The Driving Force of the Market is Creativity
No story in economics is as powerful as is Leonard Read’s 1958 “I, Pencil.” Encountering this story can completely change your understanding of society. Just as Adam Smith did 182 years earlier when contemplating an ordinary woolen coat, Read marveled at the vast amount of human knowledge, effort, and cooperation that are daily harnessed to make available an inexpensive and mundane product.
Ordinary commercial-grade pencils – pencils of the sort that today are so abundant that they are often given away free of charge and found routinely in the back of junk drawers and beneath couch cushions – are the result of the labour of literally hundreds of millions of highly specialised workers spread across the globe. Nearly all of these workers are strangers both to each other and to persons who use pencils.
Almost none of the workers who help produce pencils are aware that among the many results of their efforts will be pencils. More amazingly, the amount of knowledge that must be acted upon to produce each pencil is so vast that it is impossible for any one person or committee of geniuses to possess that knowledge. If you doubt this claim, ponder the amount of knowledge required to produce only the pencil’s wooden casing. This casing is produced from a cedar tree the felling of which requires a saw the manufacturing of which requires steel the production of which requires iron ore the extraction of which requires specialised knowledge of mining and the processing of which requires specialized knowledge of smelting. This list of required bits of specialised knowledge would have to be extended enormously before covering all the productive steps necessary to produce even a pencil’s wooden casing.
All of us use pencils regularly, yet almost none of us has any idea where to find the iron ore that is necessary to fell cedar trees. And even the few of us who do have this particular knowledge are utterly ignorant of how to fashion iron ore into steel and steel into saw blades. Yet somehow the hundreds of millions of specialised workers, each of whom has access to a small portion of the necessary knowledge for making pencils, are led to cooperate with each other in ways that make pencils available in abundance.
It’s worth repeating: the production of each pencil requires the knowledge and effort of literally hundreds of millions of people. And, of course, what’s true for the lowly pencil is true, and even more impressively so, for far more complex goods such as smart phones, light bulbs, automobiles, and antibacterial ointments.
To grasp the reality of the astonishing degree of unplanned – and unplannable – cooperation that makes the likes of pencils plentiful is to appreciate the stupendous productive power of free markets. Our world is one of astounding human cooperation, unplanned and unplannable yet remarkably productive. Keep this reality in mind when you next encounter someone using a microphone or computer or smartphone – or pencil – while proclaiming that “capitalism isn’t working.”
But there’s yet another slice of reality that is revealed by pondering pencils. This other slice was given no prominence by either Leonard Read or Adam Smith, but this other slice is no less remarkable than is the extensive and unplanned web of productive cooperation that each man did successfully highlight.
This other slice of economic reality is the immense amount of human creativity necessary to make possible not only modern marvels such as commercial air travel, music and movie streaming, and science-based health care, but even apparently humdrum items such as pencils.
Gaze at a pencil. Someone deep in the mists of history had the creative idea of using such a handheld tool to sketch marks on a surface. As banal as such a discovery sounds, there was a time in human history when it hadn’t yet been made.
Someone else had the creative idea of mixing graphite with clay to produce the (misnamed) “lead” that is at the core of each modern pencil. A different person creatively figured out the usefulness of encasing the “lead” inside of wood, while yet another individual’s creativity gave us erasers attached to each pencil’s top.
Literally every aspect of a pencil is the result of human creativity. The materials out of which the pencil is made, each of the many processes for fashioning those materials into a pencil, and the financing that makes those processes feasible first had to be thought of by a human mind. Without human creativity there is no paint to cover the pencil and no dyes to color that paint yellow, no rubber used as an eraser and no aluminium for making the ferrule that attaches the eraser to the pencil, no tires and internal-combustion engines and diesel fuel for transporting inputs to pencil factories and pencils to office-supply stores, no saw blades for felling trees, no liability insurance and commercial credit for making the operation of mining and manufacturing firms feasible; there’s no anything. Each and every one of these products and processes exists only because individuals were led to creatively think each one up and to figure out how to apply the idea in reality.
Each pencil, seemingly so simple and obvious, is a monument not only to human cooperation coordinated by the price system, but also to human creativity and innovation.
This creativity and innovation are indispensable to our way of life. Without them, most of us would be dead, and the few of us alive would be mired in poverty unimaginable. As Deirdre McCloskey emphasises, the great triumph of capitalism – what she appropriately calls “innovism” – is the unleashing of human creativity, and the testing of this creativity in competitive markets in which individuals spend their own money as they choose. Only in the past 300 years has human creativity been tapped in a way that has turned it from a slow trickle into a gushing torrent. It’s no coincidence that only in the past 300 years have human living standards skyrocketed.
But here’s another fact about creativity: by its nature it is unpredictable. It cannot be planned. While this observation, so stated, sounds trite, it is a fact ignored by those who call for the government to superintend commerce.
Because economic growth is overwhelmingly a process of entrepreneurial creativity, economic growth is overwhelmingly a process of unpredictable and unplannable change. Proponents of using protectionism and industrial policy to channel economic growth along some pre-conceived path do not understand the source of economic growth. They do not understand that their schemes for consciously directing growth according to their bureaucratic blueprints and academic fancies will unavoidably, by reducing creativity, reduce economic growth and over the long run harm the very people whom they wish to help.
Ordinary commercial-grade pencils – pencils of the sort that today are so abundant that they are often given away free of charge and found routinely in the back of junk drawers and beneath couch cushions – are the result of the labour of literally hundreds of millions of highly specialised workers spread across the globe. Nearly all of these workers are strangers both to each other and to persons who use pencils.
No One Knows How to Make a Pencil
Almost none of the workers who help produce pencils are aware that among the many results of their efforts will be pencils. More amazingly, the amount of knowledge that must be acted upon to produce each pencil is so vast that it is impossible for any one person or committee of geniuses to possess that knowledge. If you doubt this claim, ponder the amount of knowledge required to produce only the pencil’s wooden casing. This casing is produced from a cedar tree the felling of which requires a saw the manufacturing of which requires steel the production of which requires iron ore the extraction of which requires specialised knowledge of mining and the processing of which requires specialized knowledge of smelting. This list of required bits of specialised knowledge would have to be extended enormously before covering all the productive steps necessary to produce even a pencil’s wooden casing.
All of us use pencils regularly, yet almost none of us has any idea where to find the iron ore that is necessary to fell cedar trees. And even the few of us who do have this particular knowledge are utterly ignorant of how to fashion iron ore into steel and steel into saw blades. Yet somehow the hundreds of millions of specialised workers, each of whom has access to a small portion of the necessary knowledge for making pencils, are led to cooperate with each other in ways that make pencils available in abundance.
It’s worth repeating: the production of each pencil requires the knowledge and effort of literally hundreds of millions of people. And, of course, what’s true for the lowly pencil is true, and even more impressively so, for far more complex goods such as smart phones, light bulbs, automobiles, and antibacterial ointments.
To grasp the reality of the astonishing degree of unplanned – and unplannable – cooperation that makes the likes of pencils plentiful is to appreciate the stupendous productive power of free markets. Our world is one of astounding human cooperation, unplanned and unplannable yet remarkably productive. Keep this reality in mind when you next encounter someone using a microphone or computer or smartphone – or pencil – while proclaiming that “capitalism isn’t working.”
Don’t Ignore Human Creativity
But there’s yet another slice of reality that is revealed by pondering pencils. This other slice was given no prominence by either Leonard Read or Adam Smith, but this other slice is no less remarkable than is the extensive and unplanned web of productive cooperation that each man did successfully highlight.
This other slice of economic reality is the immense amount of human creativity necessary to make possible not only modern marvels such as commercial air travel, music and movie streaming, and science-based health care, but even apparently humdrum items such as pencils.
Gaze at a pencil. Someone deep in the mists of history had the creative idea of using such a handheld tool to sketch marks on a surface. As banal as such a discovery sounds, there was a time in human history when it hadn’t yet been made.
Someone else had the creative idea of mixing graphite with clay to produce the (misnamed) “lead” that is at the core of each modern pencil. A different person creatively figured out the usefulness of encasing the “lead” inside of wood, while yet another individual’s creativity gave us erasers attached to each pencil’s top.
Literally every aspect of a pencil is the result of human creativity. The materials out of which the pencil is made, each of the many processes for fashioning those materials into a pencil, and the financing that makes those processes feasible first had to be thought of by a human mind. Without human creativity there is no paint to cover the pencil and no dyes to color that paint yellow, no rubber used as an eraser and no aluminium for making the ferrule that attaches the eraser to the pencil, no tires and internal-combustion engines and diesel fuel for transporting inputs to pencil factories and pencils to office-supply stores, no saw blades for felling trees, no liability insurance and commercial credit for making the operation of mining and manufacturing firms feasible; there’s no anything. Each and every one of these products and processes exists only because individuals were led to creatively think each one up and to figure out how to apply the idea in reality.
Each pencil, seemingly so simple and obvious, is a monument not only to human cooperation coordinated by the price system, but also to human creativity and innovation.
This creativity and innovation are indispensable to our way of life. Without them, most of us would be dead, and the few of us alive would be mired in poverty unimaginable. As Deirdre McCloskey emphasises, the great triumph of capitalism – what she appropriately calls “innovism” – is the unleashing of human creativity, and the testing of this creativity in competitive markets in which individuals spend their own money as they choose. Only in the past 300 years has human creativity been tapped in a way that has turned it from a slow trickle into a gushing torrent. It’s no coincidence that only in the past 300 years have human living standards skyrocketed.
Creativity Cannot be Planned
But here’s another fact about creativity: by its nature it is unpredictable. It cannot be planned. While this observation, so stated, sounds trite, it is a fact ignored by those who call for the government to superintend commerce.
Because economic growth is overwhelmingly a process of entrepreneurial creativity, economic growth is overwhelmingly a process of unpredictable and unplannable change. Proponents of using protectionism and industrial policy to channel economic growth along some pre-conceived path do not understand the source of economic growth. They do not understand that their schemes for consciously directing growth according to their bureaucratic blueprints and academic fancies will unavoidably, by reducing creativity, reduce economic growth and over the long run harm the very people whom they wish to help.
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He writes a blog called Cafe Hayek and a regular column on economics for the Pittsburgh Tribune-Review.
Pic by Success. This column first appeared at the AIER blog.
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