 It all started with mashed potatoes. You see, my brother was cooking a meal for the family. Ham, vegetables, and mashed potatoes. He'd already started. The potatoes were peeled, cut, and boiling on the stove. My job was to get the milk. You can't properly mash potatoes without milk. The problem was our location. We were in the middle of rural Virginia, where the closest grocery store was a half hour away. I was already assigned milk detail the day prior, and I accidentally left both gallons in the car, enjoying the summer sun. Luckily, there was one gas station a few miles down the road, which stocked necessities. So I arrived, walked to the back of the store, and saw a bright orange sticker slapped on the lone gallon of milk remaining. $7.59. Outrageous! That was twice what I spent in town the day before. Whoever responsible was a rotten price gouger. But I didn't really have a choice. The potatoes were already boiling. So I grabbed the milk and sulked up to the counter. The clerk asked me, Did you see the price? I just want to make sure. And I murmured some polite response in return. I coughed up the money and went outside. Before I reached my car, the economic lesson dawned on me. I am extremely fortunate that the milk was so expensive. In hindsight, it's obvious. I bought the very last gallon of milk, meaning all the customers before me didn't purchase it. They were more revolted by the price than I was. And thank goodness otherwise I would have failed my mission. I didn't have time to travel a half hour to and from town. Dinner would have already ended potato-less. Instead, thanks to the price markup from the store manager, I returned home triumphant with plenty of time to enjoy dinner. The final product was delicious. Several economic lessons can be drawn from this experience. Most importantly, and perhaps the foundation of all other economic truths, we live in a world of scarce resources. There just isn't enough milk available to satisfy every human demand. In a perfect world, milk would be free and abundant. You could snap your fingers and have an unlimited supply available at your disposal. But that's not the world we live in. At the store, there was one gallon of milk remaining, and certainly more than one person who could use it. Which brings up the question, who should get the last gallon of milk? The answer teaches us the second economic lesson, resource allocation. Ideally, in a world of scarcity, resources would be allocated to those who want them the most. If I'm desperate for water, it would be a shame if somebody bought every bottle in the store to water their houseplants. We need some kind of a system for the coordination and conservation of scarce resources. This is precisely the role of prices in a free market. A price is what a buyer must give up in order to purchase a good. The higher the price, the more you have to give up. The lower the price, the less. So when any good is in short supply, when only one gallon of milk remains at the store, the price goes up, and it gets allocated to those willing to give up the most. In my case, I probably valued that last gallon of milk more highly than anyone in town, and I would have paid a fortune for it. Which brings up the third lesson. The manager of the store had no idea of my predicament. We never met. I didn't have to explain to him why I needed the milk more than my neighbors. Nobody needed to understand economics. The man was simply acting in his own self-interest without any central planning or direction, and he unwittingly coordinated scarce resources to the most highly valued ends. By raising his prices, what is often seen as cold profit maximization, he essentially told the entire community, hey, we're low on milk. Only those who really need it can buy it. So concretely speaking, this small action raising one price was directly responsible for giving my family a nice and peaceful dinner together. But it doesn't stop there. Think long term. By raising his prices, the store owner also made a larger profit. He was rewarded for his sensible decision. In an ideal world, who do we want coordinating scarce resources? People like him. And in a free market, this is precisely what happens. The better businessman, the higher the profit he makes, and the more resources he's able to allocate. The same is true in reverse. The businessman who didn't maximize his profits, who never raises his prices and always has a shortage of supply, will be out-competed in the long run. If he's doing an outright bad job, if he makes losses, then bankruptcy is inevitable. And this too is ideal in a world of scarcity. If somebody's wasting resources, the sooner they go bankrupt, the better. Say the small town grocery store owner makes outrageous profits. He keeps his milk prices at $7.59 indefinitely. Well, in a free market, that's nothing to worry about either. High profits are signals to other entrepreneurs to enter into that market. So before long, he'll be facing competition, which drives supply up, prices down, and creates more value for consumers. And now we arrive at the final dizzying lesson. This coordination happens all the time, every day, for tens of millions of prices. Supplies and demands of various goods are in constant flux. When the price of steel goes up, for example, it causes a ripple effect throughout the entire economy. Everybody changes their behavior accordingly from car salesmen to factory workers. And in virtually every case, nobody knows why the market mechanics are entirely behind the scenes without central coordination or awareness. This is precisely why markets work so well. Huge amounts of information about the relative scarcity of goods are transmitted through the price mechanism. But each individual actor only knows a tiny part by simply acting out of his self-interest by trying to maximize profits. The efficient allocation of resources emerges from the chaos. It isn't deliberately planned. So next time you see a high price, instead of grumbling like I did, think of the bigger picture. That entrepreneur is reserving a scarce good for the person who values it the most. In fact, it's the duty of a responsible businessman to raise his prices when necessary. And if he does a good job, he'll be rewarded with a bigger profit. So the free market, rightly understood, looks remarkably similar to an ideal system. It isn't perfect, but given the constraints of the real world, it's certainly the best option that we have. It can turn the greediest businessman into value creators for the entire society, even without their own knowledge or approval. I can say confidently, after paying $7.59 for one gallon of milk, thank goodness for those dirty rotten price gougers. Thank you.