This is one of the great texts on economics. Together with "Economics in One Lesson" by Hazlit, should be required high school reading all over the planet. These texts immunise the mind against logical fallacies about material progress. They will make mankind come together without politicians or enemies.
"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." This is one of the beautiful miracles of our kind, a fact that remains unknown to most of us. Including many who figure themselves at the commanding heights.
Every attempt to make this fictional mastermind more powerful makes our fate worse.
Sorry, I think it's very interesting and makes some nice points with beautiful language, but I don't follow the conclusion. It oversteps in arguing without proof that all forms of enterprise must function just like pencils, soluble by the natural dynamics of a free market. But not all forms of enterprise have the same properties as pencil production.
You could imagine an antithetical essay "I, police" involving a lawless village in which each person trains extensively in martial arts and marksmanship in order to protect themselves. Then each realizes it is more efficient to focus on their own vocation and hire a private security guard. Then a few neighbors realize it is more efficient to pool their money and hire just enough security to protect their block, and finally the whole village realizes it is most efficient to pool their money into just enough security, at which point they realize they have formed a government with taxes and police force. The story could end with "It is a fact most astounding that the forces of an unencumbered free market lead directly to an inevitable centralization into a collective governing whole."
Of course this story does not prove that all affairs should be handled by the government; but the pencil doesn't prove the opposite either.
While "I, Pencil" is definitely a story from the free-market tribe, and the concluding paragraph pays due homage, the point of the article is not that "all enterprise [are]soluble by the natural dynamics of a free market".
The point is that the simple things in our society are the product of very complicated networks of activity that nobody understands. And this is pretty universal, whether you are talking about pencils or police.
Of course this complexity is not the only consideration that determines how things should be done. But it is a consideration that is usually ignored when people seek to regulate an industry.
I agree with the criticism that you're making, but I think your police force comparison contains fallacies. Human institutions cannot be told from the assumption that we all began as isolated individuals and arrived at the solution of centralised control as the outcome of a set of rational collective choices.
I'm sure there are many 'origins of the police' narratives, but one I know is the Metropolitan Police of London were developed explicitly to curtail the dock workers from exercising their customary right to take small amounts of the goods they were unloading home with them. To generalize from this (a dangerous game, I know, but this seems to be the flavor of the thread), institutions are constructed to protect the interests of one class from another
The point of the article is to express how something so trivial as a pencil is created by countless intelligent actors, working in kind of dynamic unison, without any controlling agent.
The article makes the point very well - and it's something that definitely should be taught more in school.
I think it's very easy for kids to grasp 'top down' control in government, teams or organizations - it's something so intuitive it does not need explanation.
The concept of 'free markets' and their ability to facilitate amazing things is in some ways counterintuitive, and needs to be learned.
So I think the point is fair.
I don't think anyone is implying that all systems must operate in this manner.
Thie is a charming free-market story, but the problem comes when people construe it as "unplanned, unregulated and competitive is always better". The idea that things can "work themselves out" to a better result than if supervised is highly exciting, to the point that some cannot resist it and just fall in love with it. This leads to the classic "Man-with-a-hammer", as C.Munger calls it: this is so good, let's hammer/free-market all the things!
Games are full of Man-with-a-hammer examples, like "bluff all the things" (eg. poker), "sacrifice all the things" (chess) or "never run to win the race" (backgammon). This inevitably leads to failure, but economy being what it is, the failure is too vague, too diffuse and too erratic to acknowledge them in the case of "free market all the things".
The problem comes in when people imagine that what's going on is "unplanned." As the economist George Reisman has pointed out, decentralized activity by actors who have a financial stake in the game and who are thus guided by profit and loss is exactly what economic planning is. Centralized "planning," as the economist Ludwig von Mises pointed out, is planned chaos.
Piketty's book contains a correlation-implies-causation statistics-driven narrative to pitch yet another tax increase.
Economics In One Lesson is an exercise in logic, showing that many popular economic policies are flawed or will necessarily have non-obvious side effects.
EIOL is also deliberately written to be an easy read.
It's hard to compare the two.
(In the unlikely case anyone cares, my personal take on Piketty: wealth inequality doesn't matter unless you think jealousy is a matter of public policy. Wealth inequality is an inevitable consequence of progress. What matters is whether the wealthy can loose their wealth due to their own mistakes, and whether wealth inequality implies legal inequality. Private profits and public risks, bailouts, legislation a la tete du client, bribes, lobbying, monopolies, special tax agreements, propping up markets, complicated laws, ... that's how the 99% get screwed. Taxes allow the government to function. They cannot "counterbalance" the legal privileges of the 1%.)
It is a bit weak on some of the more complex of economic issues, such as the role of contract law in the emergence and functioning of industrial societies.
Lawmakers are sort of masterminds, especially when defining the founding principles of the law. They don't have pencil production, and usually any particular production, in mind.
The beauty is that a general principle allows almost any business to flourish; the lawmakers need not know what specific business it might be. This makes such laws reasonably future-proof.
Well, the text makes visible an invisible machine, built by all but planned by none.
I don’t think the author wanted to write a reference work on all aspects of its subject :-)
Here’s what I personally get out of its perspective: contentment and inspiration. It provides glory to the seemingly mundane tasks of everyday economic life. Comparing prices, finding customers and suppliers, solving small problems, settling disputes. This is what the invisible machine is composed of.
It also shields my mind, like a lode star that guides me away from many popular beliefs about what “needs to be done to boost GDP”.
This piece gets posted here occasionally, and I really disagree with the conclusion that people think that we have to have government because they don't understand the capabilities of non-directed, bottom-up systems.
> Now, in the absence of faith in free people—in the unawareness that millions of tiny know-hows would naturally and miraculously form and cooperate to satisfy this necessity—the individual cannot help but reach the erroneous conclusion that mail can be delivered only by governmental "master-minding."
It's possible to understand that non-directed systems can produce impressive results and still believe that a directed system might be the right choice for certain situations. Plenty of biologists were Marxists for example (JD Bernal, Steven Jay Gould was very left wing). Surely, they would have understood that complex organisms don't arise from central planning, but from an undirected, emergent process. Yet they also believed that government should play a major role in human society.
I can't find the source but I remember hearing of some tale of Margaret Thatcher strolling around London or someplace with some Soviet official. Supposedly he was astounded at the bustling economic activity whizzing about them. He asked her something along the lines of "who is your central planner that has yielded all this?", to which she replied something to the effect of "no, one, this is the Free market operated by individuals, etc etc."
Doing a cursory search for the above, I did find this quote that seemed to capture her sentiments against central planning, to which I think a lot of people use the I, Pencil fable to show the folly that some centralized individuals would have knowledge at all times and all places about what goods and services should be in demand and what they should be priced at and that there's an arrogance to even attempt so much.
"The lesson of the economic history of Europe in the 70's and 80's is that central planning and detailed control do not work and that personal endeavour and initiative do. That a State-controlled economy is a recipe for low growth and that free enterprise within a framework of law brings better results…. And that means action to free markets, action to widen choice, action to reduce government intervention. Our aim should not be more and more detailed regulation from the centre: it should be to deregulate and to remove the constraints on trade.”
I don't think we needed the economic history of the 70's and 80's to no this.
There are couple of funny true story about the Soviet Union. In one a Soviet Economics Professor went to the US in the early 90s. He lived with a US professor, he had the plan to bake some sort of local bread and they went to the shop to buy flower (and other things), but it was a particular kind of flower.
Somehow the show this note have this on the shelves so the US prof went to a clerk and ask him if they had some of that flower in the back. The clerk went off, and came back with the flower.
Seeing this the Soviet prof remarked that he was very impressed how highly economics professors were valued in the US.
Of course, as soon as you go into a shop and ask the question "how did this get on the shelf?", you find that rather than being done by free individuals interacting on an adhoc basis it's done by employees taking hierarchical direction from a centralised business, run by a single person who pays themselves a huge amount while congratulating themselves on creating all those jobs.
To be clear, my point isn't that central planning is good. My point is that people may prefer centralized control for certain things even though they understand what non-directed processes can accomplish.
To use the author's example of the post office, there may be reasons why one might want the post office to be a public entity beyond "only government could build such a complex system". For instance, it might be reasonable to wonder whether a postal system that evolved organically would cover everyone in a society, or would rural people or others who are expensive to reach be left out. Mail delivery probably qualifies as something we want everyone to have access to in order for a lot of our systems to function.
> some tale of Margaret Thatcher strolling around London or someplace with some Soviet official
That sounds so absurdly fictional that it can only have been a joke or bad propaganda. It fails the smell test not only for Thatcher to be strolling around London with a soviet official but for the soviet official to be oblivious to Thatcherism famous for its deregulation, union-busting and privatisation.
That is true, but I would say that its the first step to understand this fact. If you do not 'get' this, then its very hard to convince people to of any of this.
I am always fascinated by the fact that in a remote village in India I am eating with a disposable spoon which I deem cheaper than wasting 10 seconds washing a steel spoon.
That disposable spoon comes from a local shop which buys it from a distributor in a factory 100 miles away who buys plastic raw material from a seller 1000 miles way who brings the crude from middle east (10K miles) to make that plastic. Someone has built Oil rig deep into ocean spending billions of dollars to extract that crude oil.
More importantly people of all castes religions races are working to achieve this none of whom have any special love for each other yet everyone benefits.
>More importantly people of all castes religions races are working to achieve this none of whom have any special love for each other yet everyone benefits.
Well, "everyone benefits" is the Disney version.
Oil producing countries and their citizens are usually royally fucked over, either from foreign powers invading/meddling to take control of the oil supply, or by their friendly lackeys (royal families etc) in power.
Ways of living (farmland, hunting spaces etc) are destroyed along the way, for pollution, extraction of resources etc.
Workers leave their villages (which are often ravaged from modernization, their previous jobs, commodities, commerce etc drying up) and are forced to seek work in large industrial towns in Dickensian conditions.
And all for "disposable spoons", which will merely save "10 seconds washing a steel spoon", end up in huge piles of other plastic garbage in dumps, oceans, etc.
Even those "10 seconds washing a steel spoon" saved, and most of the other savings due to such products, will end up being eaten up completely by the modern life and modern pace that makes those products possible in the first place -- the average working person in the US having less free time than comparable professionals (even CEOs) in the 50s or 60s.
> Oil producing countries and their citizens are usually royally fucked over
Mostly fucked up by politicians. Nothing to do with the fact that people on Oil rigs and me both willing to co-operate.
> Ways of living (farmland, hunting spaces etc) are destroyed along the way, for pollution, extraction of resources etc.
Don't see the problem with that.
> Workers leave their villages
They leave for better life. I left my village for better life. Village life sucks.
> And all for "disposable spoons", which will merely save "10 seconds washing a steel spoon", end up in huge piles of other plastic garbage in dumps, oceans, etc.
Dont know if it worse that wasting water on washing steel spoons but surely technology helps us manage that problem well too.
> the average working person in the US having less free time than comparable professionals (even CEOs) in the 50s or 60s.
The average working person in USA is having much better life that CEO in 1950s.
I love both comments - an example how the global picture of things is subject to interpretation. Everyone sees what he/she wants to see and is at least partially right. ( i think that's the danger of infering too much from small things, isn't it?)
I dont have an answer - both of you got an upvote from me.
The article is well written but takes a little anti-social view of how things come to be. The private industry is doing a great job of procuring, manufacturing and delivering of consumer goods at affordable prices. However many of these inventions were either discovered by scientist and inventors who either pursued it for purely intellectual reasons or were funded by public money by grants. For example, the Darpa grants were the main cause for the internet today. The article does a great disservice by not giving this aspect its rightful due.
Readit News
"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." This is one of the beautiful miracles of our kind, a fact that remains unknown to most of us. Including many who figure themselves at the commanding heights.
Every attempt to make this fictional mastermind more powerful makes our fate worse.
You could imagine an antithetical essay "I, police" involving a lawless village in which each person trains extensively in martial arts and marksmanship in order to protect themselves. Then each realizes it is more efficient to focus on their own vocation and hire a private security guard. Then a few neighbors realize it is more efficient to pool their money and hire just enough security to protect their block, and finally the whole village realizes it is most efficient to pool their money into just enough security, at which point they realize they have formed a government with taxes and police force. The story could end with "It is a fact most astounding that the forces of an unencumbered free market lead directly to an inevitable centralization into a collective governing whole."
Of course this story does not prove that all affairs should be handled by the government; but the pencil doesn't prove the opposite either.
The point is that the simple things in our society are the product of very complicated networks of activity that nobody understands. And this is pretty universal, whether you are talking about pencils or police.
Of course this complexity is not the only consideration that determines how things should be done. But it is a consideration that is usually ignored when people seek to regulate an industry.
Your village police story OTOH is made up.
I'm sure there are many 'origins of the police' narratives, but one I know is the Metropolitan Police of London were developed explicitly to curtail the dock workers from exercising their customary right to take small amounts of the goods they were unloading home with them. To generalize from this (a dangerous game, I know, but this seems to be the flavor of the thread), institutions are constructed to protect the interests of one class from another
The article makes the point very well - and it's something that definitely should be taught more in school.
I think it's very easy for kids to grasp 'top down' control in government, teams or organizations - it's something so intuitive it does not need explanation.
The concept of 'free markets' and their ability to facilitate amazing things is in some ways counterintuitive, and needs to be learned.
So I think the point is fair.
I don't think anyone is implying that all systems must operate in this manner.
Games are full of Man-with-a-hammer examples, like "bluff all the things" (eg. poker), "sacrifice all the things" (chess) or "never run to win the race" (backgammon). This inevitably leads to failure, but economy being what it is, the failure is too vague, too diffuse and too erratic to acknowledge them in the case of "free market all the things".
It just assumes that trickle down economics works, and repeats this "lesson" ad nauseam chapter after chapter.
However, it is very clear historically that trickle down economics does not work, and that completely unregulated markets lead to human rights abuse.
Picketty is much more enlightening.
Economics In One Lesson is an exercise in logic, showing that many popular economic policies are flawed or will necessarily have non-obvious side effects.
EIOL is also deliberately written to be an easy read.
It's hard to compare the two.
(In the unlikely case anyone cares, my personal take on Piketty: wealth inequality doesn't matter unless you think jealousy is a matter of public policy. Wealth inequality is an inevitable consequence of progress. What matters is whether the wealthy can loose their wealth due to their own mistakes, and whether wealth inequality implies legal inequality. Private profits and public risks, bailouts, legislation a la tete du client, bribes, lobbying, monopolies, special tax agreements, propping up markets, complicated laws, ... that's how the 99% get screwed. Taxes allow the government to function. They cannot "counterbalance" the legal privileges of the 1%.)
Lawmakers are sort of masterminds, especially when defining the founding principles of the law. They don't have pencil production, and usually any particular production, in mind.
The beauty is that a general principle allows almost any business to flourish; the lawmakers need not know what specific business it might be. This makes such laws reasonably future-proof.
I don’t think the author wanted to write a reference work on all aspects of its subject :-)
Here’s what I personally get out of its perspective: contentment and inspiration. It provides glory to the seemingly mundane tasks of everyday economic life. Comparing prices, finding customers and suppliers, solving small problems, settling disputes. This is what the invisible machine is composed of.
It also shields my mind, like a lode star that guides me away from many popular beliefs about what “needs to be done to boost GDP”.
> Now, in the absence of faith in free people—in the unawareness that millions of tiny know-hows would naturally and miraculously form and cooperate to satisfy this necessity—the individual cannot help but reach the erroneous conclusion that mail can be delivered only by governmental "master-minding."
It's possible to understand that non-directed systems can produce impressive results and still believe that a directed system might be the right choice for certain situations. Plenty of biologists were Marxists for example (JD Bernal, Steven Jay Gould was very left wing). Surely, they would have understood that complex organisms don't arise from central planning, but from an undirected, emergent process. Yet they also believed that government should play a major role in human society.
Doing a cursory search for the above, I did find this quote that seemed to capture her sentiments against central planning, to which I think a lot of people use the I, Pencil fable to show the folly that some centralized individuals would have knowledge at all times and all places about what goods and services should be in demand and what they should be priced at and that there's an arrogance to even attempt so much.
"The lesson of the economic history of Europe in the 70's and 80's is that central planning and detailed control do not work and that personal endeavour and initiative do. That a State-controlled economy is a recipe for low growth and that free enterprise within a framework of law brings better results…. And that means action to free markets, action to widen choice, action to reduce government intervention. Our aim should not be more and more detailed regulation from the centre: it should be to deregulate and to remove the constraints on trade.”
There are couple of funny true story about the Soviet Union. In one a Soviet Economics Professor went to the US in the early 90s. He lived with a US professor, he had the plan to bake some sort of local bread and they went to the shop to buy flower (and other things), but it was a particular kind of flower.
Somehow the show this note have this on the shelves so the US prof went to a clerk and ask him if they had some of that flower in the back. The clerk went off, and came back with the flower.
Seeing this the Soviet prof remarked that he was very impressed how highly economics professors were valued in the US.
(See Coase on the Theory of the Firm)
To use the author's example of the post office, there may be reasons why one might want the post office to be a public entity beyond "only government could build such a complex system". For instance, it might be reasonable to wonder whether a postal system that evolved organically would cover everyone in a society, or would rural people or others who are expensive to reach be left out. Mail delivery probably qualifies as something we want everyone to have access to in order for a lot of our systems to function.
That sounds so absurdly fictional that it can only have been a joke or bad propaganda. It fails the smell test not only for Thatcher to be strolling around London with a soviet official but for the soviet official to be oblivious to Thatcherism famous for its deregulation, union-busting and privatisation.
That disposable spoon comes from a local shop which buys it from a distributor in a factory 100 miles away who buys plastic raw material from a seller 1000 miles way who brings the crude from middle east (10K miles) to make that plastic. Someone has built Oil rig deep into ocean spending billions of dollars to extract that crude oil.
More importantly people of all castes religions races are working to achieve this none of whom have any special love for each other yet everyone benefits.
Well, "everyone benefits" is the Disney version.
Oil producing countries and their citizens are usually royally fucked over, either from foreign powers invading/meddling to take control of the oil supply, or by their friendly lackeys (royal families etc) in power.
Ways of living (farmland, hunting spaces etc) are destroyed along the way, for pollution, extraction of resources etc.
Workers leave their villages (which are often ravaged from modernization, their previous jobs, commodities, commerce etc drying up) and are forced to seek work in large industrial towns in Dickensian conditions.
And all for "disposable spoons", which will merely save "10 seconds washing a steel spoon", end up in huge piles of other plastic garbage in dumps, oceans, etc.
Even those "10 seconds washing a steel spoon" saved, and most of the other savings due to such products, will end up being eaten up completely by the modern life and modern pace that makes those products possible in the first place -- the average working person in the US having less free time than comparable professionals (even CEOs) in the 50s or 60s.
Mostly fucked up by politicians. Nothing to do with the fact that people on Oil rigs and me both willing to co-operate.
> Ways of living (farmland, hunting spaces etc) are destroyed along the way, for pollution, extraction of resources etc.
Don't see the problem with that.
> Workers leave their villages
They leave for better life. I left my village for better life. Village life sucks.
> And all for "disposable spoons", which will merely save "10 seconds washing a steel spoon", end up in huge piles of other plastic garbage in dumps, oceans, etc.
Dont know if it worse that wasting water on washing steel spoons but surely technology helps us manage that problem well too.
> the average working person in the US having less free time than comparable professionals (even CEOs) in the 50s or 60s.
The average working person in USA is having much better life that CEO in 1950s.
I dont have an answer - both of you got an upvote from me.
I'd also recommend http://tuttletwins.com/law/ - which is available in all of the above languages and German as well.
Great reads regardless of the size/age of the person. And definitely thought-provoking, considering the questions they yield.
He had many great economists and other people on his show, like 10 nobel price winners, both Friedman and Coase shortly before they died.
http://www.econtalk.org/archives.html#date
That's because it has a predetermined agenda, nothing scientific about it.
I think computer networks would have been developed without Darpa; as they are done today.