How the World Really Works

Earlier this year, I attended LibertyCon – Students for Liberty’s annual conference – in Washington D.C.

I spoke at the awards banquet right after John Stossel.

He isn’t an easy act to follow…

Stossel – the winner of 19 Emmy Awards – is an author, journalist and pundit who is best known for his investigative reporting for ABC News, Fox Business Network and Reason TV.

During his talk, Stossel commended the hundreds of college-age libertarians in attendance.

“Congratulations,” he said. “You’re some of the enlightened few who get it. You understand how the world actually works.”

Pandering to the audience? Not in my view.

I spoke to dozens of these kids over the weekend and found they have a deep, nuanced understanding of how political, economic, and personal freedom cause our modern society to flourish.

Sure, most college students know that democracy, the rule of law and property rights help lead to prosperity.

But they understand little about how our amazing capitalist system meets our wants and needs.

They’re taught in Econ 101 that resources are scarce and self-interested businesspeople seeking profits – make sure to say that last word with the right combination of sarcasm and disdain – offer to sell us products and services for more than they cost.

But that basic explanation doesn’t begin to explain the miracle of markets.

Who organizes everyone – doing different jobs at different companies in different industries – to allow everything to run quickly and smoothly?

If you understand how the world really works, you know the right answer is… no one.

This seems incredible – if not bizarre – to those who believe that some top-down system of command and control is necessary to get things done.

I encourage those who feel that way to read Leonard Read’s classic 1958 essay “I, Pencil.”

Read, the founder of the Foundation for Economic Education, illustrated how free trade enables millions of unconnected people to miraculously come together to create a product.

There’s nothing extraordinary about a pencil, of course. It’s a simple, everyday object made of wood, lead, metal and rubber.

(Amazon offers them by the box for pennies apiece.)

Yet, as simple as a pencil is, no single individual can create one or even knows how.

Trees must be harvested. Wood must be cut, transported and milled. Do you know how to do all these things?

The lead – actually graphite – must be mined, mixed with ammonium hydroxide, cut, dried and baked. Do you have those skills?

The wood receives six coats of lacquer, which requires growing castor beans and refining them into castor oil.

The bit of metal – called the ferrule – is brass. That requires other laborers and craftsmen to mine zinc and copper and process them into sheets.

The eraser is a rubberlike product made with rapeseed oil and sulfur chloride.

These are just a few of the thousands of steps necessary to create pencils.

Millions of people have a hand in their creation.

Yet no one sitting in some central office orders everyone around, commanding them to do their part to create pencils.

Indeed, the workers often live in different lands, speak different languages, and follow different customs.

They don’t know each other and might not like each other if they did.

Yet markets incentivize them to cooperate, without most of them knowing the pencil was an end product of their labor.

Again, there isn’t a single person – including the president of the pencil company – who understands all the steps necessary to create the product.

There is no master mind here, no one dictating or forcibly directing the countless actions which bring the pencils into being.

The Austrian economist Friedrich Hayek referred to this as “spontaneous order.”

And it’s hard to understand how anyone who understands this astonishing process could favor “central planning.”

Especially when businesses routinely turn out not just pencils but supercomputers, smart phones, vaccines, cruise ships, and jumbo jets.

The key insight – originally articulated in Adam Smith’s famous Wealth of Nations – is that no external force, coercion, or infringement of freedoms is necessary to produce economic cooperation.

In their quest for profits and market share, businesses will innovate, produce, and distribute.

No one benefits more than the consumer. Yet most educators and journalists don’t get it.

It seems intuitive to them that a bunch of committed, caring, well-intentioned people – let’s call them public servants – making decisions on our behalf should be able to create better results than a bunch of unenlightened vendors grasping for profits.

It may be unfathomable to them. But that’s how the world really works.

Good investing,

Alex

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