We've been talking about fashion and how you can buy clothes from all over the world these days. The same is true about a lot of commodities — food, cars, lumber, toys, TVs
Some people think this is a good thing, because we can buy things very cheaply and eat strawberries in the winter. We get to choose whatever we want from all over the world.
Some people DONT think this is good, because we get stuff from countries where the workers are paid very little or have to work in bad conditions. Or because local farmers are suffering. Also, it takes a lot of fuel to ship stuff all over the place.
But whatever you think, it's probably worth trying to understand HOW this happens. Leonard Read and Milton Friedman explained all this with a pencil. Take a look at this and impress your teacher today by quoting a Nobel Prize-winning economist.
Did you know that noone on earth knows how to make a pencil?
From "Free to Choose" by Milton Friedman
Nobody knows how to make a pencil. There's not a single person in the world who actually knows how to make a pencil.
In order to make a pencil, you have to get wood for the barrel. In order to get wood, you have to have logging. You have to have somebody who can manufacture saws. No single person knows how to do all that.
What's called lead isn't lead. It's graphite. It comes from some mines in South America. In order to make pencils, you'd have to be able to get the lead.
The rubber at the tip isn't really rubber, but it used to be. It comes from Malaysia, although the rubber tree is not native to Malaysia. It was imported into Malaysia by some English botanists.
So, in order to make a pencil, you would have to be able to do all of these things. There are probably thousands of people who have cooperated together to make this pencil. Somehow or other, the people in South America who dug out the graphite cooperated with the people in Malaysia who tapped the rubber trees, cooperated with, maybe, people in Oregon who cut down the trees.
These thousands of people don't know one another. They speak different languages. They come from different religions. They might hate one another if they met. What is it that enabled them to cooperate together?
The answer is the existence of a market.
The simple answer is the people in South America were led to dig out the graphite because somebody was willing to pay them. They didn't have to know who was paying them; they didn't have to know what it was going to be used for. All they had to know was somebody was going to pay them.
What brought all these people together was an enormously complex structure of prices — the price of graphite, the price of lumber, the price of rubber, the wages paid to the laborer, and so on. It's a marvelous example of how you can get a complex structure of cooperation and coordination which no individual planned.
Take a look at the labels on the groceries for one meal.
Find all the different countries. Use this site to calculate the distance your meal traveled to be on your dinner table. How much fuel do you think was used to ship it all to you?