite and so on. They can compare that price to the prices from other suppliers and manufacturers of competing material.

The miracle of prices make that all that possible and when you finally understand the miracle of prices you'll understand why central planning can not work, not even in principle.

Here's the famous 'I, pencil' article by Leonard Read which is followed by and 'Introduction' by Mr. Friedman.

Gil October 21, 2007 at 11:33 am

Actually aren't corporations centrally-planned? They're run as little Democracies where all the workers get to have a vote about the company should do? Doesn't the CEO ultimately make the decisions for the corporation? How did Bill Gates run Microsoft? Or how did Michael Dell run Dell Computers? Did they leave the companies alone and let the employees guess at what their daily duties are supposed to be? Or do CEO actually have a say as to what the workers will produce during the next production run based on what the sales results were from last time? Or alternatively, are you(s) really saying that politicians don't have any feedback mechanisms and just bellow out orders according to whatever the 'Daily Socialist Newspaper' thinks should be produced?

P.S. A non-Libertarian must seem like a Socialist because Libbers take up the furthest far-right economic position. But do you Minimalist Libbers get called Socialists or proto-Socialist by Anarcho-Libertarians since you too advocate a little bit of Government?

Simon Clark October 21, 2007 at 12:23 pm

"Actually aren't corporations centrally-planned?"

No. Central planning is:

"An economic system in which the government rather than market forces determine the production, pricing, and distribution of goods and services."

Friedman is not suggesting that no organisation is required to do anything, but that the most effective method of organisation is markets and the price system. These systems mean that every one of the thousands of people who spontaneously cooperated to make that pencil did so becuause that was the best thing they could do for themselves – cutting down that tree or mining that ounce of graphite was what made them better off than doing any other alternative thing at that moment, so they did it.

If, suddenly nobody wanted pencils, the price of pencils would plummet. Thus, the price of wood and graphite would fall, as would the wages of wood cutters and graphite miners.

If they can then make more money be mixing ink for pens or forming plastic pen tubes in a palstics factory, then they will do that, and if people preferred keyboards and computers to pens they could make more money by making those. The people who previously made pencils might not of course end up being the people making the preferred alternative, they may end up making something completely different, but somebody somewhere will begin making the new good.

This applies as much to firms and CEOs as it does to individual workers. If a firm is better off making computers than it is making televisions, it will switch. If making televisions is the best thing it can do, it will continue to do so.

By comparison, a government officer has no such knowledge, no such feedback. A government officer controlling the economy does not know, and cannot know, the price of the goods for which he is responsible. He can know how much it costs to manufacture it, but not its value. He has no idea how many need to be made, of what kind, where they are wanted, how much they are worth or even if they should be made at all. Neither does he know the best way to make it, deliver it or provide it. The officer in charge of a nationalised pencil industry would have no idea when the right time would be to reduce or increase or even cease production of pencils because there are no prices to signal to him. There are no competitors to put him out of business if he is working inefficiently or to invent new methods of production or types of pencil or discover new materials.

In a market, dozens or hundreds or thousands of firms contrive to make this knowledge known, and the continuous feedback of the price system allows them to organise themselves more efficiently than any other system thus invented. Meanwhile, competition ensures that every firm is forced to be as efficient as possible and to innovate or lose profits or go out of business. Firms have real incentives to be succesful, while bureaucracies do not – the less succesful they are, the more funding they get.

Simon Clark October 21, 2007 at 12:29 pm

"But really how would a pencil-making company work if those at the top didn't know the steps and parts to make a pencil?"

Because knowledge is dispersed and diffuse. Richard Branson may know that planes are built in factories and that the engine goes on after the wings, but he does not know how to attach the engine, or how to land a 747 or how to operate the crane that delivers the wings to the assembly line or how to make the aluminium that makes the wings or how to design a jet engine or install an airplane window or the vast majority of the millions of tasks needed to operate Virgin Atlantic, let alone all his other businesses. The best way for all this knowledge to be brought together is through the price system, by markets spontaneously creating the incentives needed to entice pilots and crane operators, janitors and engine designers to cooperate together to build a jet airliner, instead of making biplanes or picking berries.

vidyohs October 21, 2007 at 12:29 pm


muirduck and Gil live in the fantasy world of socialist church and follow the scriptures, as well as proseltyize them.

In that world everything is economically feasible because they believe that there is a magic wand possessed by their God (state), and one of their elite priests only have to wave it and mumble the right incantation to provide wealth to redistribute or use on socialist church functions.

They have been indoctrinated to believe that the wand can be waved over and over again at anytime and wealth will appear, because it is magic.

The understanding that somewhere, at some level, some one must actually engage in production of some sort of good or service in order for there to be wealth to redistribute…..because in the real world thee is no magic wand.

When the God of state dips into the wealth reserves of the people it leaves a hole that can only be refilled by more production and expenditure ofindividual labor, and the more frequently the state dips the farther behind the individual falls in covering the loss. Until one day he says, "screw it, I am tired of providing for the worthless and useless, the takers", and he quits. The the state has less wealth to steal and another mouth to feed.

muirduck's & Gil's brains don't operate(?) in the same universe as yours and mine.

Marcus October 21, 2007 at 12:29 pm

Corporations have to compete both for the supplies and labor they purchase and for the customers who purchase their products.

Or, to reiterate in another fashion, all of the participants are participating voluntarily.

Competing for supplies require corporations to either find higher value uses than their competitors or to find more efficient uses than their competitors.

In the market you get to vote multiple times a day on exactly those things that are important to you. You get to choose for yourself the value of your time and resources both as a supplier to coroporation and consumer of their products.

In a socialist-democracy you get to vote once every other year for somebody who you hope will might represent at least a some of the things that are important to you. This vote makes no consideration of resources such as your time and other resources.

vidyohs October 21, 2007 at 12:32 pm

Oooops, that should read

muirduck and Gil are incapable of understanding that somewhere, at some level, some one must actually engage in production of some sort of good or service in order for there to be wealth to redistribute…..because in the real world thee is no magic wand.

Marcus October 21, 2007 at 12:34 pm

I really have no idea why my previous post posted twice. I'd like to ask whoever monitors this forum to kindly remove one of them and delete this one too. Thanks.

Sam Grove October 21, 2007 at 12:56 pm

But there is a magic wand.

The lawmakers merely vote on who to point that wand at and wealth is extracted. No thinking beyond that is required.

Who shall be robbed next?

People will support it as long as they suffer the belief they they will benefit more than they will be robbed.

Trouble is, they have no way to compare benefit vs cost.

Marcus October 21, 2007 at 1:09 pm


One of the things that made Milton Friedman such a brilliant man was he never questioned the motives of his intellectual opponents.

A cornerstone of libertarianism is the concept of persuasion through voluntary means. Belittling people might feel good but it does very little to accomplish that goal. It simply provokes similar retaliation.

Mark Fox October 21, 2007 at 3:24 pm

Lee Kelly: Yes, I meant Gil. Sorry.

Gil: It's about who is accountable for the execution and outcomes of a plan. The notion of humans as moral agents requires each to make a choice and to suffer the consequences of choosing.

If government planners had to depend on voluntary action, risked personal loss, and were not protected from litigation, would your theory still project efficient allocations?

vidyohs October 21, 2007 at 6:47 pm

That is no magic wand, that is a gun.

You misunderstand, I don't question the motives of the socialist evangelicals, I already figured out what they were long long long long long ago. They believe their motives are pure, I know better because I can think beyond the end of my …..nose.

But, marcus, what good is a pure motive if the only way it can be accomplished is through theft, ruin, denigration, character degradation, moral and social degeneration, and economic chaos?

When you know your opponent will steal from you at the first opportunity, how wise is it to ignore his motives….who cares what his motives are? His motive is to get his gun in your face and take the fruits of your labor.

Brother Milton may have one up on me as a noble soul (God bless him), don't really give a sh.t. Milton has lived his life, preached his wisdom, shown the rational way, and socialism remains and the socialist evangelicals pretend he never existed……but they don't necessarily hate him. I do not participate on this blog because I am a libertarian, it is because the libertarians are the closest to my mindset in the political spectrum. I am just a bunch more conservative than the libertarian…..conservative in the sense your great great grandfather was probably conservative, not in the sense of a George Bush or Ronald Reagan conservative.

Now Brother Pinochet understood the socialist evangelicals, he took over when Chile was a socialist ruin, dead last in per capita income in South America, and put the fear of God in them and shut them down long enough to make a lie of everything socialism has ever stood for….and they hate him for it. Most of all they hate him for stepping out when Chile was number one in South America in per capita income and the economy was perking and turning over power in a completely free election. I don't think he worried any more about his opponents motives than I do, as I do he understood what their motives were and couldn't see them taking the nation even farther into ruin than dead last…..where do you go from dead last? Disintergration probably.

Marcus October 21, 2007 at 7:57 pm


Ah, that was presumptuous of me to assume libertarian. My apologies.

Gil October 21, 2007 at 8:23 pm

Actually, to put it another, yes, there are people who design planes, buildings, businesses, etc., who do know how they work but don't necessarily have to/need to know how each part is exactly manufactured or what the builders do to get all the parts together to make the whole. Wow! Similarly, I have guessed depending on the scenario, if pencils were lots less popular they might be a tad more expensive and less good as they might be made by less specialized equipment and more hand tools.

Roflmao! Intimate that Libertarians are any kind of Capitalist even if it include violence and they'd argue that's an ad hominem attack or unfairly grouping people with different yet similar ideas. Anyone less than a Libertarian is a Socialist!? Just because a few of us believe in a few more public services than minarcho-Libbers we're still 'Socialists'? Dare to use the term 'social justice' then you're a raging Commie and you may as well round up 100 million more people and snuff them out? Next time I'm at a anarcho-Libertarian blog I'll ask if a minarcho-Libertarian is a type of Socialist too and I'll bet they would reply yes if you advocate even a small portion of government then your a Socialist though probably a closet one. Or maybe Libertarians are more toey because there's so few of them and can't dare to lose any more from the flock?

Ken October 21, 2007 at 11:05 pm


These are your instructions for making a pencil?

"It starts with a block of cedar (1) which is then cut into slats (2)."

Wrong it starts with figuring out how to get that block of cedar. To do this you have to know what a cedar tree is. Do you know how to ID one? I don't. I'm fairly certain most don't (I bet less than 1% of the world's pop could do this).

Once this is done, you've got to fashion some sort of instrument to get a block from the tree. You need to make a tool to do this, which of course means knowing what materials to look for, where to look, then manipulate them into workable tools. Imagine we are back 20,000 years ago and someone, all by themselves needed a block of cedar, what do you think they would do?

"The slats are then stained (3) and grooves are cut into one surface (4)."

The only thing I know about stains is that I can get them at the hardware store. But again, what would someone 20,000 years ago do to make themselves stains? No one knows where to get the basic materials, then process them into usable ingredients to make the stain, then know the proper ratio and timing of mixing the ingredients to make the stain.

"Prepared leads are placed into the grooves (5) and a second slat is placed on top and bonded with the first (6)."

Did you catch the "[p]repared leads" statement? It means someone else prepared this lead. Someone else knew where to look for the chemicals and elementals in the earths crust, distill them, and process them into something that is "[p]repared leads". A process all by itself in making a pencil that not one person in the world could do if they lived in a pre-civilized world.

"This 'pencil sandwich' is then passed through a milling process (7) to separate the individual pencils (8)."

A milling process? I don't even know what this means. Do you? Do you think someone 20,000 years ago, could develop something like this by themselves?

"The pencil is painted and finished (9 & 10), a ferrule crimped onto the end (11), and finally, an eraser is crimped into the ferrule (12)."

Where did the paint come from? Who made it? Surely not the person who knew how to make the tools necessary to ID a cedar tree, then cut a block from it; then from scratch finding all the ingredients in nature, mixing them with the proper ratios and timing to make wood stain to stain the block; then cut grooves into it; then "[p]repare lead", meaning knowing where in nature to find and harvest the material, and process it into a usable product for a pencil; then developing a milling process to "separate individual pencils"?

Let's not forget the crimp and eraser…. Well you probably know what I'm going to say: where do you get the raw materials for this, how do you process this material, then create a crimp and eraser? (I put that last line in there in case you couldn't guess what I was going to say.)

Do you still not understand Friedman's lecture? Judging by the tone of all your posts, you do not. Because to admit this would mean admitting that no one can run an economy and that "social justice" is a phrase made up for people to scream about to make themselves fell better, not something used to make other people's lives better. That socialism is indeed the hope of fools. No one has all the relevant information to do even the most basic things all of us take for granted. Everything I have and do depends on other people. As is everything in your life.

Interdependence is real, not some catch phrase. Look around you and find the most basic thing in your immediate area. If you were all the sudden transported back 20,000 years ago, could you make that thing by yourself. The answer is no.


LowcountryJoe October 21, 2007 at 11:49 pm


One can actually get stains from the damnedest places under the right conditions; wearing a size 12 to 14 blue dress, and being a female intern at the White House under a William Jefferson Clinton presidency, is just one such way.
[/red meat for muirGileo]

Gil October 22, 2007 at 2:35 am

Sigh. . .! 8(

Maybe then it's wording to the link that's the problem. Okay yes so maybe no one person knows exactly every single step and process but there are people who do know about the steps and processes for their corner of the overall process. Maybe I just wanted to point out there is management and planning but on a micro-scale, but many of you immediately jumped to the conclusion that I was therefore advocating some sort of macro-planning (a.k.a. Socialism).

Indeed here's another proof that Socialism/Communism can only work in small low-tech tribes/villages and even then only when the players abide by the rules. Actually (but probably not surprising) I did think Socialism was a nice idea on paper and wondered why Socialism couln't work in the real world and, lo and behold, economic fundamentalists, including Libertarians (shock and horror!) did show why and how the excuses 'it's because it wasn't tried properly or it was because of a few bad apples' were missing the point. Once again I just believe there are a couple more areas where governments do have a role (actually probably not as many as muirgeo) yet I don't see how this comes even close to Socialism as I don't advocate government competing with business to provide everyday items nor think that just because the government can raise more tax and get more revenue means they should.

Yet how do you tread the fine line between government and guvmint? Taxes versus theft? Enforcement of contract versus thuggery? 'Tis interesting to suppose the nature of technology means what once only government could do can now be done far more efficiently by private businesses. But still, some concede the military as a reasonable government institution yet the U.S. military actions aren't exactly inspiring either?

vidyohs October 22, 2007 at 7:13 am

Okay let's grant you that you really are trying to see the way, in which case Good for you!

I had the phase myself in my earlier years, but by the time I was 21 I had been exposed to enough of the world and its "diverse" peoples and their "diverse" attitudes, that I became anti-socialist to the core.

If I may, I'd like to walk through some of your comments in the post above.
"Indeed here's another proof that Socialism/Communism can only work in small low-tech tribes/villages and even then only when the players abide by the rules."
Actually Gil, socialism doesn't even work in small groups. Small groups just mean it decays in high gear, not the slower speeds it does when socialist/communist take over a nation that actually has a wealth base to rape.

Review the entire history of the Pilgrims when they first came to America. They began as communists and damn near killed themselves because that system encourages free loaders and reduces the productive. The Pilgrims averted total disaster by reverting to ownership of private property, the means of production, and private ownership of the production itself, and survived.

There were countless "communes" established in America by the Hippies of the sixties and seventies, and all went the same way the Pilgrims did. Socialism is a nice theory but it doesn't work because of people….and trust me partner, people don't change down inside. They may get all pumped up on an ideal, but when they are required to work their butts off all day only to see what they produced go to slackers….the experiment is on its death bed.

Yet how do you tread the fine line between government and guvmint? Taxes versus theft?
You don't. You shoot the first jerk that tries to bring in guvmint. You keep your government in chains and your "arms" at your side….lock and load. Now for your information the constitution says that the government will run on indirect taxes (excise taxes), these are taxes on doing things….mostly trade. Direct taxation (taxing you because you work and create wealth) is prohibited unless government finds a way to put the tax on everyone equally. They haven't done that yet.

"But still, some concede the military as a reasonable government institution yet the U.S. military actions aren't exactly inspiring either?"
What's happening here Gil is that you are forgetting the people again, or rather still. Think about it. What is inherently bad about a military, nothing. It provides not only defense but used to provide an excellent training ground for self reliance and self responsibility.

It is how the military is used and the people that use it that creates the negatives. The people Gil, always the people, they are your problem.

We people are natural critters and have evolved with all the inherent natural traits that you see in natural life around you, and it is a direct and brutal world.

Now, Gil, what is a safe dose of arsenic? A small dose probably won't kill you, but your body will never shake it either. So, if someone manages to slip you another small dose (just a small guvmint program, it won't cost much), then you have two doses and are closer to death. How many doses until you die? It differs in individuals.

Now imagine you're a farmer. How many weeds do you allow in your garden? Some? A few? Or, do you pull all you can find? For the health of the garden I hope it is the latter. Okay, how long are you gonna keep that sow that produces successive litters in which half the piglets are stunted and deformed?

Your in the beef business and you have one cow that will not get pregnant, how long are you going to keep her?

What does all this mean, Gil. Arsenic, farmers, ranchers? It means dealing with the real world, natural life, in a direct fashion. There is no room for pity or sympathy for the Gnu on the plains of Africa when the lions hunt. If it can not take care of itself then nature says it is history. I have no room for pity or sympathy for the person in this nation who can not, upon reaching age 16, or will not take care of himself. Nature says that person is a self culling mechanism of the human gene pool and in my wisdom I think we should let nature take its course.

I learned about people, Gil.

Look at the situation in Darfur today, Somalia in just a few short years past. You see people who have been living in famine for years, are stick thin, and carrying babies less than a year old. Not just one or two but hundreds, thousands. That is insanity. To screw, get pregnant, and give birth when you can't even feed yourself. If the people won't make an effort to stop the insanity…..then my wisdom, learned years ago as a 21 year old in Africa, says like the farmer or the rancher there comes a moment when you must make hard decisions for the good of your own future. they are going to do what they are going to do and I am going to let them take the consequences; and, I'll concern myself with taking care of me and mine.

Its the people, Gil. There is no safe dose of socialism, one program is too many.

The military is a fine idea and having it under civilian control is great.

Gil October 22, 2007 at 8:38 am

Actually I was more inspired by the 2nd Amendment for a militia rather than a military, you know, an armed populance (apparently in Sweden) than a standing army. :\

Was you post last vidyohs as a case of 'the world doesn't owe you anything, period' which has the creepy insinuation that real life is actually of a case for a free-for-all market?

vidyohs October 22, 2007 at 9:01 am


You can't resist reaching for that next little sip of arsenic.

There is rational reason for some form of government, because it is the people as I said. And, people will, and should, always act in their own self interest first. After that is secure then people can do what they want as far as I am concerned.

The admission that some form of government is rational, then puts this discussion into the realm of, "what form of government"?

The founding fathers had a pretty good idea and put it down on paper.

Let's not pretend that the government of this nation is still shackled in any by the constraints of the constitution.

However, to more directly answer your question. If the choice is between a government regulated market, or a free-for-all market, then I absolutely come down on the side of free-for-all.

The first is stagnation and the latter is opportunity.

Simon Clark October 22, 2007 at 10:05 am

"Actually I was more inspired by the 2nd Amendment for a militia rather than a military, you know, an armed populance (apparently in Sweden) than a standing army. :\"

I think you mean Switzerland – every adult male is given an assault rifle (a real one – not the civillian look-a-likes that the Brady Campagin can't tell the difference between) and ammunition which he keeps at home. They then attend training a few times each year and are expected to practice shooting throughout the year. Incidentally, they have the second lowest murder rate in the world.

As for the United States, the founding father clearly believed in a citizen militia (though not in the rigid, compulsive way that the Swiss do), but also in self-defence and in standing militaries. For instance, the founding fathers created a standing navy if I remember correctly. Thomas Jefferson wrote: "The laws that forbid the carrying of arms are laws of such a nature. They disarm only those who are neither inclined nor determined to commit crimes….Such laws make things worse for the assaulted and better for the assailants; they serve rather to encourage than to prevent homicides, for an unarmed man may be attacked with greater confidence than an armed man." None the less, the 2A is worded pretty unequivically: "the right of the people to keep and bear arms shall not be infringed." It doesn't really what goes before it ("a well regulated militia being necessary for the security of a free state").

"Maybe then it's wording to the link that's the problem. Okay yes so maybe no one person knows exactly every single step and process but there are people who do know about the steps and processes for their corner of the overall process. Maybe I just wanted to point out there is management and planning but on a micro-scale, but many of you immediately jumped to the conclusion that I was therefore advocating some sort of macro-planning (a.k.a. Socialism)."

Friedman was not saying that nobody knows anything or that organisation or planning per se never work, only that no single person, not even a small group of people like a government, can possibly ever know everything they need in order to provide goods and services as effectively as the market – and a market is not a single person or a government or a single firm, it is billions of people each holding little bits of diffuse knowledge and using that knowledge to cooperate together.

"Indeed here's another proof that Socialism/Communism can only work in small low-tech tribes/villages and even then only when the players abide by the rules."

In Israel they had communist communes called kibbutz. They didn't work. Now they are adopting more market driven policies like allowing private ownership of homes and letting workers earn their own incomes. It seems that even on the scale of a village, socialism doesn't work.

For socialism to work requires that each participant has a strong personal and emotional connection to the involved parties i.e. it is in their own self-interest to share and give because of emotional gratification. It must also be voluntary which I suppose is inherent in the self-interest clause. So we can see elements of socialism in couples and families, but not in anything larger.

As a point of interest, I was sort of left-wing at one point too. I have always been essentially a live and let live libertarian from a social point of view (opposition to prohibition of drugs, guns, gay marriage etc), but I also saw merit in the redistribution of wealth. Studying economics though has made me realise the counter-productive nature of such methods and that both poor and rich are better off in freer markets devoid of compulsory wealth redistribution.

Gil October 22, 2007 at 10:28 am

Well I did add that qualifier about low-tech tribes and villages.

Dang it! Switzerland/Sweden I get them mixed up more so than Iran/Iraq for some reason. :\

vidyohs October 22, 2007 at 1:52 pm


"Well I did add that qualifier about low-tech tribes and villages."

You can't any lower tech and small village than our Pilgrims when they hit the shores of America as full fledged communists.

Simon Clark,
Good post, clear thoughts. I do however disagree with the notion that socialism can be affective even in small families. From experience if a parent distributes equal rewards for unequal efforts….guess what happens?

Yep, same old same old. Kids aren't stupid. Why try hard when Dad or Mom is going to reward you the same anyway.

No sip of arsenic is safe at any level or at any time.

Simon Clark October 22, 2007 at 4:21 pm

I'm not so sure. I have no data (though I'm tempted to gather some…) but I suspect that parents often reward children fairly equally. Obviously a child who drops out of school will not be rewarded equally with one who gets straight As, but I suspect children who get Cs get the same rewards as those who get As. Familiar rewards also tend to be based on effort or intentions rather than outcomes – for instance a child who gets Ds but tried really hard may get a big reward, whilst a child who gets Cs but was capable of Bs may get a lesser reward (in seperate families but where all else is equal).

You will also see family members assigned tasks but given no tangible reward. Children, for instance, may be told to do the dishes but not rewarded – they are expected to do it out of love, and usually they do (though perhaps it is only out of fear of punishment for refusal?).

John Pertz October 23, 2007 at 10:07 am

I think the point that Friedman was trying to make is that capitalism fosters an awful lot of cooperation amongst capitalists and laborers. A pencil company believe it or not does not actually know how to make a pencil unless of course they are their own supplier.

ben October 23, 2007 at 10:22 am


Yes, the corporation making the pencil is centrally planned. But, unlike governments, the corporation you buy the pencil from is only a small piece of the picture. It is unlikely that corporation hires miners to dig graphite, or hires the chemists to manufacture the paint. Instead these materials are procured through contracts, and there is presumably tendering for each of those. The pencil corporation does not need to develop expertise in each of the many disciplines making a pencil requires. It buys from the cheapest and/or best quality supplier i.e. it faces a price.

Further, the corporation is only one of many pencil makers, and there is competition between producers for your pencil dollar.

So, yes, corporations are mini command economies. But these essential difference between them and governments is competition, both vertically and horizontally. If those mini command economies become too large to be efficient, they are toppled by smaller rivals. This is in effect the process described by Coase in 1937, still my all time favourite economics paper.

Marcus October 23, 2007 at 10:54 am

"So, yes, corporations are mini command economies."

No they're not. Unlike a command economy all of the participants of a corporation are participating voluntarily.

That means the venture must be profitable for all of the participants from the suppliers to the workers to the customers.

Simon Clark October 23, 2007 at 2:27 pm

Well said Marcus.

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