Pencils, Central Planning, and Spontaneous Order
Pencils are not only a writing instrument but a symbol of market complexity; a demonstration of the inherent function of human action.
Breaking Down A Pencil
A pencil is made of four main materials: wood, graphite, metal, and rubber.
- Wood: The body of a pencil is typically made from cedar wood, chosen for its smooth texture and ease of sharpening. Cedar logs are harvested from forests, then transported to a lumber mill where they are cut into smaller pieces called slats.
- Graphite: The core of a pencil is composed of graphite. Graphite is a naturally occurring mineral mined from deposits in various parts of the world, such as China, India, and Brazil. Once mined, the graphite is processed to remove impurities and ground into a fine powder.
- Metal: The metal part at the end of the pencil that holds the eraser in place is called the ferrule. It is typically made of aluminum, brass, or other metals which are mined from underground deposits. The ferrule is formed through metalworking processes such as stamping or molding.
- Rubber: The eraser attached to the end of the pencil is made from a rubber compound. Natural rubber, derived from a rubber tree, or synthetic rubber materials are molded and shaped into eraser blocks, which are then attached to the ferrule using adhesive.
After all of the individual components are sourced, they must be shipped to distributers. Upon arrival, they are assembled into the pencil product which incudes carefully inserting graphite core into the wooding casing, attaching the ferrule and eraser together, and inspecting all items for quality control.
The finished pencils are packaged into boxes or bundles for distribution to retailers or consumers. This involves packaging design, labeling, and logistics management to ensure that the pencils reach their intended destinations efficiently.
How does this relate to the market?
Each step in the making of a pencil requires numerous industries, which are full of numerous competing companies, which are full of numerous employers and employees.
This seemingly simple act of making a pencil involves a vast network of people, companies, and resources from all over the world. No single person or entity planned or orchestrated this complex process. Prices for materials, labor, and transportation are all determined through millions of individual interactions and decisions made across the globe.
With this in mind, the pencil example demonstrates the economic condition of capitalism: an individual’s ability to make decisions for themselves, a worker’s participation in production and exchange, and the interaction of a diverse array of individuals.
In turn, a pencil symbolizes the market; the price signal economy that is built on the fundamental desires of humans to ensure their self-preservation and to fulfill their wants and needs.
In contrast to a free market, a centrally planned economy would require the State to understand the motives and functions of each and every subjective individual; this would be an impossible task to accomplish.
Free markets remove this excruciating requirement of a centrally planned economy by giving full liberty to the individual.
What is the foundation of economics?
When arguing for a free market, critics find themselves worrying that without an intervening body, economics will fall to chaos as there is no longer a foundation to rest on (i.e., the government).
However, economics does indeed have a foundation: the spontaneous order of humanity.
With all of the competing interests of individuals, humanity is constantly changing. In order to match the change and mitigate the contrasting interests, people must work together to achieve a mutually beneficial agreement.
For example, imagine you walk up to a fruit vendor. As the consumer, you want to purchase the fruit at the lowest cost possible, but this contrasts with the sellers desire to sell the fruit at the highest cost possible. As both individuals interact, they naturally reach agreeable terms of exchanging the fruit for an amount of money that justifies the consumers hunger and the sellers desire for profit.
In this example, both individuals act in a purposeful manner that entailed two competing end goals. As both the end goals contrasted, the individuals were naturally encouraged to cooperate so they could fulfill the transaction.
While this example is trivial to the international agreements of larger companies, it represents the core idea behind the spontaneous order of humanity: a powerful and sustainable philosophy that allows the citizen to allocate resources as they see best fit.
What is the lesson?
Markets are incredibly complex and it is impossible to understand the needs and wants of each and every individual.
Understanding this undeniable fact is the basis for free markets; it is the backbone of why capitalism is sufficient in allocating scarce resources in the most efficient and effective manner possible.
The human condition comprises the innate desire to produce and exchange; allowing this to happen fosters the emergence of prosperity.
References
- The Undercover Economist by Tim Harford: “Your coffee is intriguing to the economist for another reason: he doesn’t know how to make a cappuccino, and he knows that nobody else does either. Who, after all, could boast of being able to grow, pick, roast, and blend coffee, raise and milk cows, roll steel and mold plastics and assemble them into an espresso machine, and, finally, shape ceramics into a cute mug? Your cappuccino reflects the outcomes of a system of staggering complexity. There isn’t a single person in the world who could produce what it takes to make a cappuccino.”
“the Undercover Economist… reflects the broad ambition of economics to understand people: as individuals, as partners, as competitors, and as members of the vast social organizations we call ‘economics.’” - Anatomy of The State by Murray N. Rothbard: “Man is born naked into the world, and needing to use his mind to learn how to take the resources given him by nature, and to transform them… into shapes and forms and places where the resources can be used for the satisfaction of his wants and the advancement of his standard of living. The only way by which man can do this is by the use of his mind and energy to transform resources (‘production’) and to exchange these products for products created by others. Man has found that, through the process of voluntary, mutual exchange, the productivity and hence, the living standards of all participants in exchange many increase enormously. The only ‘natural’ course for man to survive and to attain wealth, therefore, is by using his mind and energy to engage in the production-and-exchange process.”
- Government Central Planning Fails — Free People Create Order On Our Own
- Economic Systems: Free, Mixed, and Planned Economies
- Praxeology 101 — Lesson 1 — Introduction
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