Comment by thelastgallon
10 hours ago
Not just both sides, but infinite sides, every country border for anything that crosses the border. Making a pencil might requires dozens to thousands of mining/factories in the pencil supply chain and there is taxation at every level!
Milton Friedman - I, Pencil: https://www.youtube.com/watch?v=67tHtpac5ws and https://thenewinquiry.com/milton-friedmans-pencil/
"Look at this lead pencil. There’s not a single person in the world who could make this pencil. Remarkable statement? Not at all. The wood from which it is made, for all I know, comes from a tree that was cut down in the state of Washington. To cut down that tree, it took a saw. To make the saw, it took steel. To make steel, it took iron ore. This black center—we call it lead but it’s really graphite, compressed graphite—I’m not sure where it comes from, but I think it comes from some mines in South America. This red top up here, this eraser, a bit of rubber, probably comes from Malaya, where the rubber tree isn’t even native! It was imported from South America by some businessmen with the help of the British government. This brass ferrule? [Self-effacing laughter.] I haven’t the slightest idea where it came from. Or the yellow paint! Or the paint that made the black lines. Or the glue that holds it together. Literally thousands of people co-operated to make this pencil. People who don’t speak the same language, who practice different religions, who might hate one another if they ever met! When you go down to the store and buy this pencil, you are in effect trading a few minutes of your time for a few seconds of the time of all those thousands of people. What brought them together and induced them to cooperate to make this pencil? There was no commissar sending … out orders from some central office. It was the magic of the price system: the impersonal operation of prices that brought them together and got them to cooperate, to make this pencil, so you could have it for a trifling sum.
That is why the operation of the free market is so essential. Not only to promote productive efficiency, but even more to foster harmony and peace among the peoples of the world."
This is tangential to your point about globalization, but the funny thing is that within a firm, especially a vertically integrated one, there really are commissars sending out orders from central offices, dictating production quotas and setting prices. Most companies resemble a command economy on the inside, much more than a market economy.
And almost all economic activity and production is mediated and coordinated by firms. Very few transactions happen between unaffiliated individuals independently making and trading goods according to direct market incentives.
https://en.wikipedia.org/wiki/Theory_of_the_firm
https://en.wikipedia.org/wiki/The_People%27s_Republic_of_Wal...
>Most companies resemble a command economy on the inside.
A whole lot of people need to be frequently reminded of this.
Yeah but those commissars act upon market forces and market forces alone. They screw up and overproduce? Bam! And financial punishment comes. Underproduce? Bam! All the lost could-have-been profit went elsewhere.
Any attempt to not have market as part of the loop just leads to long term inefficiency, punished as it should be. I wont be buying overpriced pencils from bad planners unless they are the only ones in the world, and in such case I may be motivated to look for alternatives.
Right, but pertinent to the pencil example, there can indeed be a single company that makes everything from the brass ferrules and the machines that stamp them, to the rubber and the graphite and the wood, coordinating all of the people involved, with the market mechanisms only acting at the periphery. And often this ends up being a cheaper and more efficient way to coordinate the people involved in pencilmaking than rival ferrule-salesmen independently pitching their brass ferrules in a market, and soliciting unaffiliated day-laborers to run their presses, because of the significant savings on transaction costs.