B. The wonder of a pencil: the free market, without a human director, makes complex products that no one knows how to make

Does a free market need a central planner to know what goods to make? The answer is no. No one person possesses enough expertise to plan all the facets of a free economic system. In fact, there is not one person on the planet who knows how to make even a simple pencil, yet pencils are manufactured with great success. This is illustrated in the story I, Pencil, by Leonard Read, the late former president of the Foundation for Economic Education.[1]

“Not a single person knows how to make me,” the pencil says. Could that be true? Compared to a house, a car, or a computer, a pencil seems so easy to make. But then Read (speaking through “the pencil” as if it were a person) proceeds to tell all the things that go into the making of a pencil. First, the wood comes from a cedar tree of straight grain that grows in certain forests. To cut down the tree and transport the logs to the railroad siding requires saws, ropes, trucks, and countless other pieces of machinery. Thousands of people and hundreds of skills go into making just the “wood” part of a pencil. The mining of ore, the manufacture of steel, and its eventual refinement into chain saws, axes, and motors are just the start. Hemp is grown and brought through all the production stages that produce a strong rope. Even the logging camps, with their beds, mess halls, and untold thousands of people making many components represent a process full of more details.

Think about all the skills that are needed to bring the logs to the mill and all the trucks that move them from place to place. Think about all the millwork involved in converting the logs to slats. Vast amounts of machinery and expertise are needed just to secure the wood for a pencil. But that is just part of what you see.

The “lead” of a pencil is not lead at all. It starts as graphite mined in Sri Lanka, which passes through many complicated processes before it ends up in the center of a pencil. The bit of metal—the ferrule—near the top of the pencil is brass. Think of all the energy and technology it takes to mine the zinc and copper, then all the skills involved in making the shiny sheet brass from these products of nature.

What we call the eraser is known in the trade as the “plug.” We think of it as rubber, but the rubber is only for binding purposes. The erasing is actually done by “factice,” a rubberlike product made by reacting rapeseed oil from Indonesia with sulfur chloride.

Do you know how to mine graphite? Are you a chemical engineer? Do you know how to make yellow paint and hydraulically blast it through a spray gun? Do you know how to run a lumber mill, a smelter, a Caterpillar logging machine, or an injection-molding machine? None of us knows how to do all of these tasks. But all of us as a combined world economy do. After all of this and much more, the pencil says, “Does anyone wish to challenge my earlier assertion that no single person on the face of this earth knows how to make me?”[2] I, Pencil leaves us amazed at what can be accomplished despite the absence of a mastermind.

The seemingly “invisible hand” of a free market, in which everyone attempts to do at least one thing well, produces the coordination, harmony, and resources to make exactly what people want. When all people specialize on what they do best and then exchange their efforts, markets work effectively, quietly, and profoundly.

  • [1] Leonard Read, I, Pencil: My Family Tree as Told to Leonard E. Read (Irving on the Hudson, New York: TheFoundation for Economic Education, 2006), 3-9.
  • [2] Ibid., 6.
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