How Elon Musk is using Milton Friedman's pencil like a weapon against Donald Trump's tariffs chief

No one – up to and including ‘First Buddy’ Elon Musk – appears to know the ultimate goal of the US President

I was unfamiliar with the legend of Milton Friedman’s pencil until I stumbled upon it online this week. In video footage from 1980 posted on X, the late US economist delivers a succinct explanation and celebration of the free market.

Holding a pencil, he begins: “There’s not a single person in the world who could make this pencil. Remarkable statement? Not at all.” Friedman goes on to describe the materials that make up the pencil.

The wood came from a tree that was perhaps grown in the state of Washington. To cut down the tree required a saw, which required steel, which required the extraction of iron ore.

The pencil’s graphite came from mines, perhaps in South America, before it was compressed and treated for use. The rubber that formed the eraser came from a plant that grew somewhere in South East Asia.

Nobel Prize-winning economist Milton Friedman died in 2006, aged 94 | PA

Why the free market is ‘essential’

The Nobel Prize winner, who died in 2006 aged 94, said: “Literally thousands of people cooperated to make this pencil. People who don’t speak the same language, who practise 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 produce 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 that 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.”

Adam Smith’s legacy

The human interactions that made up each part could be broken down further than Friedman did in his brief exposition. For example, there were the staff who worked in the cafe that provided the food that sustained the loggers who cut down the tree; the people who supplied the cafe; those who built the roads, trucks and ships to transport the lumber to mills for processing; and so on, for each component.

The free market process is fluid, constantly adapting so that a change in the cost or availability of a material from one place might make another source more desirable. And this all happens without design – without a masterplan or the intervention of someone dictating the countless actions that bring the pencil into being.

The thousands of people involved voluntarily exchange their labour and skills for the wages that allow them to buy what they want and need. All this is guided by what Kirkcaldy’s own Adam Smith, the father of modern economics, described 200 years earlier in The Wealth Of Nations as “the invisible hand” of the market.

Adam Smith, a central figure of the Enlightenment, whose statue stands outside St Giles' Catheral in Edinburgh, wrote about "the invisible hand of the market" in his 1776 work The Wealth Of Nations | PA

A schism in Trumpland

In other words, the free market conditions that made Milton Friedman’s pencil possible are in direct opposition to the sort of heavy-handed interventionist tariffs announced by US President Donald Trump last week.

Which makes it all the more remarkable that the video I stumbled upon on X was posted by none other than Trump’s key aide, the overlord of his Department of Government Efficiency, the owner of X, the founder of Tesla, and the world’s richest person, Elon Musk.

While this is remarkable, it is perhaps not surprising. After all, if the production of a simple pencil is seemingly endless in its complexity, imagine what goes into a Tesla Cybertruck.

A schism is opening up in Trumpland between loyalists and those who fear the president is driving the US economy towards a deep recession. Republicans are instinctively anti-interventionist and pro-free market. A very public feud has already broken out between Musk and Trump’s senior counsel for trade Peter Navarro, chief cheerleader for the tariffs.

Elon Musk and chief tariffs cheerleader Peter Navarro have become embroiled in a very public feud | Getty

‘Truly a moron’

Navarro dismissed Musk’s misgivings as those of a mere “car assembler” who wanted to use “cheap foreign parts”. Musk described Navarro as “dumber than a sack of bricks” and “truly a moron”.

Deriding Navarro’s Ivy League credentials, Musk said: “A PhD in Econ from Harvard is a bad thing, not a good thing.” He posted a quote attributed to another acclaimed conservative US economist, Thomas Sowell: “In every disaster throughout American history, there always seems to be a man from Harvard in the middle of it.”

So is this the end of the Trump-Musk special relationship? That must depend on what the president is trying to achieve. The problem is that no one – from the “First Buddy” Musk down, including the markets – knows where Trump is going with all this.

The so-called “tariffs charged to the US”, as set out on the board Trump theatrically brandished in the White House Rose Garden, are at odds with reality. For whatever reason, the president appears to confuse trade deficits with trade barriers. Many countries have trade deficits with the US; this does not mean they are all trying to rip off Uncle Sam.

Countries such as Japan and Israel are already making offers to reduce their trade barriers with the US. European Commission President Ursula von der Leyen says she has offered the US a “zero-for-zero” tariff scheme on industrial goods.

President Donald Trump holds up a chart of "reciprocal tariffs" during his trade announcement event in the Rose Garden at the White House | Getty Images

No more pencils for US?

Trump should take the off-ramp. But so far he has dug his heels in, and more than doubled down in response to Chinese retaliation. A better way to go about removing trade barriers would be to enter negotiations on a country-by-country basis, rather than carpet bomb the whole world all at once.

Maybe Trump just loves tariffs, as he says he does. Maybe he wants to choke imports almost to the point of turning the US into an autarky that could never hope to assemble a pencil, let alone a Cybertruck.

This would be disastrous for the US economy, the Republicans, and for all the hopes Trump harbours of going down in history as the president who Made America Great Again.