Recently I’ve been pondering Milton Friedman’s Lesson of the Pencil, which he took from a famous essay by Leonard E. Reed. The Lesson of the Pencil is predicated on two simple facts: first, that no one, anywhere, knows how to make a pencil and, second, that pencils are readily available to all who need them.
Now most people would say it’s hogwash to claim that no one knows how to make a pencil. Pencils exist, don’t they? Therefore someone, somewhere, must know how to make them. But that commonsense conclusion is dead wrong: The knowledge and skills required to produce a pencil from scratch and bring it to market are far beyond the grasp of any individual or group. A pencil consists of wood, lacquer, graphite, brass (an alloy of copper and zinc), black nickel, rubber, factice (a rubber-like product) and various other substances. Is there any individual in the world who possesses the knowledge and skills to extract and fabricate these raw materials? No! Then there’s the pencil manufacturing process itself, involving a bewildering array of machine tools. Is there any individual who knows how to manufacture, service, repair and operate those machine tools? Again, no! Yet pencils are produced. Nor does anybody know how many pencils might be required in any given year. Yet pencils are readily available to all who need or want them.
No central planning agency manages the fantastically complicated process of making and marketing pencils. No bureaucracy allocates the raw materials, lays down the production targets or determines pencil prices. In fact, it’s the other way around. The production of pencils requires the voluntary cooperation of countless individuals around the world, each of whom possesses some tiny fragment of the requisite knowledge, with prices determining the allocation of raw materials and labor, and the level of pencil production—countless thousands of prices at every stage of the pencil-making process. In short, the Lesson of the Pencil demonstrates why the market is and always will be superior to any variant of the planned economy.
As is well known, young Americans—for convenience let’s call them the Millennials—are highly skeptical of capitalism and deeply enamored of socialism. True, there’s probably not one Millennial among a hundred who can supply a coherent definition of either capitalism or socialism. It seems, indeed, that the word socialism is little more than a label for young people’s vague yet fervent belief that need and desire equal entitlement. Education, healthcare, employment, income, etc. should therefore be provided free and this, they insist, is the main responsibility of government.
This adolescent world-view—prevalent among though not exclusive to the young— disregards the vast complex of expertise, technology, processes and infrastructure required to provide all such desirable goodies. Take healthcare—supposedly a human right. Do healthcare “experts” like Dr. Ezekiel Emanuel know anything about the raw materials and processes required for the manufacture of bedpans, for instance? Of course not—nor does anybody else. Pick any major American university. No matter how distinguished it is, no matter how many Nobel prizes it can boast, the combined knowledge and skills of its total population—administration, faculty, students, support staff—are insufficient to manufacture a single bedpan. Yet many campus denizens are irrationally convinced that they know how to manage the economy, make healthcare both cheaper and better, eliminate poverty, and so on down the list of entitlements.
But this is primitive and dangerous thinking. All too many people, Millennials definitely included, seem to believe that the stuff they need and want has been conjured into existence by some magical process and is just lying around, ripe for the harvesting by politicians and bureaucrats. Healthcare, for instance, is talked about as if it’s something as tangible and prosaic as a loaf of bread. All we need, these people think, is a caring, compassionate government to take control of healthcare and distribute it in a just and equitable manner. Hence the popularity of economically illiterate politicians like Bernie Sanders. There’s one elderly white guy whom young people adore.
Let’s think a bit about Comrade Sanders. Is it likely, would you say, that he has the slightest understanding of how the American healthcare system works? Do you suppose that he knows anything about hospital administration, cardiovascular surgery, physical therapy, nursing staff management, the basic research necessary to develop new drugs and treatments? Of course he doesn’t! He runs around the country promoting something called “Medicare for All.” Do you imagine that he understands how Medicare is structured and how it works? As if! Sanders doesn’t even know—though he pretends otherwise—how his Medicare for All scheme can possibly be financed. And yet in the eyes of millions he’s the guy with the answer: social democracy! That’ll fix everything! Sanders and his fans seem not to have noticed that history has rendered a pretty definite verdict on socialism: It doesn’t work. Planned economies, supposedly based on rational, scientific calculation, are incapable of matching the efficiency of a price-directed market economy. The economy of the late, unlamented USSR faltered and collapsed for just that reason.
It’s doubtful, however, that when young people grumble about “late-stage capitalism” they’re looking forward to the replacement of the price-directed market, private property and money by a state-directed, centrally planned economy based on social ownership of the means of production. They await, rather, the advent of a Scandinavian-style welfare state. That such systems depend for their financing on a vibrant market economy is an inconvenient truth over which social democrats prefer to skate, if they realize it at all. True, not so long ago Venezuela's “Bolivarian socialism” was all the rage on campus and Hugo Chavez, the Mussolini of Latin America, was lauded to the skies. Socialism could be made to work after all! Today, however, with Venezuela’s economy in a shambles, with its inflation rate in triple-digit territory, with its citizens plagued by shortages of everything from basic foodstuffs to toilet paper, Bolivarian socialism is not much talked about in progressive circles. And while there remain a few aging flower children who still mythologize the socialist paradise that Castro built in Cuba, what remains around the world of real, existing socialism is none too inspiring a spectacle.
Thus social democracy of the Sanders/AOC variety is not so much an ideology or doctrine as it is a warm, fuzzy feeling of optimism and entitlement, and the terms associated with it, like “economic justice,” “equity,” etc. make up in resonance what they lack in precision. The former term, incidentally, is something of an oxymoron, since the concept of justice is external to economics. The purpose of an economy—be it a market economy, a centrally planned socialist economy, o something in between—is to determine the allocation of resources both human and material that are scarce and have alternate uses, period. Justice resides elsewhere, and when it’s deployed against some injustice incidental to economic processes there are unavoidable tradeoffs. The refusal to admit that such tradeoffs exist is a hallmark of contemporary progressivism.
The Lesson of the Pencil, then, is a cautionary tale. It instructs us to suppress our hubris, temper our ambitions and bear constantly in mind that what we know is infinitely less than what there is to know. It teaches also that true wisdom is the fruit of historical experience, embodied in customs, traditions and institutions that have developed over the centuries. To be young is to reject this great truth—to imagine that the world is youth’s to make anew. They treat tradition contempt, regarding it as a drag on their vaulting ambitions. Sooner or later, though, comes the reality check: first the Revolution, then Thermidor. “Fools learn from their own mistakes,” Bismarck quipped. “I prefer to learn from other people’s mistakes.” That’s excellent advice, even though the Iron Chancellor didn’t always follow it himself, and it’s a pity that so many Millennials are blind to the mistakes made during the French, Russian, and other revolutions. They’d do well to acquaint themselves with the ways in which revolutionary ardor produced a Napoleon, a Lenin, a Stalin, a Castro, a Chavez. And the Lesson of the Pencil—they really ought to study that.