 I'm so glad to be here. It's fun and to prepare for this talk. I've been reading fairy tales Now none of the guys here will admit liking fairy tales right boys don't like fairy tales right until you get to my age Then they're charming So well, how many of you like fairy tales? Yeah, okay, so all the girls like Friday, right? well, so there's this wonderful book called Grimm's fairy tales and It's got all the fairy tales that you think you know and love, you know like what snow white and Cinderella and various stories about frogs turning into princes and Other bizarre things like that But it turns out that the original is better than the Disney versions So I'd encourage you to read this is what's called a what they were used to be called a book I don't know if you've seen one of these before I had to go to the museum, you know to pick it up and but anyway There's a wonderful story called the owls and the shoemaker and It's not long So I think I would like to read it very quickly And I like this and because it doesn't have any strange things like You know suddenly a witch just appears in the forest and gives you a poison apple in place the hex on you or What you know, what's that story that with is it the girl with the hair, you know from the movie? Tangled yeah Rapunzel or something so in the original it's like her father gives up his first-point child in exchange for a head of lettuce You know, what is that? What why would you do that? So none of those strange things happen in this story. This is just straight out Cool stuff because there's a lot of most of the stories in here actually involve merchants They involve merchants doing plain things like Making a table and then buying some jelly and things like that I mean just and you know, what's what's interesting about this stories that are covered in Grimm's fairy tales the book came out in 1812 so In 1812 in Germany Commerce was really cool because it was fairly new there was an emerging middle class Everybody could become you know wealthy by the standards of that time This is the first time in human history. This really ever happened that anybody could just start a business and make a lot of money So a lot of the Grimm's fairy tales were about businesses because businesses were new and when we think that's just normal, you know I don't think it's normal by the way. I think business is brilliant. I was eating at Taco Bell last night You know, that is a brilliant place. I tell you Ordered the inchorito everybody the poor inchorita. Nobody orders the inchorita. It's a great dish Anyway, I highly recommend it and my business is amazing. It's not so amazing to us because we're surrounded by it was amazing back in 1812 in Germany. So a lot of the stories about business. Let me read to the story of the elves and the shoemaker There once was a shoemaker who through no fault of his own had become so poor That at last he had only leather enough Left for one pair of shoes at evening He cut out the shoes which he intended to begin upon the next morning and since he had a good Since he had a good conscience he lay down quietly said his prayers and fell asleep in the morning When he had said his prayers and as preparing this was preparing to sit down to work He found the pair of shoes standing finished on the table He was amazed and could not understand it in the least. How many of you know the story? Oh Everybody does like a read anyway He took the shoes in his hand to examine them more closely because there's a lot of versions out there This is the real version He examined them more closely. They were so neatly sewn that not a stitch was out of place and were as good as The work of a master hand and soon afterwards a purchaser came in and As he was much pleased with the shoes he paid more than the ordinary price for them So that the shoemaker was able to buy leather for two pairs of shoes with the money now the story leaves out something, right? I mean clearly the shoemaker raised the price Right, and it's not like some guy came in and said proud not gonna pay the low price that I'm gonna pay a high price No way right shoemaker saw immediately these shoes worth more than the usual pair jacked up the price Which is hers right good for him sold him at the high price and the deal was made So he cut them out in the evening the with the with the shoes that he was making the next day with fresh courage He was about to go to work, but he had no need to for when he got up the shoes were finished and buyers were not lacking These gave him so much money that he was able to buy leather for four pairs of shoes Early next morning. He found the four pairs finished and so it went on When he cut out at evening and was finished in the morning so that he could soon again in comfortable circumstances So that he could soon again in comfortable circumstances and become a well-to-do man So it happened one evening not long before Christmas when he had cut out some shoes as usual. He said to his wife You think he would have said this earlier How would it be if we were to sit up tonight and see who it is that? Helping that all this time. He's rich right it never asked the question. How's this happening where these shoes coming from? He finally just has maybe maybe hasn't wise those days didn't talk much. I don't know what That but anyway, they decided to stay up that night. They got curious to see what was going on The wife agreed at well, honey. That's a lovely idea. Let's find out who made it rich And so they hid themselves in the corner of the room behind the clothes Which were hanging there. I mean, why did they think they had to hide and we want to just sit out in the open You know, but anyway, they hid at midnight came in two little naked men who sat down in the shoemaker's table Took up the cutout work and began their tiny little fingers to stitch so and hammer so neatly and quickly that the shoemaker Could not believe his eyes. They did not stop to everything was quite finished and stood Complete on the table then they ran swiftly away Into the night Little naked ales running through the streets or whatever. I don't know what The next day his wife said, you know So what they said nothing they just went to bed the next day his wife said little men have made us rich And we ought to show our gratitude They were running about about with nothing on and must freed freeze with cold now We'll make them little shirts coats waist coats and hose and even knit them a pair of stockings in and show make them each A pair of shoes and the husband agreed and an evening when they had everything ready They laid out the presents on the table and hid themselves to see how the little men would behave At midnight they came skipping in and were about to set to work But instead of the leather ready to cut out They found the charming little clothes at first they were surprised and then Excessively delighted and with great speed they put on and smoothed down the pretty clothes Singing now we're boys so fine and neat whatever the song is Cobble for others feet or whatever. I'm sure there's another verse. It's not printed here Then they hopped and danced about and left over chairs and tables and out the door They went henceforth they came back no more But it was okay because the shoemaker fared Well as long as he lived and had good luck in all of his Undertakings and so goes the story a Wonderful story and strange. I think it is a metaphor for Understanding economics and I'll tell you why in the following way We can think of ourselves as the merchants in some ways In some way, you know, they were poor. They had nothing They were struggling to get by as best they could But they couldn't make ends meet and they just couldn't get ahead in life That describes more or less the plight of humanity from about the beginning of recorded time until about 1800 That was the way all of history was nothing really ever happened at all That suggested that there was going to be any progress ever If you think about it, if you wanted to get a message from somebody just from one place to another place any time between say Ancient Greece and The American Revolution How are you going to do it? I mean you just wanted to get a message, right? You just want to like text just get a message to somebody well you had to Ride it out and run to that person or If you're really wealthy, you could hop on a horse and ride to that person Or if you had a boat you could get on a boat and let the wind carry you to that person and get them the message that was how information traveled for all of human history and Until the invention of the greatest thing that ever happened up to that point in time, which was the computer Yes, the iPad, right, right now, right somebody said telegraph Yeah, the wise man. There's a story in here about wise men anyway So yeah, the telegraph was amazing that was the beginning of modernity as we understand it that was beginning of our possibility of Sharing ideas with each other of communicating with each other that happened in something like 18. What 20 or something like that unbelievable Up until that time there was no other way to communicate. So you saw in in human history. So that doesn't work, right? I'm gonna have to describe this chart for you. So this is a chart of income per person throughout history It starts in 1,000 BC and goes all the way up to here and it's completely flat Completely flat nothing ever happened no progress really to speak of and Then in about 1800 we see income per person Shoots up and it goes up to the very top of that chart Just like that So isn't it wonderful that you were born like over in this tiny little corner of life Instead of any other time over here. I mean, that's kind of Fortunate you didn't really do anything. Did you to deserve that? I mean I mean you didn't Make that choice. Did you it just sort of happened to you and to all of us in this room So if you ever feel like you don't have anything to be thankful for Just sit down like that man with a good conscience in the story and say your prayers of thanks for the fact that you're born now Instead of at any other time if this was like a random thing You just kind of threw your life down on this chart somewhere most likely you wouldn't land here, but you did so good for you And congratulations. That's a wonderful thing because up until that time life was very very different But actually in fact well, let me just let me just explain to you why I think this is significant in light of that story this Line this income up in this tiny little corner here I think it's good to think of that as being the finished shoes in the morning, right? I mean this is this is the the man working throughout all of life. He wakes up in the morning. He's got the finished shoes That's what it is And the question is who made that how did this happen? What did you do really? What did any of us do not much? Really, we didn't do anything We just woke up and found ourselves with this finished pair of shoes We woke up and found ourselves in this unbelievable Prosperous civilization and we were laughing a little bit ago about that man and his wife and why it never asked the question Where do these shoes come from? They got enormous who wealthy and never occurred to him to figure out who's making these shoes Well, how often do we ask? Why we're so prosperous? Why do we have the lives that we have? I mean most people never ask They go to the store they buy something you go to Taco Bell and order an chorizo, you know, hey, it's my right, you know My iPhone my iPad my everything everything we're surrounded by The achievements of civilization are all around us and are we asking ourselves where they come from who built it Are we staying up at night to observe what happens? That's what economics is all about. It's about the desire to be curious About where all this stuff came from We should know we shouldn't just take it for granted We shouldn't just wake up in the morning and find the shoes and go That's neat and sell them and Sit on our riches. We should be curious and ask the question We should get to know these elves and find out who they are. Let me show you another chart I can't really show it to you. This is population. It's a very similar chart. It goes from the year 2000 BC all the way up to current times, which our current population is Now I think as of a week ago or so who keeps keeps track of this stuff. I don't know like last Tuesday or something 7 billion People on the planet. So here's the line from the 2000 BC up to the present as almost entirely flat We get a little bit of rise in population increases Notice that population increases before per capita wealth increases in the history of the world and then suddenly in the same period Basically mid mid mid 19th century and late 19th century We go from the lowest part of the chart up To the top of the support of the chart and one gigantic soaring rocket You know thing of a spike there unbelievable So in fact you can see that it's not entirely random that you're born during our times In fact, most all people in the history of the world were born in our times. I mean, it's it's quite unbelievable Actually, we look at the population increases So historians have asked the question, you know, why is this this can't be an accent? What do these shoes come from and if people do that? So I and there are some conclusions that historians and economists have come to that I'll share with you shortly but let me amuse you with a Some funny calculations the Economist magazine did If you think about history, what is history? Well the Economist magazine said well history is really people That's that's really what constitutes. I mean, is it really history happening if they know people? They're not really I mean history we think of most history is just people, right? so if you kind of consider that most people have been a lot that that have ever been alive were born in the last hundred years and You calculate that according to output per capita then they concluded that 55 percent of all of human history happened in the 20th century Pretty interesting way to look at it, isn't it and 25 percent of all of human history happened in the last ten years That's do you understand what what they're doing? It's a kind of a trick in a way, but it's brilliant when you consider just how fortunate how extravagantly we live and how Amazing the times we live in so the question is why and and this is where I would like to give you Something I discovered that there's not just two naked elves. That's just wrong in fact In fact, there are six Elves and they are fully clothed at the very outset, you know So you don't have to imagine naked elves anymore There are six elves and they have there are six names each one of them has a special name the first elf is named private property Private property is the beginning of civilization is the beginning of prosperity without which There can be nothing at all of any note That will ever advance our lives in any respect and the reason for that is that All scarce things have to be assigned an owner because it makes no sense to assign a Collective as the owner of any scarce thing not everybody in this room can can be in possession of this book simultaneously you can be in possession of the Story I read to you can carry that with you, but you cannot take this book It has to have an owner and so it is with all Scarce things in the world and everything you see around you every physical thing is scarce So of course it has to be owned and it's sheer nonsense to say that everything should be owned by everybody That really makes no sense at all and I don't understand how it is that this idea of socialism ever got off the ground I mean the first person who came up with socialism should just been laughed at and said well That's preposterous. Why don't you go back to your dream land and that would have been it right? I mean this idea should have been killed, you know about about 5,000 years ago or something I mean, but anyways the idea is still around Private property in a enables Every kind of human association Without private property we can't even get off the ground the second elf has named the division of labor And I'm pretty sure mark talked about this earlier now This is in a more extraordinary thing than you fully know division of labor means our capacity to Cooperate in a in a productive exchange with each other and there's something wonderful about this about the division of labor What it means is that everybody no matter what your abilities are? Can find a place within the matrix of exchange can find a productive employment for yourself and society and You can prove this mathematically and I wish I had time to do it But here's the here's the point That even if you're kind of like shabby it at at virtually everything you do There's still a place for you within the division of labor Even if even if somebody else, you know is amazing at doing things a million different things He simply does not have time to do all those things in the course of the day So he must have assistance and if you cooperate People of low skills and people of high skills cooperate then both parties are better off in the end and you can Absolutely prove this and this is this is the magic of the division of labor Is that it finds a place for every single human soul in the great productive enterprise of? Of global economics and the more information we have the more we can communicate with each other and the more there's private ownership The more of this cooperation is made possible division of labor is the beginning of the brotherhood of man That is the second Elf division of labor the third is exchange and I think we need to fully appreciate what this means To exchange to exchange one with another it's different from Just a pure gift an exchange is a mutual gift giving and that happens Every time you're engaged in any commercial activity, and I can give you my most recent example Actually last night at 10 o'clock. I went in to Taco Bell with $1.99 in my pocket And I looked up at that menu, and I thought is there anything in this menu That's worth to me more than what I have in my pocket And I looked up and I saw that incherita which brought back memories from childhood And I could practically taste it and of course the picture was better than the reality Inevitably but the reality is pretty great and also you can't eat a picture. So we don't complain So I said to the lady I said listen I have $1.99 in my pocket, but and it's worth a lot to me in many ways But your incherita is worth even more to me than what I own What about you? What's your sense is your incherita? Worth I know it's worth a lot to you But do you think that my money might actually be worth even more than your incherita and she said to me You know, I'm so glad you brought up this point Because it is in fact worth more to me than my incherita and I said, well, why don't we? Why don't we just exchange and that way you will get a gift of my money Which is worth more than your incherita and I will get a gift which is your incherita Which is worth more than my money and she said that is a beautiful idea And we exchanged with each other. I handed her the money She handed me this little plastic tray of mushy, you know beans with And we looked at each other's eyes And I said to her Thank you, and she said to me. No, thank you And it was wonderful and we were so happy afterwards so much happier than we were before And If you could repeat this a trillion times in the course of an hour all across the world What would happen? What would happen the world would be a very beautiful place? And that is in fact what is happening all the time and that is the source of our happiness the fourth elf is named risk-taking and You could also call it entrepreneurship. This is the wonderful thing about the market economy That it enables this tiny percentage of population these crazy people who just dare to pull back that veil of uncertainty and Ask what is going to happen tomorrow the rest of us? We're afraid of it. No, not entrepreneurs are not afraid of it They think they know they think they're they they're making a good judgment And they're willing to take a guess and they're willing to put their property at risk to see if their guess if their Judgment if their dream comes true they pull back the veil and they step beyond it and If they're wrong they lose and if they're right they win and we win We win because we get to use the products and we get to partake in their dreams That is a beautiful thing. There might be some entrepreneurs in this room You have to ask yourself if you're one of them They are our benefactors The elves called entrepreneurs are society's benefactors and they are what drive history forward They're what give us all the things we love The fifth elf is called capital accumulation if you look at poor countries and You wonder why they're poor and they're not rich Even though the people in those countries are smart productive trading exchanging ambitious charming peaceful This is this is true all over the developing world people are like this they are not lazy Monsters who don't know how to do anything. They're wonderful people who are very productive and they exchange all the time So what's the difference between poor countries and rich countries and all comes down to one word capital? That means the accumulation of Property that is used to make other kinds of property It is The means by which you produce things is the production of things in order to make other things So that's production can take several stages not just one time So you're not just making soup to serve for lunch But you're making the kettles in which the soup can be prepared and you can sell those kettles. That's called capital So capital is the difference between rich countries and poor countries capital cumulation must be permitted We must allow people to become rich We must allow people to become appallingly and filthily rich in Order to have capital so they can thrive so that we can all benefit from it That that's what allows for the extension of production over a long period of time and is what allows business firms to hire thousands and thousands and thousands of people and plan far out into the future because planning is the key to prosperity the sixth Elf as I'm calling them It's called and in some ways I think it may be the most important elf. It's called the desire for a better life and The belief that it can happen because Even if you have private property you have the possibility the vision of labor you have the opportunity for exchange You have entrepreneurs that are willing to take risks and you have the accumulation of capital If you have a culture in which people do not desire to live better And they don't believe that it can happen Everything will fall apart Everything will grow stagnant and Society will collapse and we will be reduced Back to what we were for the whole of human history which was a groveling teeming mass of nothings living hand-to-mouth sleeping on grass And being bitten by bugs at night by the way, which is a very unpleasant thought That's what keeps me kind of living in capitalism. It's a prospect of being bitten by bugs at night because I don't like that but So if if you don't believe in the future and you don't believe that you can do this and that you should live a better life Everything will fall apart. So in the end It all comes down to you To what you believe about yourself and what you're capable of and I don't think That times could ever get so bad that there are not opportunities in this world In your lifetime for you to make a contribution you yourself to make a marvelous contribution to build in civilization And what else are you here to do? besides that I'm not speaking in a theological sense. We have many jobs Spiritually and theologically but materially what are we here to do? We can make a dent in the universe We can make a difference. We don't have we don't know how long we have to make that difference But you can be one of them If you desire a better life If you desire and you believe that it's possible You will find the opportunities You will look for the ways and you can become that one elf that makes the difference between That couple living in poverty and that couple living in vast riches. Thank you very much