The lesson of the pencil

Milton Friedman had a great example of how free trade can have thousands of people work together without concern for race, creed or color. And he does it with a #2 pencil.


A pencil has four parts to it: the body made of wood, the “lead” (compressed graphite), the metal ferrule and the rubber eraser on the end.

pencilMilton stated that no one person could make that pencil. Of course you scoff right away, it’s four simple parts, it’s nothing to put them together properly to produce one.

But is it?

Where does the wood come from? A tree, of course. What is the first step in extracting the wood from the tree? To cut it down. How do you that? With a chainsaw, if you want to cut down more than one or two a day.

How did that chainsaw come about? Did it magically appear, or was it created from many parts? Did not each part have to be manufactured, then gathered together and then assembled into a chainsaw?

Then you have to talk about the mining of the ore to be refined into usable metal, then forged and formed into the components. Each of these have machines made of parts, parts made of materials.

Now, can you honestly tell me that one person can make the machines to mine the ore, to render the ore into metal, form the metal into parts, then parts into machines? And that’s just to make the chainsaw. Don’t forget about the whole infrastructure to transport the raw materials to where they become refined materials, then to parts, assembly and to the store for you to purchase it. You also have to extract oil from the ground, refine the crude into gasoline and diesel fuel to transport everything and the polymers that create the plastic parts of the machines.

To add a level of difficulty to the process, consider the plethora of locations where the raw materials come from. The wood probably comes from the Pacific Northwest, the metal from Indonesia, the oil from the Middle East.

How can one person travel to all these places, extract the necessary raw materials, then refine the materials to create the parts to create the tools and so on, and on, and on? The short answer is, they can’t.

It takes hundreds of people to take raw materials to refined materials, then mold those refined materials into the components to make the tools to mine the raw materials, then the machines and tools to assemble the components into finished products.

All these people work in concert to bring you that pencil. These groups may not like each other, one group may be at war with another group. However through the free-market system, they all work together in a coordinated manner to bring you every product you have in your lives. Your pencil, clothes, smartphone, vehicle, microwave and a thousand more products and services you use every day.

Business is now global. Materials, parts and products go all around the world and back again.

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