This famous video (by Milton Friedman) illustrates the power and beauty of the free market system in promoting cooperation, efficiency, and harmony among people around the world using a simple pencil.

In Friedman's view, no individual on earth can make a pencil entirely by themselves. The wood is derived from a tree, perhaps located in Washington state. A saw is used to cut down the tree, which requires steel, which is derived from iron ore. The graphite core may originate from mines in South America. The eraser is made from rubber harvested from Malaysian trees. Brass ferrules and yellow paint have unknown origins. Thousands of people contribute to the manufacture of a pencil. It is remarkable that these people do not know each other and might even not like each other if they met. They may speak different languages and practice different religions. Yet they all cooperate and coordinate to produce pencils.

What is the mechanism that allows such a complex global collaboration to occur? As Friedman explains, it is a free market price system. Without any central planning authority, the pricing mechanism provides the information and incentives for people to work together productively.

By purchasing a pencil, you are effectively exchanging a small amount of your labour for the labour of thousands of other people, as facilitated by an impersonal price system. Friedman contends that the free market is essential for economic growth. In addition to promoting productivity efficiency by allocating resources intelligently, they also promote social harmony and peace among the world's diverse peoples.

Without central control, the free market allows people to cooperate and benefit from trading with one another. Friedman's simple story of the pencil serves as an effective metaphor for the incredibly complex global economy and how the free market coordinates production and trade in an unplanned, bottom-up manner for everyone's benefit.

The example illustrates Adam Smith's concept of the "invisible hand" and the interaction it facilitates between individuals and groups. The pencil illustrates how economic freedom leads to social harmony and cooperation.

Keywords : #MiltonFriedman #FreeMarkets #InvisibleHand #EconomicFreedom #Cooperation #Efficiency #Harmony #GlobalEconomy #AdamSmith #Capitalism