Pencil or peach, either way, a marvel of decentralized coordination

Many of you are probably already familiar with Leonard Read’s famous 1958 story I, Pencil. Told through the eyes of a pencil, it describes the process of producing a pencil and how many people are involved in doing so, but without ever having met or consciously, deliberately set out a plan under the control of any one person. Even the pencil manufacturer does not control the people from whom he buys inputs. What process creates that coordination? A market process, with prices acting as signals. As Tyler Cowen and Alex Tabarrok say in their introductory economics textbook, a price is a signal wrapped in an incentive. That’s the essential role that markets and the price system play in coordinating the actions and plans of so many individuals, enabling us to achieve our personal goals in a way that cannot be achieved through the imposition of top-down control.

Since Read’s initial essay, I, Pencil has been discussed and recast. Milton Friedman famously retold the pencil’s story in one episode of his Free to Choose TV show (which was my first exposure to economics as a teenager). More recently Mark Perry discussed a longer Friedman talk and other reflections on the pencil and the price system. The Competitive Enterprise Institute published a video I particularly like telling the story of the pencil and the price system. The Freakonomics team did a great podcast on the pencil and the price system. All of these resources are valuable for communicating economic ideas to students at all levels of economic understanding.

Then yesterday Robert Higgs ruminated on the process of his purchasing peaches in an essay called I, Peach:

You see, I live at the extreme end of the road, near a remote, isolated village in the farthest southeast corner of the Mexican state of Quintana Roo; and the peach I ate was grown in California.

I acquired this fruit, as I acquire the bulk of the fruits, vegetables, and other fresh comestibles I consume, from Lucio, a man who rises each day at 4:00 a.m. and heads to the market in Bacalar, a town about 100 miles from my home. Lucio loads his pickup with fresh produce and other things, hauls these products for two hours, and offers them to those of us who live along a pot-holed road in this far-away place. The people who sell to him, in turn, acquire their inventory from other sellers, who are part of a perhaps lengthy supply chain whose specifics I do not know. …

In the real world, of course, the complexity of trade defies comprehension, as countless millions of goods and services are produced, exported, and imported seemingly in defiance of any clear pattern. Yet, an underlying pattern is there, and it remains basically the same one described in its essence by Ricardo two hundred years ago.

This story resonates, and stands the test of time, because it illustrates one of the most enduring and fundamental principles of economics. Market processes and the price system enable people pursuing their own life projects to coordinate their actions and plans in ways that allocate the resources that enable people to fulfill those projects. That’s how we flourish. That’s part of how we lead fulfilling lives. That’s a big part of how we live together in peace.

 

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