Leonard Reed’s essay “I, Pencil” may be one of the best-known descriptions of the effective operations of free markets.
Now it may need an addendum explaining how government efforts to battle the effects of the pandemic caused the price of pencils to jump 14.5 percent year-over-year, an unprecedented level of inflation.
“I, Pencil” describes the many processes involved in making a “simple” pencil. It shows how pencil-making occurs even though not a single person understands all the steps involved and no one centrally directs each step. Instead, market processes successfully produce pencils.
“Simple? Yet, not a single person on the face of this earth knows how to make me. This sounds fantastic, doesn’t it? Especially when it is realized that there are about one and one-half billion of my kind produced in the U.S.A. each year,” Reed, who was president of the Foundation for Economic Education, writes. “There isn’t a single person in all these millions, including the president of the pencil company, who contributes more than a tiny, infinitesimal bit of know-how. From the standpoint of know-how the only difference between the miner of graphite in Ceylon and the logger in Oregon is in the type of know-how. Neither the miner nor the logger can be dispensed with, any more than can the chemist at the factory or the worker in the oil field—paraffin being a by-product of petroleum.”
Yet somehow that process was disrupted enough to send the index that includes pencils sky-high.