

I, Pencil (1958) - nkurz
http://www.econlib.org/library/Essays/rdPncl1.html

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haakon
[http://www.fee.org/library/detail/i-pencil-audio-pdf-and-
htm...](http://www.fee.org/library/detail/i-pencil-audio-pdf-and-html) is the
50th anniversary edition with foreword and afterword, and audio and PDF
versions.

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torrent-of-ions
A nice read but I don't agree completely with the final paragraph. The
invisible hand uses a greedy algorithm. It does take a mastermind to get close
to any kind of optimal solution in many cases. We can't trust the invisible
hand to provide healthcare to everyone, nor can we trust it to take into
account external costs like pollution etc.

~~~
logicchains
The invisible hand isn't in the business of making moral judgements external
to those of the society in which it exists. If people wish to support each
other's healthcare, then they're quite capable of doing so without any
external assistance.

Regarding pollution, it's interesting to note that in America at least it was
originally considered a tort (if someone harmed you by polluting, you could
sue them). But various judges have, in the name of the 'common good' of
industrialisation, eroded this right.

~~~
nhaehnle
I think it's important to keep in mind that people acting to support each
other's healthcare without external assistance is one of those things that
government _is_. After all, European societies with solid health systems did
not require external intervention by aliens or anything to do so. They just
agreed that having such a system is a good thing, and the government happens
to be a useful framework for implementing it (and keep in mind that a lot of
healthcare-related stuff is actually private in Europe, depending on which
country you're talking about).

Overall, "government vs. markets" is a false dilemma. Markets need rules, and
to a large extent, the historical evolution of governments goes hand in hand
with the evolution of markets. Your pollution example fits this observation
nicely.

Another important point in the context of the original submission: A lot of
discussion in society in this realm is confused about the centralization-
decentralization and class/power structure axes. Those are largely
independent, but people from all political backgrounds tend to muddle them up.
[0]

The pencil story is a nice illustration for why completely centralized control
of the economy would be a disaster. However, it is often brought into (mostly
laypeople's) political economy discussions where it really has no place,
because most such discussions are not about centralization vs.
decentralization.

Most political economy discussions are (albeit usually in a hidden way) about
class structure and power. Should there be a (necessarily tiny) class of
capital owners who own and control the means of production and who, using this
control, will be able to wrest for themselves a disproportionally large share
of the economy's output? Or should power be distributed more evenly, along
democratic lines?

Ownership, control, and (de-)centralization are largely orthogonal. To give a
concrete example, one could easily imagine a functioning, decentralized
economy in which companies compete in the market place much like they do in
the Western world today; but with the important difference that companies are
(as a rule) not anybody's property, and that decisions within the company are
made through a (probably representative) democratic process in which every
employees has one vote.

Such an economy would have vastly different distributive outcomes, but it
would still be a decentralized economy that takes all the lessons of "I,
Pencil" to heart.

[0] This is particularly annoying when people on the left do it. At least
people on the right have a motive for muddling these things up.

~~~
logicchains
There is however a link between centralisation and distributive outcomes in
the sense that the former is necessary to ensure certain forms of the latter.
If for instance the democratic companies in your thought experiment were
somehow structurally less competitive in the market than companies led by a
single CEO (I'm not suggesting this is the case, just using it to illustrate),
then in a decentralised system the CEO-led companies would outcompete the
democratic ones and naturally come to dominate the market.

It would hence not be possible to bring about the distributive outcomes of a
market dominated by democratic companies without some centralised force
capable of granting the democratic companies some advantage over the CEO-led
ones.

In short, if a decentralised economy necessarily leads to greater
concentration of wealth/power (again, I'm not suggesting it does), then people
arguing for a more even distribution of wealth/power must necessarily also
argue for a more centralised economy.

~~~
nhaehnle
I liked your comment, thank you. I don't quite agree though, because I get the
feeling that you're not really talking about centralization of the _economy_ ,
but about the centralization of _power_.

True, enforcing a decentralized economy in which company decisions must be
legitimized by employees' votes requires a centralized power.

However, the same is true for almost every kind of economy that has any hope
of functioning at all. For example, our non-democratic companies of today rely
on workers not simply seizing the means of production for themselves. Why
don't workers in, say, a car company not decide one day to shut out the
owners? The most immediate explanation is that they have been conditioned by
society not to do that. But it's important to keep in mind that our economy
relies on the existence of a centralized power that would ultimately lock
those workers up in prison if they decided to kick the owners out.

It's easy to miss this fact because of status quo bias, but ultimately, it
seems that _every_ stable form of societal organization ends up relying on
_some_ form of centralization of power.

This all comes to a head in your last paragraph. If the premise of that
paragraph is true, then the people need not argue for a more centralised
economy. They can stay with a decentralized _economy_ , but they must argue
for some action by centralized _power_.

~~~
logicchains
That's a good point. I think however that proponents of economic
decentralisation would argue that it requires 'less' centralisation of power
than economic centralisation (assuming centralisation of power can be
quantified).

How is this so? Classical liberals argued that the fundamental duty of
government was protecting its citizens' lives and property rights from each
other and from foreign aggressors. This would largely take place through the
courts: if someone attacked you, or stole your property, or rose up and took
over your factory, you could sue them, and the State's only role would be
enforcing the court's judgement.

This thus would lead to a relatively decentralised power structure, with most
power lying in the courts via their interpretation of the constitution /
'natural law' (a bit like English common law) and the executive having
relatively little influence.

From this it follows that arguments for any economic structure other than "an
economy the structure of which is purely determined by what occurs when the
State only protects property rights" necessarily require more centralisation
of power, as the State would be required to do more than just protect property
rights.

Assuming that by some intrinsic property that "an economy the structure of
which is purely determined by what occurs when the State only protects
property rights" is likely to be a more decentralised one, then arguing for a
centralised one thus entails arguing for greater centralisation of power.

Of course, this ultimately depends on the exact form the property rights in
question take, but I think it's reasonable to suggest that for any particular
set of rights, a State based solely around defending those rights would
involve less centralisation of power than one based upon ensuring the
existence of a particular economic or social structure.

'Victimless crimes' are an example of this: they wouldn't exist in a purely
rights-based legal system as there'd be no parties whose rights were violated
by these activities, so such things as the immigration department and the
departments required for the war on drugs simply wouldn't exist.

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Houshalter
Political arguments aside, I think it's a beautiful description of how complex
and interdependent our economy is.

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nateabele
Here's the tl;dr version, animated, and with a fun soundtrack!

[https://www.youtube.com/watch?v=IYO3tOqDISE](https://www.youtube.com/watch?v=IYO3tOqDISE)

~~~
nubs
Or an even more tl;dr version

[https://www.youtube.com/watch?v=7s664NsLeFM](https://www.youtube.com/watch?v=7s664NsLeFM)

~~~
fordh
Exactly what I was thinking about as a I read the essay! I was disappointed
when instead of being about how incredible it is that the cosmos can produce a
pencil, it was about claiming that the cosmos can do it "without the
government."

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mckoss
Henry Petroski's excellent book The Pencil[1] uses the same subject to explore
the history of the pencil's development into the common artifact we know
today.

[1][http://www.amazon.com/The-Pencil-History-Design-
Circumstance...](http://www.amazon.com/The-Pencil-History-Design-
Circumstance/dp/0679734155)

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gradi3nt
How It's Made: Pencils
([https://www.youtube.com/watch?v=b5uUV9z7hfg](https://www.youtube.com/watch?v=b5uUV9z7hfg))

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disputin
Came across a computing version once upon a time:
[https://plus.google.com/+JeanBaptisteQueru/posts/dfydM2Cnepe](https://plus.google.com/+JeanBaptisteQueru/posts/dfydM2Cnepe)

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Datsundere
This was the first thing my Econ professor made us read. Best econ class I've
taken.

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niels_olson
More submissions like this, please.

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hxa7241
This is, well, shallow propagandising guff. It promotes an agenda but diverts
criticism with mythologising illusion.

Markets fail in various ways. Should we just let that happen? -- and just have
'faith' in the wonder of ' _freedom_ ' etc.? As Stiglitz says, a common reason
why 'the invisible hand' is invisible is because it is not actually there.

~~~
washedup
Yes, markets should be allowed to fail. It is part of a very natural and
successful process that has brought us to where we are. The same goes for
governments. It's a trial and error process that goes back to the beginning of
life. There is an anaology I really enjoy which relates the idea of saving
economy and markets from the natural process of failing:

"In the 1970s the US developed a policy of forestry that espoused 100%
prevention of forest fires; let’s call it “fire is not an option”. This policy
resulted in the systemic suppression of small fires and eventually into very
unbalanced forest ecosystems where fire is now not just an option, but a
certainty of disaster. We now know that fire is a natural part of a forest’s
life-cycle. Without fire, the forest floor gets overgrown, making it a source
for bigger and hotter fires. When fires break out in a “managed” forest where
fires have been suppressed for years, they burn so hot they turn the ground to
glass. Fires that were survivable by trees are now so destructive that they
denude hills and wipe out the entire ecosystem. Our financial system has
become much like a poorly managed forest, harboring within it the increasing
probability of a systemic and destructive conflagration."

Just as no single person knows how to create a pencil, no single person, or
group of powerful individuals, have any idea of the complexities that exist
when deciding how to guide an economy. It's naive to think otherwise.

From: [http://antonopoulos.com/2014/03/02/failure-is-an-
option/](http://antonopoulos.com/2014/03/02/failure-is-an-option/)

