I, Pencil

This month marks the 50th anniversary of one of the most famous and influential essays in economics, I, Pencil, written by Leonard Read.

This is the best non-theoretical introduction to the power of free-markets, that elaborately and persuasively explains Adam Smith’s invisible hand, the importance of dispersed knowledge, and the role of price system in communicating information. (The last one is also explained very well in another book that I finished reading last month: The Price of Everything by Russell Roberts. This book is a distinctive attempt to teach basic economics through fiction. )

I came across this essay just few years ago – first while watching (on the web) the PBS series Free To Choose by Milton Friedman and then while reading the book by the same name. This essay (I, Pencil), Free To Choose (both the series and the book) and other works of Milton Friedman had profound impacts on my understanding, limited as it is, of capitalism and free markets.

Here’s a web-link to the essay. You can also read and download the essay in pdf format here. If you don’t want to read the full essay, watch a short video (below) by Milton Friedman that succinctly captures the essence of the essay.

Reading this essay also reminds me of a related, quite fascinating, excerpt from Ants At Work written by Deborah Gordon:

The basic mystery about ant colonies is that there’s no management. A functioning organization with no one in charge is so unlike the way humans operate as to be virtually inconceivable. There is no central control. No insect issues commands to another or instructs it to do things in a certain way. No individual is aware of what must be done to complete any colony task. Each ant scratches and prods its way through the tiny world of its immediate surroundings. Ants meet each other, separate, go about their businesses. Somehow these small events create a pattern that drives the coordinated behavior of colonies.

PS. In case you’re wondering, the queen, despite the namesake, doesn’t have any authority or control over the colony. Her sole function is to reproduce.

Here’s an earlier, related post: The Myth of Rational Voter.

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5 responses to “I, Pencil

  1. When I read this for fun, I found it romantic and so correct. Now when think about what it means in today’s world, maybe we could have used better than free economy. Donno!

    Nice one.

  2. Vishal

    The importance of free markets and price system is as relevant and important (or even more so) today as they were two centuries ago when Adam Smith coined the metaphor “the invisible hand”.

    Profit/Greed is so unnecessarily underrated in our moral conscience that it disables us (i.e. society) from seeing the miracles of free markets. Read my earlier post on the systematically biased beliefs about economics: https://vishal12.wordpress.com/2008/06/29/the-myth-of-rational-voter/

  3. Well written actually.

    As Josh Lyman would put it to President Bartlett – Free Trade Economy creates better high paying jobs. And as president bartlett would explain – Free markets help to expand markets and redistribute according to need and necessity.

    I get it. What I don’t is something more region specific rather than free wheeling – The prospect of someone forgoing something that he/she has been doing in a region for centuries just cos another region can do it cheaper with the argument that in the long run, it is beneficial for humanity without substituting the work at the prevailing standards for the one who is made to forgo. I am all for free trade and I have benefited from it but at some level I am not convinced of this theory – Moral Imperative I guess.

    Especially I would give the example of digital photography.

    But nice write up never the less.

  4. Oh well, an interesting one. I never came across “I, pencil” before, I’d better read this.

    Infact as a coincidence, I was just thinking today, may be all of us should learn something from the Internet. No not the economic, technological promise, but the way the system works. The system works on mutual trust and there is no single person or organization “in control”. Only a few administrative systems are in place, which are primarily serving only a single purpose of “conflict resolution”. Whats even better, the way standards are developed in the Internet community is – Virtually anyone can contribute to standardization process. All you need is a text editor and a connection to Internet. The system is truly brilliant… May be we all humans could learn from it.

    The thing about the Ant colonies that I read here just butresses my beliefs.

  5. Vishal

    @ gabhijit,

    Yup, internet is another very good example of a system that works without central planning/authority. Freedom before Equality. We can replace the word ‘society’ with ‘system’ in one of Milton Friedman’s immortal quotes to make it applicable to internet: “A system that puts equality before freedom will end up with neither. The system that puts freedom before equality will end up with a good measure of both.”

    @ Ravptor,

    That Moral Imperative obviously begs for worker protection. Quoting Friedman (again!), “The most reliable and effective protection for most workers is provided by the existence of many employers.” Not union, not government subsidies, but competition for his services is the ultimate protection for a worker. If that doesn’t exist (e.g. no demand for analog photography) then the worker has to adjust according to consumer’s preferences and/or technological advancements. As Adam Smith said once, nobody but a beggar chooses to depend chiefly upon the benevolence of his fellow citizens.

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