The Liberty Guide is a collection of ten basic lessons we think are essential to understanding the foundations of a free society. Over the course of the next several weeks, you will receive each lesson, one at a time, as part of your free subscription to Freedom Unfiltered. If you are having trouble viewing this email, please try our web version here. Feel free to share the Liberty Guide and Freedom Unfiltered newsletter with your family and friends if you find it helpful!
Let’s begin with one of the most essential economic contributions to our case for freedom: The benefit of the division of labor through the coordinating forces of a free market.
Perhaps one of the most commonly misunderstood concepts is that of the “market”. What are we referring to when we use the terms “free market” and “market intervention”?
The market is a complex process of events caused by individuals acting purposefully and voluntarily based on their own reasons. Dining at your favorite restaurant, giving money to charity, and buying a ticket to your favorite sporting event are all examples of the market at work. In short, we are the market. The free market is nothing more than people like you and I voluntarily interacting when we think it is to our mutual benefit.
Market intervention on the other hand refers to human activities other than those that are free and voluntary. For example, government taxation and regulation, government grants of political privilege to corporations, and theft of your belongings by an armed robber are not market events. While it is true that wealth is exchanged in each of these transactions, the transfer is not voluntarily entered into by both parties and is thus not part of the free market.
Now let’s explore why understanding the free market is worthy of being included as our first lesson in the Liberty Guide...
The lesson is simple: No one person has the knowledge or skills required to create an everyday pencil from scratch. Sounds unbelievable? Take a few minutes to explore Leonard Read’s classic essay: “I, Pencil” available in .pdf, html, and audio on FEE.org. Using an example of how one everyday pencil is produced, Read shows that none of us has sufficient knowledge to plan the creative actions and decisions of others, much less an entire economy.
Milton Friedman draws from Leonard Read’s classic story to eloquently explain how the free market price system promotes cooperation and harmony among those with no common interest in this 10 min video.
According to Jeffrey Tucker, the idea of division of labor, also known as the law of comparative advantage, “…is probably the single greatest contribution that economics has made to human understanding.” This simple, yet still widely misunderstood concept, explains how people with diverse goals, beliefs, and talents (most of who may not even know the others even exists) can cooperate through the process of voluntary exchange in the market to produce miraculous results not possible to any single individual and not possible by the design of any central planner.
Tucker goes on to note that “…it is the very diversity of the human population that makes it advantageous for them to work together and trade to their mutual benefit. What this means is that isolation and self-sufficiency lead to poverty. Cooperation and the division of labor are the path to wealth. Understand that, and you can refute libraries full of nonsense from both the Left and the Right.”
Today's Lesson Recap:
1) The free market price system promotes cooperation and harmony, even among those with no common interest. It makes possible the coordinated activities of a diverse people.
2) Not a single person, even with the best intentions, has sufficient knowledge to adequately plan the creative actions and decisions of others.
3) Freedom is a necessary ingredient for human flourishing. The degree to which the free market price system is rejected in favor of coercion and central planning is the degree to which society will experience relative impoverishment and chaos.
Please share this lesson with your family and friends. A failure to understand the basic concepts explained in the story of “I, Pencil” is at the very core of most bias against liberty and free markets today. An online version of this lesson can be found here.