The Enduring Lesson of I, Pencil

As President Obama embarks on his second term, we’ll have to see whether he conjures up the specters of his controversial campaign moments. Recall his insistence that “if you have a business, you didn’t build that.” That upset a lot of people. But here’s the thing about that memorable line: If you have a business, there is a sense in which you didn’t build it all on your own.

Obama was right—but for the wrong reasons.

The President implied business owners are dependent on government largesse and infrastructure, as well as community goodwill. In fact, business owners rely on a much bigger and more sustainable resource: the millions of self-interested individuals who engage in market activity around the globe. If this had been what Obama was implying, we might be on our way to a quick recovery.

Declaration of Interdependence

In his 1958 essay “I, Pencil,” Leonard E. Read explains how an ordinary wooden pencil is made. It’s a long, complicated process, from the harvesting of cedars for the pencil body to the mixing of clay for the eraser. No man on earth can make a pencil by himself, Read says, because the pencil is the end product of a complex chain of human activity.

Not even the CEO of a pencil company possesses the knowledge necessary to make a pencil. The CEO relies on loggers, truckers, miners, and factory workers; and these workers in turn rely on the men and women who manufacture saws, trucks, equipment and machines. All of these individuals contribute little bits of know-how to the production of an ordinary pencil, and they do so in pursuit of their own interests. Their voluntary cooperation makes the pencil possible.

Every single modern business owner, like the CEO of a pencil company, must depend in part on the knowledge and labor of others. It’s interdependence. Even a small business owner working out of her home relies on others to develop software tools and other services she needs. She is not relying on others’ charity, goodwill, or civic duty. She is relying on the fact that they’ll be looking for rewards for serving her well. This is not to argue that charity, goodwill or civic duty are unimportant. It’s that these can’t make a pencil.

Contrary to myth, entrepreneurs are not islands unto themselves. Nobody acting in markets is self-sufficient; markets, by their nature, incentivize cooperation among people. Indeed, markets pull individuals to arrange themselves into interactive patterns of connectivity, trade and production that go beyond traditional, cultural and national boundaries. In pursuit of their individual interests, people who are strangers to each other—who might even hate each other if they ever met—unwittingly work in collaboration. This collaboration makes possible products that would otherwise be impossible. And every day, new interactions seed new markets worldwide.

Yet people take this incredible cooperation for granted. President Obama’s comments about business owners and the immediate backlash both fell into a strange set of false narratives that pit community values against market values. In truth, markets are connecting forces, aligning individual interests so that people are helping people they’ll never meet.

Energies Uninhibited

In the words of Leonard Read, the lesson of “I, Pencil” is: “Leave all creative energies uninhibited.” Today, federal regulations cost Americans $1.75 trillion annually, according to my CEI colleague Wayne Crews. Many of these regulations significantly and unduly curb creative economic activity, preventing the founding of new businesses or the growth of existing ones. High taxes and fees suffocate fledgling markets; tariffs thwart trade across our borders; and strict immigration laws restrict collaboration with talented people born in other countries.

As our leaders begin to deal with the serious economic challenges that confront us, they’d do well to acknowledge the best economic stimulus would be to help unleash Read’s creative energies. Voluntary activities – coordinated largely by prices and property rights – have given rise to the everyday wonders of our modern world. It’s through entrepreneurial fire, productivity, and free exchange that we’ll eventually grow our way out of our troubling economic conditions. In fact, it’s the only way we will.