Book Reviews, Economics, Teen non-fiction

Nobody knows how to make a pencil

What is a pencil worth? It's a simple question, about a simple product, and it highlights just how complicated our economy is, and how very much managing it is beyond any one man, even the Prime Minister. Nobody knows what a pencil is worth... So how much is a pencil worth? You might try to answer that question by going to Walmart and checking their prices. They're selling a pack of 10 for $1.68, so that'd mean a pencil is worth roughly 17 cents, right? Except Walmart is also selling a pack of 10 "break-resistant lead" pencils for $2.87, so, for some at least – folks who hate getting up for that long lonely walk to the pencil sharpener at the front of the classroom – a pencil is worth 29 cents. And what if, as you were shopping, you had a million dollar idea you just needed to write down right now before you forget. But you didn't have a pencil and the person in front of you had just grabbed the last pack off the shelves. How much would one single solitary pencil be worth to you then? How much would you be willing to offer them for that package? A lot more than 29 cents, certainly. So we have three possible answers right at the start – 17 cents, 29 cents, and just short of a million dollars – and we haven't even left Walmart yet. They have about 50 different kinds down at the art supply store. There's all sorts of reasons a pencil could be worth more or less. Prices could go down or up based on whether its become cheaper or more costly. A tariff on wood products could hike the cost of its casing, and then we'd find out if consumers are willing to swallow a price increase. If Walmart's "low low price" goes from $1.68 to $2.25, maybe cheap pens start looking like a better alternative and demand for pencils would drop. Or maybe that $2.25 is still cheap enough, and people keep buying just as many pencils as before, even at this higher price. It's hard to say. Very hard to predict. And that's just pencils. Now imagine if we wanted our country's leaders to manage, not simply the pencil supply chain – determining how much of each pencil should be made, and for what price – but how many electric cars should be manufactured, how much egg and dairy should be produced, and how much grain should be grown. If pencil demand is hard to predict, its hard to imagine anyone would think they could run a whole national economy. And yet, that's what our politicians regularly promise to do. ...or how to make it either Way back in 1958, Leonard Read wanted to use the simply pencil as an illustration to show just how arrogant central planners really are. But he didn't talk about how much pencils are worth. He, instead, wrote a first person account, from the pencil's perspective, about how "not a single person on the face of this earth knows how to make me." This account, titled, I, Pencil, highlights how, as simple as a pencil might be, its few parts require enormous expertise. Consider just the wood, which requires men who need to know how to cut trees safely, and others who can drive those sketchy logging roads. And don't forget the knowledge needed to make the logger's chainsaw, and the driver's truck. And on and on it goes, layers upon layers of complexity such that, no man can know how to do it all. Not even close. And if no one knows how to make even a pencil, how would they be arrogant enough to think they could run the whole of the economy? But how then does a pencil get made, if no one actually knows how to do it? And how does an entire economy produce without someone at the top calling the shots. Economist Adam Smith credited "the invisible hand" – economics decisions that no one man or woman at the top could ever competently plan, all of us together can coordinate simply be everyone seeking after their own self-interest. Seeking my own self-interest could be misunderstood as being self-ish, but what Smith is emphasizing here is humility over hubris – I can't figure out what's best for everyone, but I am the best qualified person to figure out what works best for me. And when I am allowed to do so, the results are astonishing. This kind of unmanaged free enterprise has lifted more people out of poverty than every government program ever created. As documentarian Arthur Brooks noted, “From 1970 until today the percentage of people living at starvation’s door has decreased by 80%. Two billion people have been pulled out of starvation-level poverty." And where did the credit lie? It was due to a turn to freer markets. These results shouldn't surprise us, simply because they happen when governments obey God's own economics laws: do not steal, and importantly, do not envy. Adam Smith's "invisible hand" would best be understood as God's own Invisible Hand – He is directing traffic, for our good. Read's I, Pencil essay gets into the theology of free enterprise only a little, but it is an absolute classic for a reason. You can read it for free, or get it as a free e-booklet in all sorts of e-book formats here. You can also watch an animated audio version of it below (or an abridged and less lyrical  video here). And if you want more of the same, you can learn about how no one knows how to make a loaf of bread, or read my review of a clever kids' book called, No One Knows How to Make a Pizza.