I, Pencil

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The Root of Liberty Discussion – “I, Pencil”

Written by: Leonard E. Read

First published in “The Freeman”: Dec. 1958

Excerpts from the Introduction to the 2019 printing, by Lawrence W. Reed

1. "Leonard’s main point: economies can hardly be “planned” when not one soul possesses all the know-how and skills to produce a simple pencil."

2. "No one person—repeat, no one, no matter how smart or how many degrees follow his name—could create from scratch a small, everyday pencil."

3. “I, Pencil” explains in plain language why central planning is an exercise in arrogance and futility, or what Nobel laureate and Austrian economist F. A. Hayek aptly termed “the pretense of knowledge.”  Indeed, a major influence on Read’s thinking in this regard was Hayek’s famous 1945 article, “The Use of Knowledge in Society.” In demolishing the spurious claims of the socialists of the day, Hayek wrote, “This is not a dispute about whether planning is to be done or not. It is a dispute as to whether planning is to be done centrally, by one authority for the whole economic system, or is to be divided among many individuals.”

Fundamental Concepts

Spontaneous order

Spontaneous order refers to the emergence of complex patterns or behaviors in a system without central planning or direction. This concept is often associated with the Austrian economist Friedrich Hayek, who argued that complex economic systems could not be planned by a central authority and that markets could spontaneously coordinate the actions of individuals.

Spontaneous order can be seen in a variety of natural and human-made systems, such as ant colonies, traffic patterns, language development, and the growth of cities. In these systems, the interactions of many individual agents lead to the emergence of collective patterns and behaviors that are not predetermined or controlled by any central authority.

The results of spontaneous order might seem miraculous when considered in the economic context of I, Pencil but there are many other areas of everyday life where spontaneous order plays a decisive role.  One example that you are intimately familiar with (mentioned above) is language.  There was no committee that developed the English language, but we have a fully developed language that has evolved over time through the actions of spontaneous order.  There is no committee that revises the English language, but new products, services, and activities emerge with new names that are added to our English dictionary through the actions of spontaneous order.  Another example that might be familiar to you is common law.  This branch of the law has evolved over the years through the actions of spontaneous order.

One of the key insights of the idea of spontaneous order is that it challenges the notion that complex systems must be designed or planned in order to be effective. Instead, it suggests that decentralized decision-making and self-organization are more effective than top-down control in producing desirable outcomes.

Friedrich Hayek first mentioned the concept of spontaneous order in his 1945 article "The Use of Knowledge in Society," which was published in the American Economic Review. In this article, Hayek argued that knowledge in a society is dispersed among its individual members and that central planning cannot effectively coordinate this knowledge. He suggested that markets and the price system could spontaneously coordinate the actions of individuals and allow them to make use of this dispersed knowledge in ways that could not be achieved through centralized planning. This idea of spontaneous order became one of the key principles of Hayek's economic thought and has been influential in shaping modern discussions of the role of markets and the limitations of central planning.

Division of labor

The division of labor is the process of breaking down a complex task or job into smaller, more specialized tasks or components. This division allows individuals to focus on a particular aspect of the task, improving their efficiency and productivity.

The concept of the division of labor was first introduced by Adam Smith, a Scottish economist, in his 1776 book “An Inquiry into the Nature and Causes of the Wealth of Nations”.  Smith argued that by dividing a task into smaller parts, workers could specialize in specific areas and become more skilled, leading to increased productivity and economic growth. This specialization also allows for the development of new technologies and innovations that can further increase productivity and efficiency.

David Ricardo, a British economist who lived in the late 18th and early 19th centuries, wrote about the division of labor extensively in his work "Principles of Political Economy and Taxation," and he made significant contributions to the understanding of how it affects economic growth and productivity.

Additionally, Ricardo was a proponent of free trade and believed that the division of labor and specialization could be used to promote international trade and economic cooperation. He argued that countries should specialize in the production of goods for which they have a comparative advantage, meaning they can produce more efficiently than other countries, and then trade with other countries for goods in which they are less efficient.

The invisible hand

The "invisible hand" is a metaphor coined by economist Adam Smith in his book published in 1776 “An Inquiry into the Nature and Causes of the Wealth of Nations”, to describe how individuals acting in their own self-interest can unintentionally benefit society as a whole.

The concept of the invisible hand suggests that in a free market economy, individuals seeking to maximize their own profits or utility will naturally guide resources and prices to their most efficient uses, resulting in overall economic efficiency and prosperity. This occurs because competition between individuals and businesses for resources and customers leads to innovations, increased productivity, and lower prices.

Smith sums up his concept of “the invisible hand” with this famous passage:

“It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.” 

General Discussion

No one person, including the head of the pencil company, contributes more than a very tiny part of the total knowledge involved in the making of pencils.

People involved in the making of pencils do not work because they want a pencil. They do their work cutting trees, mining graphite, and managing a pencil factory in exchange for wages. That is, they trade their skill, knowledge, and labor for payment that can be exchanged for many things they want and need. This may or may not include pencils.

A common misconception is that complex economic tasks like delivering mail, making automobiles, or even making pencils can be done best if a government runs the processes. People can be overwhelmed by the fact that these tasks all involve very complex processes that no one person alone can possibly know in complete detail. If people do not understand that humans can combine their efforts naturally in the economic system, or if they lack “faith in free people,” they may believe that only the government can accomplish such difficult tasks.

Our protagonist the pencil summarizes its message with this passage:

The lesson I have to teach is this: Leave all creative energies uninhibited. Merely organize society to act in harmony with this lesson. Let society’s legal apparatus remove all obstacles the best it can.  Permit these creative know-hows freely to flow. Have faith that free men and women will respond to the Invisible Hand. This faith will be confirmed.

Study Questions

1. No person involved in the production of the pencil is working because he wants a pencil.  Why then, are so many people working on the various tasks required to create a pencil?

2. One of the key themes of "I, Pencil" is the importance of dispersed knowledge and spontaneous order in coordinating economic activity. How do prices help ensure that the necessary resources are allocated to the production of pencils and other goods?

3. The lesson in the last paragraph of "I, Pencil" is "leave all creative energies uninhibited."  What obstacles need to be removed to allow the "Invisible Hand" to function effectively in your current society?