FREE TO CHOOSE CHAPTER 1 THE POWER OF THE MARKET

I. INTRODUCTION “At every level of the economy, voluntary cooperation enters to supplement central planning or to offset its rigidities- sometimes legally, sometimes illegally” (A. Smith, Wealth of Nations) “Just as no society operates entirely on the command principles, so none operates entirely through voluntary cooperation. Every society has some command elements.”

I. INTRODUCTION Identify some command elements that influence or alter some of your choices.

I. INTRODUCTION Voluntary exchange is not a sufficient condition for prosperity and freedom. Voluntary exchange is a necessary condition for prosperity and freedom.

I. INTRODUCTION What’s the difference between a necessary and sufficient condition? Provide an example. Why is voluntary exchange not a sufficient condition for prosperity and freedom?

I. INTRODUCTION Will business, especially big business, endorse the kind of policies with no tariffs, no quotas, no restrictions of any kind?

II. COOPERATION THROUGH VOLUNTARY EXCHANGE “I, Pencil: My family tree as told to Leonard E. Read” Reed-I_Pencil.pdf

III. THE ROLE OF PRICES In voluntary exchange, the transaction will only take place if both parties expect to benefit The price system is the mechanism that performs this task Prices coordinate activity Economic order is the unintended consequence of voluntary exchange

III. THE ROLE OF PRICES Prices perform 3 functions: 1)Transmit information 2)Provide incentive to adopt least costly production technique 3)Determine who gets how much of the product (distribution of income)

III. THE ROLE OF PRICES Identify recent developments in the transmission of information. “Anything that prevents prices from expressing freely the conditions of demand or supply interferes with the transmission of accurate information.” Identify examples of preventions.

III. THE ROLE OF PRICES “…it simply is not possible to use prices to transmit information and provide an incentive to act on that information without using prices also to effect, even if not completely determine, the distribution of income.” Discuss how society’s three questions (what to produce, how to produce, and who gets to consume) are interrelated.

IV. A BROADER VIEW “A society’s values, its culture, its social conventions- all these develop in the same way, through voluntary exchange, spontaneous cooperation, the evolution of a complex structure through trial and error, acceptance and rejection.” Many outcomes are the result of human action but not human design Examples? How has the invisible hand helped develop the internet?

V. THE ROLE OF GOVERNMENT Gov’t has a monopoly on the legitimate use or threat of force as a means to impose restraints Is that true? Does gov’t have a monopoly in the threat of force?

V. THE ROLE OF GOVERNMENT What role should be assigned to gov’t? See Adam Smith’s answer on pp )National defense 2)Domestic defense/justice 3)Provide public goods Does Adam Smith need updating? Are there other legitimate functions of gov’t?

V. THE ROLE OF GOVERNMENT Providing public goods is problematic. It’s necessary but could be interpreted to justify unlimited extensions of gov’t. Provide specific examples of current public goods. Is there a current example of a good that is promoted as a public good but which really is a private good?

V. THE ROLE OF GOVERNMENT Freedom is not for everyone Who should be excluded from freedom? Who decides?

VI. LIMITED GOVERNMENT IN PRACTICE Excluding war time, gov’t spending from 1800 to 1929 did not exceed 12% of national income; 2/3 was from state and local gov’t As late as 1928, federal spending was about 3% of national income

VI. LIMITED GOVERNMENT IN PRACTICE What is the best way in which we can widen our opportunities, preserve our freedom, and maintain our prosperity?