The Market System in Action

Story of the Market System in Action: I, Pencil

The pencil appears to be a very simple product. In fact, its production requires the coordinated activities of many different people, spread around the world.

The economist Leonard Read Opens in new window showed how markets achieve this coordination by writing an ‘autobiography’ of a pencil sold by the Eberhard Faber Pencil Company of California Opens in new window. It is one of the most famous accounts of how the market system Opens in new window works.

The market Opens in new window coordinates the activities of the many people spread around the world who contribute to the making of a pencil.

The pencil writes that:

My family tree begins with a [cedar] tree that grows in Northern California and Oregon.

Now contemplate all the saws and trucks and rope and the countless other gear used in harvesting and carting the cedar logs to the railroad siding …

The logs are shipped to a mill in San Leandro, California … The cedar logs are cut into small, pencil-length slats less than one-fourth of an inch in thickness … Once in the pencil factory … each slat is given eight grooves by a complex machine, after which another machine lays leads in every other slat …

My ‘lead’ itself—it contains no lead at all—is complex. The graphic is mined in Ceylon … [and] is mixed with clay from Mississippi in which ammonium hydroxide is used in the refining process …

To increase their strength and smoothness the leads are then treated with a hot mixture which includes candelilla wax from Mexico, paraffin wax, and hydrogenated natural fats.My cedar receives six coats of lacquer.

Do you know all the ingredients of lacquer?

Who would think that the growers of castor beans and the refiners of castor oil are a part of it? They are.

My bit of metal—the ferrule—is brass. Think of all the persons who mine zinc and copper and those who have the skills to make shiny sheet brass from these products of nature.

Then there’s my crowning glory …

the part man uses to erase the errors he makes with me …

It is a rubber-like product made by reacting rape-seed oil from the Dutch East Indies with sulfur chloride …

Then, too, there are numerous vulcanizing and accelerating agents. The pumice comes from Italy; and the pigment which gives [the eraser] its color is cadmium sulfide.

[M]illions of human beings have had a hand in my creation, no one of whom even knows more than a very few of the others …

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 …

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.