I, Pencil: A Little Lesson in Economic Freedom

You've probably read about I, Pencil before. But it's worth revisiting.

An ordinary wooden pencil costs almost nothing. Yet that humble object tells one of the most important stories in economics — and helps explain why the Raleigh Economics Club believes liberty, free enterprise, and the institutions that sustain them are worth understanding and defending.

In 1958, Leonard E. Read, founder of the Foundation for Economic Education, published his now-famous essay I, Pencil. His central observation was startlingly simple:

No single person knows how to make a pencil.

Think about it. Someone harvests the wood. Others make the machinery. Someone mines graphite. Others produce the lacquer, metal and eraser. Still others generate electricity, transport materials, finance businesses and ultimately deliver the finished pencil to you.

These people may live thousands of miles apart. Most will never meet. No one directs the entire operation.

And yet you can buy a pencil for pennies.

Who's in Charge?

There is no Pencil Czar.

Instead, countless people respond to prices, opportunities, competition and the needs of others. Specialized knowledge scattered among millions of individuals is coordinated through voluntary exchange.

Milton Friedman later used Read's pencil to illustrate Adam Smith's "invisible hand" and the extraordinary coordinating power of markets. Read's essay also illustrates Friedrich Hayek's insight that knowledge is dispersed throughout society rather than concentrated in the hands of any one person or institution.

But markets do not operate in a vacuum.

They depend upon an ordered society governed by the rule of law — one in which property can be owned, contracts made and enforced, and people are free to exchange goods, services and ideas.

In the United States, the Constitution provides the fundamental framework for that ordered society: limited and divided government, protection of individual liberty, and government under law rather than arbitrary command.

And the rule of law must operate at the most ordinary level, too. The retailer who sells the pencil must be able to put it on the shelf without undue fear that it will simply be stolen — and with confidence that theft will be treated as theft. A society cannot simultaneously depend upon private property and dismiss shoplifting as too petty or insignificant to enforce. Property rights mean little if government declines to protect them.

Within an ordered legal framework, millions of people can cooperate — usually without even knowing one another — to manufacture, finance, distribute and purchase something as seemingly simple as a pencil.

A Lesson in Humility

Perhaps the deepest lesson of I, Pencil is humility.

The entrepreneur sees an opportunity. The customer knows what she values. The engineer understands the machine. The worker understands the job. The investor risks capital because he sees something others may have missed.

Markets allow all that dispersed knowledge to interact.

Markets aren't perfect. Neither are people. But I, Pencil should make us cautious about assuming that a government agency, politician — or anyone else — possesses enough knowledge to direct the economic choices of millions of people.

Why the Raleigh Economics Club Cares

This is exactly the kind of idea the Raleigh Economics Club exists to explore.

Liberty. Free Enterprise. Prosperity.

Private property matters. Prices matter. Competition matters. Free exchange matters. The rule of law matters. Constitutional government matters. And economic freedom matters.

So the next time you pick up a pencil, consider the forests, mines, factories, workers, investors and entrepreneurs behind it.

Then consider Read's remarkable insight:

If no one person knows how to make a pencil, how much confidence should we place in anyone who claims to know how to organize an entire economy?

That's a conversation worth having.

— Raleigh Economics Club