To those who believe central economic planning is necessary: "I, Pencil"


#1

Also to those who think Adam Smith holds no weight with modern economists (Introduction by Milton Friedman in a 1999 edition). Also to those who wish to restrict international trade because, well, it’s international and not American. This is as good an explanation as any against protectionism.

Please, enjoy.

There is a fact still more astounding: the absence of a master mind, of anyone dictating or forcibly directing these countless actions which bring me into being. No trace of such a person can be found. Instead, we find the Invisible Hand at work. This is the mystery to which I earlier referred.

Here is an astounding fact: Neither the worker in the oil field nor the chemist nor the digger of graphite or clay nor any who mans or makes the ships or trains or trucks nor the one who runs the machine that does the knurling on my bit of metal nor the president of the company performs his singular task because he wants me. Each one wants me less, perhaps, than does a child in the first grade. Indeed, there are some among this vast multitude who never saw a pencil nor would they know how to use one. Their motivation is other than me. Perhaps it is something like this: Each of these millions sees that he can thus exchange his tiny know-how for the goods and services he needs or wants. I may or may not be among these items.

Read, I, Pencil | Library of Economics and Liberty


#2

Regarding Adam Smith’s alleged insignificance:

Leonard Read’s delightful story, “I, Pencil,” has become a classic, and deservedly so. I know of no other piece of literature that so succinctly, persuasively, and effectively illustrates the meaning of both Adam Smith’s invisible hand—the possibility of cooperation without coercion—and Friedrich Hayek’s emphasis on the importance of dispersed knowledge and the role of the price system in communicating information that “will make the individuals do the desirable things without anyone having to tell them what to do.”
– Milton Friedman

“It is even more astounding that the pencil was ever produced. No one sitting in a central office gave orders to these thousands of people. No military police enforced the orders that were not given. These people live in many lands, speak different languages, practice different religions, may even hate one another—yet none of these differences prevented them from cooperating to produce a pencil. How did it happen? Adam Smith gave us the answer two hundred years ago.


#3

A wonderful human-scale personalization of the awesome power of rationally self-interested actors operating in a free market. It really drills down the core of the idea.

Thanks for posting, RWNJ.


#4

Milton Friedman has also quoted Benjamin Franklin, Francis Bacon, and King Louis XIV.

Yes, Smith is acknowledged as the father of modern economic thought. I never suggested otherwise. I said that he is not used* as a source for any kind of modern thinking*, because most of his ideas are simplistic and fairly off the mark of modern thought. He is quoted the way Aristotle or Issac Newton are quoted today. It doesn’t mean that any economist goes off to read Smith’s work to learn literally anything about economics.

And before you go touting Smith as a modern authority, you may want to glance back over his works. Recall that Smith also believed in taxing the rich more than the poor, and he argued against large amounts of income inequality.

Show me where Friedman cites Smith to discuss the implication of a specific policy effect. That will persuade me.


#5

[quote=“CWolf, post:4, topic:48491”]
Milton Friedman has also quoted Benjamin Franklin, Francis Bacon, and King Louis XIV.

Yes, Smith is acknowledged as the father of modern economic thought. I never suggested otherwise. I said that he is not used* as a source for any kind of modern thinking*, because most of his ideas are simplistic and fairly off the mark of modern thought. He is quoted the way Aristotle or Issac Newton are quoted today. It doesn’t mean that any economist goes off to read Smith’s work to learn literally anything about economics.

And before you go touting Smith as a modern authority, you may want to glance back over his works. Recall that Smith also believed in taxing the rich more than the poor, and he argued against large amounts of income inequality.

Show me where Friedman cites Smith to discuss the implication of a specific policy effect. That will persuade me.
[/quote]Adam Smith is not a modern authority. He isn’t modern. He is historic. But like David Ricardo and other historic economists, his work remains relevant. It’s the foundation for modern economics. It is econ 101. In his work, you can find truth. You can cite him for truth, truth that is repeated by modern economists, like Friedman.

When you have someone like Adam Smith, you say things like “Adam Smith gave us the answer two hundred years ago.” That’s a citation, a citation in support of this entire work, “I, Pencil.” I bet Milton Friedman would seriously disagree with you were he still alive.

I’ll happily argue against large amounts of income equality too AND I believe in progressive taxation, and then I’ll wonder why you and others who supposedly worry about this, continue to support the same failed policies that create it. All of your New Deals, your Great Societies and regulations have not only failed to curb it, they’ve accelerated it.


#6

Because he was quoting Smith on the issue of imports. Smith basically says it’s not a problem, because it will just result in specialization and comparative advantage. That’s all fine and well in his time. In the modern economy, things don’t work quite so neatly.

In Smith’s time, nearly everyone was more or less capable of performing any job. The man who dug ditches, could just have easily been able to make candles, become a tailor, or a baker. And each of these jobs, once embarked upon, would likely last a lifetime. Very few people lost their jobs, and there was no such thing as a social safety net, where the unemployed could languish for years, or even decades without working.

Smith’s economy looked basically nothing like an American economy in the 21st century, which is exactly why I said that the quote has little relevance today.

As for the New Deal and Great Society, those were social programs, and had very little to do with trade.


#7

income inequality doesn’t have anything more or less to do with trade than New Deal or Great Society. It’s all interlinked. The principles that govern these policies are interwoven. The modern economist who praised “I, Pencil” disagreed with you here. In fact, the modern economy doesn’t work out quite so neatly because the economy is messy. It always has been. The conversation we’re having is a carbon copy of conversations nearly 100 years ago, 200, 250 years ago when you think about Alexander Hamilton and Adam Smith and Thomas Jefferson and David Ricardo and James Madison. It hasn’t really changed. What has changed is the degree to which public policy affects the economy. “I, Pencil” is 50ish years old. Friedman’s comments are 18 years old. We’re still having the same discussions. What this writer successfully showed is how people interacting freely, trading freely, brought order out of the chaos – without central planners directing resources to handle a particularly messy modern problem. We do still use pencils in this modern society, and it’s a superbly simple device enmeshed in a complex economic web.

Also, he wasn’t quoting Smith on the issue of imports. He quoted Smith on the “Invisible Hand,” much derided by modern so-called *progressives. *I just think the principle applies to international trade and said so.

Yes, Adam Smith’s economy looked a lot different. That’s the beauty of free trade. It functions under a variety of conditions, even when the central planners and regulators try to stop it from functioning. We don’t have to make it function. It just does because people trade.


#8

[QUOTE=CWolf (C&P from quote)]He is quoted the way Aristotle or Issac Newton are quoted today. It doesn’t mean that any economist goes off to read Smith’s work to learn literally anything about economics.[/QUOTE]
Are you implying then that physicists don’t read Newton’s three laws of motion?


#9

It works better, re-specialization is easier than ever before, that’s why people today average more professions, rather than just the one or two they would have managed in Smith’s day.

In Smith’s time, nearly everyone was more or less capable of performing any job.

Even in Smith’s day, they had trade skills, and guilds you typically had to go through in order to aquire them. You’d spend years apprenticing under someone, and afterward, you’d be expected to do what ever that trade was.

Today, People can adopt and drop trades like those on a whim, it needn’t be lifelong.

Smith’s economy looked basically nothing like an American economy

Does poverty still provoke shame in the person in question? Do protectionist policies still raise the cost of living for the people in a country?

Pretty clear he’s not irrelevant either, and nor is mercantilism somehow in vogue.


#10

[quote=“Alaska_Slim, post:9, topic:48491”]
Today, People can adopt and drop trades like those on a whim, it needn’t be lifelong.
[/quote]For you or me, sure. Not for the below average worker, and within our generation, probably not the median worker either. A moderately dynamic, flexible mind, probably provides a greater advantage today, than ever before.

There has been drastically more structural unemployment in the past three decades than at any point in time. And when you couple that with a welfare system, you have a very serious problem.

And there’s another problem, which is worker age. It’s one thing to stay in you profession in a manual labor job, until you’re a year or two off from dying at age 60(like in Smith’s time). These days, you have people living to 80, but when you lose a labor job at age 55, who the hell is going to rehire you? Saying “It’s so easy to get another job now!”. Is it, AS? Is it really so *easy *for someone in their late 50s or early 60s to get any job, much less a job in labor?


#11

No, even for them, the options are pretty lucrative compared to what workers in the 18th century were looking at.

You can train as a carpenter, you can train as a courier, you can train as a data entry clerk. There isn’t just that “one thing” that everyone in your family since your great-great-grandfather has done.

There has been drastically more structural unemployment in the past three decades than at any point in time.

In the past century, sure (and you can tie that directly to wear minimum wage has been, which is exactly what Thomas Sowell and Walter Williams work has been about), but not throughout history. The Pre-industrial employment could fluctuate wildly, especially if a war or famine had recently struck.

And there’s another problem, which is worker age. It’s one thing to stay in you profession in a manual labor job, until you’re a year or two off from dying at age 60(like in Smith’s time). These days, you have people living to 80, but when you lose a labor job at age 55, who the hell is going to rehire you? Saying “It’s so easy to get another job now!”. Is it, AS?

Easier than the 18th century? Pre-industrialization, when girls, the lame, & the elderly were killed or let to die for not having the strength to do manual labor? **** yes, open & shut, this is not even a contest.

Is it really so *easy *for someone in their late 50s or early 60s to get any job, much less a job in labor?

Still easier than the 18th century, but to suggest that older workers should be looking for work in manual labor is stacking the deck. Now people should be looking outside of manual labor, unless they think they can land either a management or a clerical position of some sort within that industry; which is precisely the sort of thing I’ve seen happen with some older folks I know who’ve worked for years in roofing.

One started doing inventory for tools (and would bitch all day and night to me of the crap people would lose), the other became a supervisor in another company.


#12

[quote=“Alaska_Slim, post:11, topic:48491”]
Easier than the 18th century? Pre-industrialization, when girls, the lame, & the elderly were killed or let to die for not having the strength to do manual labor? **** yes, open & shut, this is not even a contest.
[/quote]I’m very glad you just stated this, because it’s something you literally just denied last year. I’m quoting this, and bookmarking it as well. I promise you, I will be quoting it again in the future, when you point the 18th century as a guide for how well the economy can work, when free of social safety nets, taxation and regulation.
I’ll keep it in mind for RWNJ as well, since he apparently agrees.

[quote=“Alaska_Slim, post:11, topic:48491”]
Still easier than the 18th century, but to suggest that older workers should be looking for work in manual labor is stacking the deck. Now people should be looking outside of manual labor, unless they think they can land either a management or a clerical position of some sort within that industry; which is precisely the sort of thing I’ve seen happen with some older folks I know who’ve worked for years in roofing.

One started doing inventory for tools (and would bitch all day and night to me of the crap people would lose), the other became a supervisor in another company.
[/quote]Again, there is a significant portion of the workforce, that simply cannot perform modern clerical work, nor can just anyone be a manager(this is a matter of not only intelligence, but temperament, and people skills).

Because you like to try to prove a model with anecdotes, let’s move to specific hypotheticals. You know roofing, so we’ll go there. You have a 61 year old roofer, with an IQ of 85(still smarter than 45 million Americans). He’s laid off from his job. Recommend to him what he should do, in order to keep an income for himself until age 80(it can be more than one job). It’s 2021, and there is no more Social Security, because former President Trump traded it for some magic beans. On the upside, there is now only a %5 flat national tax and no minimum wage, so unemployment is only %3!

What realistic move does he make. I’m legitimately interested in hearing suggestions.