Chapter 1: The Power of the Market

I. Introduction II. Cooperation Through Voluntary Exchange III. The Role of Prices a. Transmission of Information i. “Anything that prevents prices from expressing freely the conditions of demand or supply interferes with the transmission of accurate information” b. Incentives c. Distribution of Income IV. A Broader View d. “Self-interest is not myopic selfishness. It is whatever it is that interests the participants, whatever they value, whatever goals they pursue.” V. The Role of Government e. “it is one thing to state the purpose that an institution ‘ought’ to serve; it is quite another to describe the purposes the institution actually serves” VI. Limited Government in Practice

In the first chapter Milton Friedman focuses on voluntary exchange and how it is a necessity for a society wanting to achieve prosperity and freedom. Friedman discusses the pencil example to make a point that thousands of people are involved in making a pencil but each person only sees it as a way to get the goods and services he or she wants. He then goes on to talk about the three functions prices have on economic activity. Prices have a way of transmitting only the important information and only to the people who need to know. Prices also provide incentives to producers and consumers, and it’s also a way to distribute income. Friedman goes on to state that voluntary exchange expands to more than just goods and services, and how a society builds its culture through voluntary exchange. The end of the chapter foreshadows into discussing the some of the roles that the governments partakes in and how those roles have changed over the years.