Can we learn economics from a pencil? We can, as one of the great contributions of economic education illustrates. America would be better off if our experts understood the pencil’s lesson.
Leonard Read, the founder and long-time president of the Foundation for Economic Education, offered the tale of a humble pencil in his 1958 classic, “I, Pencil.” Economist Milton Friedman retold it in his 1980 PBS series “Free to Choose,” where I first heard it.
A pencil was selected as narrator because, “the ordinary wooden pencil [is] familiar to all boys and girls.” And yet the simple pencil should “merit your wonder and awe” because “not a single person on the face of the earth knows how to make me.”
If you have not heard the pencil’s story, let this sink in for a few moments before proceeding.
Mr. Read tells about the pencil’s components – the wood, paint, lead (which is of course graphite, not lead), eraser, and so on. The details were how Everhard Faber made pencils in the 1950s, but the lesson remains timeless.
Then the wood came from Oregon was and cut at a California sawmill. The lead used graphite from Sri Lanka and clay from Mississippi. The eraser contained a “rubber-like” product from Indonesia mixed with pumice from Italy.
If you think you might know how to make these components, remember that each requires specialized equipment. Do you know how to make saws to cut trees, a railroad to ship the logs, and an ocean freighter to transport graphite and pumice?
After laying out these details the pencil asks, “Does anyone wish to challenge my earlier assertion that no single person on the face of this earth knows how to make me?”
This brilliant opening prepares for a lesson about spontaneous order. Humans together can produce something no one of us knows how to produce. Economist Adam Smith called this the division of labor, but it is really a division of knowledge.
The truth about the pencil should not lead to training thousands of MacGyvers who can make anything. For thousands of years humans lived in small groups which interacted almost entirely through violence and plunder. Each group used only what its members knew; they barely survived.
Economic cooperation allows the use knowledge discovered by others and more knowledge than any one person can learn. As philosopher Alfred North Whitehead put it, “Civilization advances by extending the number of important operations which we can perform without thinking of them.”
Another remarkable aspect of spontaneous order is in command. No one would hold a high school dance without forming a committee to organize the affair. Yet Mr. Read’s pencil was not crafted by “anyone dictating or forcibly directing these countless actions which bring me into being.” Our economic institutions are the products of human action but not human design. This allows incredible complexity and robustness to experiments, like a new business trying to make a new product without prior permission.
The enduring lesson of “I, Pencil” is how little any economist can know about the economy. If we do not know how to make a simple pencil, how can we possibly hope to direct the entire economy? Unfortunately, few social scientists take this lesson to heart, suffering instead from what economist Friedrich Hayek called “The Fatal Conceit.”
The consequences of this conceit are everywhere. In March 2020 many governors closed “nonessential” businesses. Even if one defined “COVID-19 Essential Services” (as Massachusetts’ order phrased it), how could government officials possibly know all the businesses essential to keeping hospitals open or grocery shelves stocked? A year and a half later we have a shortage economy, with certain items simply no longer available.
Many proponents of large, activist government believe that experts can solve all of society’s problems and accuse opponents of being anti-science. Sadly, many experts remain ignorant of the limits of their knowledge. The pencils they use could teach them, if only they listened.
Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.