ENJOY YOUR READING
I, Pencil
My Family Tree as told to Leonard E. Read
Leonard Read
Foundation for Economic Education
December 1958
"Leonard Read's delightful story, 'I, Pencil,' has become a classic, and deservedly so. I know of no other piece of literature that so succinctly, persuasively, and effectively illustrates the meaning of both Adam Smith's invisible handthe possibility of cooperation without coercionand Friedrich Hayek's emphasis on the importance of dispersed knowledge and the role of the price system in communicating information that 'will make the individuals do the desirable things without anyone having to tell them what to do.'" (Professor Milton Friedman, the 1976 Nobelist in Economic Science)
I am a lead pencilthe ordinary wooden pencil familiar to all boys and girls and adults who can read and write*.
Writing is both my vocation and my avocation; thats all I do.
You may wonder why I should write a genealogy. Well, to begin with, my story is interesting. And, next, I am a mysterymore so than a tree or a sunset or even a flash of lightning. But, sadly, I am taken for granted by those who use me, as if I were a mere incident and without background. This supercilious attitude relegates me to the level of the commonplace. This is a species of the grievous error in which mankind cannot too long persist without peril. For, the wise G. K. Chesterton observed, We are perishing for want of wonder, not for want of wonders.
I, Pencil, simple though I appear to be, merit your wonder and awe, a claim I shall attempt to prove. In fact, if you can understand meno, thats too much to ask of anyoneif you can become aware of the miraculousness which I symbolize, you can help save the freedom mankind is so unhappily losing. I have a profound lesson to teach. And I can teach this lesson better than can an automobile or an airplane or a mechanical dishwasher becausewell, because I am seemingly so simple.
Simple? Yet, not a single person on the face of this earth knows how to make me. This sounds fantastic, doesnt it? Especially when it is realized that there are about one and one-half billion of my kind produced in the U.S.A. each year.
Pick me up and look me over. What do you see? Not much meets the eyetheres some wood, lacquer, the printed labeling, graphite lead, a bit of metal, and an eraser.
Innumerable Antecedents
Just as you cannot trace your family tree back very far, so is it impossible for me to name and explain all my antecedents. But I would like to suggest enough of them to impress upon you the richness and complexity of my background.
My family tree begins with what in fact is a tree, a cedar of straight grain that grows in Northern California and Oregon. Now contemplate all the saws and trucks and rope and the countless other gear used in harvesting and carting the cedar logs to the railroad siding. Think of all the persons and the numberless skills that went into their fabrication: the mining of ore, the making of steel and its refinement into saws, axes, motors; the growing of hemp and bringing it through all the stages to heavy and strong rope; the logging camps with their beds and mess halls, the cookery and the raising of all the foods. Why, untold thousands of persons had a hand in every cup of coffee the loggers drink!
The logs are shipped to a mill in San Leandro, California. Can you imagine the individuals who make flat cars and rails and railroad engines and who construct and install the communication systems incidental thereto? These legions are among my antecedents.
Consider the millwork in San Leandro. The cedar logs are cut into small, pencil-length slats less than one-fourth of an inch in thickness. These are kiln dried and then tinted for the same reason women put rouge on their faces. People prefer that I look pretty, not a pallid white. The slats are waxed and kiln dried again. How many skills went into the making of the tint and the kilns, into supplying the heat, the light and power, the belts, motors, and all the other things a mill requires? Sweepers in the mill among my ancestors? Yes, and included are the men who poured the concrete for the dam of a Pacific Gas & Electric Company hydroplant which supplies the mills power!
Dont overlook the ancestors present and distant who have a hand in transporting sixty carloads of slats across the nation.
Once in the pencil factory$4,000,000 in machinery and building, all capital accumulated by thrifty and saving parents of mineeach slat is given eight grooves by a complex machine, after which another machine lays leads in every other slat, applies glue, and places another slat atopa lead sandwich, so to speak. Seven brothers and I are mechanically carved from this wood-clinched sandwich.
My lead itselfit contains no lead at allis complex. The graphite is mined in Ceylon. Consider these miners and those who make their many tools and the makers of the paper sacks in which the graphite is shipped and those who make the string that ties the sacks and those who put them aboard ships and those who make the ships. Even the lighthouse keepers along the way assisted in my birthand the harbor pilots.
The graphite is mixed with clay from Mississippi in which ammonium hydroxide is used in the refining process. Then wetting agents are added such as sulfonated tallowanimal fats chemically reacted with sulfuric acid. After passing through numerous machines, the mixture finally appears as endless extrusionsas from a sausage grinder-cut to size, dried, and baked for several hours at 1,850 degrees Fahrenheit. To increase their strength and smoothness the leads are then treated with a hot mixture which includes candelilla wax from Mexico, paraffin wax, and hydrogenated natural fats.
My cedar receives six coats of lacquer. Do you know all the ingredients of lacquer? Who would think that the growers of castor beans and the refiners of castor oil are a part of it? They are. Why, even the processes by which the lacquer is made a beautiful yellow involve the skills of more persons than one can enumerate!
Observe the labeling. Thats a film formed by applying heat to carbon black mixed with resins. How do you make resins and what, pray, is carbon black?
My bit of metalthe ferruleis brass. Think of all the persons who mine zinc and copper and those who have the skills to make shiny sheet brass from these products of nature. Those black rings on my ferrule are black nickel. What is black nickel and how is it applied? The complete story of why the center of my ferrule has no black nickel on it would take pages to explain.
Then theres my crowning glory, inelegantly referred to in the trade as the plug, the part man uses to erase the errors he makes with me. An ingredient called factice is what does the erasing. It is a rubber-like product made by reacting rape-seed oil from the Dutch East Indies with sulfur chloride. Rubber, contrary to the common notion, is only for binding purposes. Then, too, there are numerous vulcanizing and accelerating agents. The pumice comes from Italy; and the pigment which gives the plug its color is cadmium sulfide.
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No One Knows
Does anyone wish to challenge my earlier assertion that no single person on the face of this earth knows how to make me?
Actually, millions of human beings have had a hand in my creation, no one of whom even knows more than a very few of the others. Now, you may say that I go too far in relating the picker of a coffee berry in far off Brazil and food growers elsewhere to my creation; that this is an extreme position. I shall stand by my claim. There isnt a single person in all these millions, including the president of the pencil company, who contributes more than a tiny, infinitesimal bit of know-how. From the standpoint of know-how the only difference between the miner of graphite in Ceylon and the logger in Oregon is in the type of know-how. Neither the miner nor the logger can be dispensed with, any more than can the chemist at the factory or the worker in the oil fieldparaffin being a by-product of petroleum.
Here is an astounding fact: Neither the worker in the oil field nor the chemist nor the digger of graphite or clay nor any who mans or makes the ships or trains or trucks nor the one who runs the machine that does the knurling on my bit of metal nor the president of the company performs his singular task because he wants me. Each one wants me less, perhaps, than does a child in the first grade. Indeed, there are some among this vast multitude who never saw a pencil nor would they know how to use one. Their motivation is other than me. Perhaps it is something like this:
Each of these millions sees that he can thus exchange his tiny know-how for the goods and services he needs or wants. I may or may not be among these items.
No Master Mind
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. Instead, we find the Invisible Hand at work. This is the mystery to which I earlier referred.
It has been said that only God can make a tree. Why do we agree with this? Isnt it because we realize that we ourselves could not make one? Indeed, can we even describe a tree? We cannot, except in superficial terms. We can say, for instance, that a certain molecular configuration manifests itself as a tree. But what mind is there among men that could even record, let alone direct, the constant changes in molecules that transpire in the life span of a tree? Such a feat is utterly unthinkable!
I, Pencil, am a complex combination of miracles: a tree, zinc, copper, graphite, and so on. But to these miracles which manifest themselves in Nature an even more extraordinary miracle has been added: the configuration of creative human energiesmillions of tiny know-hows configurating naturally and spontaneously in response to human necessity and desire and in the absence of any human master-minding! Since only God can make a tree, I insist that only God could make me. Man can no more direct these millions of know-hows to bring me into being than he can put molecules together to create a tree.
The above is what I meant when writing, If you can become aware of the miraculousness which I symbolize, you can help save the freedom mankind is so unhappily losing. For, if one is aware that these know-hows will naturally, yes, automatically, arrange themselves into creative and productive patterns in response to human necessity and demandthat is, in the absence of governmental or any other coercive mastermindingthen one will possess an absolutely essential ingredient for freedom: a faith in free people. Freedom is impossible without this faith.
Once government has had a monopoly of a creative activity such, for instance, as the delivery of the mails, most individuals will believe that the mails could not be efficiently delivered by men acting freely. And here is the reason: Each one acknowledges that he himself doesnt know how to do all the things incident to mail delivery. He also recognizes that no other individual could do it. These assumptions are correct. No individual possesses enough know-how to perform a nations mail delivery any more than any individual possesses enough know-how to make a pencil. Now, in the absence of faith in free peoplein the unawareness that millions of tiny know-hows would naturally and miraculously form and cooperate to satisfy this necessitythe individual cannot help but reach the erroneous conclusion that mail can be delivered only by governmental master-minding.
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Testimony Galore
If I, Pencil, were the only item that could offer testimony on what men and women can accomplish when free to try, then those with little faith would have a fair case. However, there is testimony galore; its all about us and on every hand. Mail delivery is exceedingly simple when compared, for instance, to the making of an automobile or a calculating machine or a grain combine or a milling machine or to tens of thousands of other things. Delivery? Why, in this area where men have been left free to try, they deliver the human voice around the world in less than one second; they deliver an event visually and in motion to any persons home when it is happening; they deliver 150 passengers from Seattle to Baltimore in less than four hours; they deliver gas from Texas to ones range or furnace in New York at unbelievably low rates and without subsidy; they deliver each four pounds of oil from the Persian Gulf to our Eastern Seaboardhalfway around the worldfor less money than the government charges for delivering a one-ounce letter across the street!
The lesson I have to teach is this: Leave all creative energies uninhibited. Merely organize society to act in harmony with this lesson. Let societys legal apparatus remove all obstacles the best it can. Permit these creative know-hows freely to flow. Have faith that free men and women will respond to the Invisible Hand. This faith will be confirmed. I, Pencil, seemingly simple though I am, offer the miracle of my creation as testimony that this is a practical faith, as practical as the sun, the rain, a cedar tree, the good earth.
* My official name is "Mongol 482." My many ingredients are assembled, fabricated, and finished by Eberhard Faber Pencil Company.
MONEY
The History of Money
(Chronology)
Inthe Beginning
Barter is the exchange of resources or services for mutual advantage, and may date back to the beginning of humankind. Some would even argue that it's not purely a human activity; plants and animals have been bartering -- in symbiotic relationships - for millions of years. In any case, barter among humans certainly pre-dates the use of money. Today individuals, organizations, and governments still use, and often prefer, barter as a form of exchange of goods and services.
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Barter
9,000 -- 6,000 BC: Cattle
Cattle, which include anything from cows, to sheep, to camels, are the first and oldest form of money. With the advent of agriculture came the use of grain and other vegetable or plant products as a standard form of barter in many cultures.
1,200 BC: Cowrie Shells
The first use of cowries, the shell of a mollusc that was widely available in the shallow waters of the Pacific and IndianOceans, was in China. Historically, many societies have used cowries as money, and even as recently as the middle of this century, cowries have been used in some parts of Africa. The cowrie is the most widely and longest used currency in history.
1,000 BC: First Metal Money and Coins
Bronze and Copper cowrie imitations were manufactured by China at the end of the Stone Age and could be considered some of the earliest forms of metal coins. Metal tool money, such as knife and spade monies, was also first used in China. These early metal monies developed into primitive versions of round coins. Chinese coins were made out of base metals, often containing holes so they could be put together like a chain.
500 BC: Modern Coinage
Outside of China, the first coins developed out of lumps of silver. They soon took the familiar round form of today, and were stamped with various gods and emperors to mark their authenticity. These early coins first appeared in Lydia, which is part of present-day Turkey, but the techniques were quickly copied and further refined by the Greek, Persian, Macedonian, and later the Roman empires. Unlike Chinese coins which depended on base metals, these new coins were made from precious metals such as silver, bronze, and gold, which had more inherent value.
118 BC: Leather Money
Leather money was used in China in the form of one-foot-square pieces of white deerskin with colorful borders. This could be considered the first documented type of banknote.
800 - 900 AD: The Nose
The phrase "To pay through the nose" comes from Danes in Ireland, who slit the noses of those who were remiss in paying the Danish poll tax.
806 AD: Paper Currency
The first paper banknotes appeared in China. In all, China experienced over 500 years of early paper money, spanning from the ninth through the fifteenth century. Over this period, paper notes grew in production to the point that their value rapidly depreciated and inflation soared. Then beginning in 1455, the use of paper money in China disappeared for several hundred years. This was still many years before paper currency would reappear in Europe, and three centuries before it was considered common.
1500s: Potlach
"Potlach" comes from a Chinook Indian custom that existed in many North American Indian cultures. It is a ceremony where not only were gifts exchanged, but dances, feasts, and other public rituals were performed. In some instances potlach was a form of initiation into secret tribal societies. Because the exchange of gifts was so important in establishing a leader's social rank, potlach often spiralled out of control as the gifts became progressively more lavish and tribes put on larger and grander feasts and celebrations in an attempt to out-do each other.
1535: Wampum
The earliest known use of wampum, which are strings of beads made from clam shells, was by North American Indians in 1535. Most likely, this monetary medium existed well before this date. The Indian word "wampum" means white, which was the color of the beads.
1816: The Gold Standard
Gold was officially made the standard of value in England in 1816. For centuries earlier silver had been the standard of value. The pound was originally an amount of silver weighing a pound. France and the United States were in favour of a bimetallic standard, and in 1867 an international conference was held in Paris to try and widen the area of common currencies based on coins with standard weights of gold and silver. However when the various German states merged into a single country in 1871 they chose the gold standard. The Scandinavian countries adopted the gold standard shortly afterwards. France made the switch from bimetallism to gold in 1878 and Japan, which had been on a silver standard, changed in 1897. Finally, in 1900, the United States officially adopted the gold standard.
1930: End of the Gold Standard
The massive Depression of the 1930's, felt worldwide, marked the beginning of the end of the gold standard. In 1931 Britain, followed by most of the Commonwealth,Ireland, Scandinavia, Iraq, Portugal, Thailand, and some South American countries abandoned gold.
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In the United States, the gold standard was revised and the price of gold was devalued. This was the first step in ending the relationship altogether, and the complexities of international monetary regulation began.
The Present:Paper Money and Coins
Today, every country has its own local currency. The states, members of the European Union, have their common currency the euro.
The Future: Electronic Money
Digital cash in the form of bits and bytes will most likely become an important new currency of the future.
Excerpts from the book The Banker by Leslie Waller
Extract 1
Virginia Clary and Woods Palmer sat in silence until the waitress had moved away.
"You're a second-generation banker," she said.
"Third. My grandfather founded the bank."
"None of us were quite sure why you were chosen over the heads of some of the old-timers around the shop, or a man from another New York bank who knew the local set-up. But I begin to see the logic of the choice."
"The usual move," Palmer explained, "is to pick a man who's a senior partner in the law firm that represents the bank. The future of the world belongs to lawyers, anyway."
"They picked you against a trend?" She thought for a moment. "I doubt it. I think they wanted somebody with banking in his blood."
"I imagine I'll have to take that as a compliment." He sighed. "There're a lot of things about being chosen by Ubco that still haven't been answered to my satisfaction."
"Such as?"
Palmer shrugged slowly. "Technical things," he parried, unwilling to let the matter go any further. It was easy enough, he told himself, to let pleasant conversation with an agreeable dinner partner spill over into the exchange of confidences that weren't meant for exchange. He glanced up at Virginia Clary. Not, he decided, that she'd divulge many confidences about herself. She looked too intelligent for that.
"Ifyou'd-"
"Which reminds me," Palmer cut in, determined to get away from his previous words, "we haven't even begun making a dent in your colossal mound of banking ignorance."
Her eyes widened in mock chagrin. "I'm beginning to feellike a terrible liability to the firm."
"Take comfort from the fact that you probably know more than most of the people in the shop."
"1 know about interest rates and personal loans and amortization and the Federal Reserve and like that," she rattled off. "What am I missing?"
"As we say in public relations, the Big Picture."
Palmer looked up as the waitress brought their coffee. He watched Virginia Clary add cream and sugar and stir it with slow, full sweeps of the spoon. "Something 1 said before," he began then. "About money being as important to modem man as air and food. That's the frame of reference you have to understand."
"Believe me, no one has to explain the importance of money to me."
"Let's call it the necessity of money," he amended.
"There are still places on earth where you can trade a dozen spearheads for a side of dried beef. But they're not the places where history and progress are being made."
"These miserable bartering folks have no A-bombs or moon rockets."
He looked up at her. "You are baiting me again."
"Sorry. Mother's influence. I really do want to know."
"Fine." Palmer sipped his coffee and found it good. "As we get a more highly organized society, money begins to become more important than anything else. Eventually, we reach the stage we're in now. Money buys a man the food he eats, the clothes on his back, care when sick, the roof over him, his education, his recreation, everything. Without money, he can't even die properly, unless he wants to lie in Potter's Field. It's become that sharp a definition: without money, man cannot live or die with decency."
"Is that good?"
"Probably not," Palmer said. "But we are not philosophers, we're bankers. We supply, safeguard, control and define the most precious commodity of life money."
"More precious than anything?"
"Suggest some other commodities."
"Health?" she asked.
"Preserved and recovered through money."
"I see. And things like, oh, love or hate. Money buys them."
Palmer hunched himself forward until both his elbows rested on the small walnut table. "Try to understand that we're not conducting a philosophical analysis. A man can live without love or hate. Without friends. Without the gratification of desires. But he cannot live, on the material plane, without money."
"That's only one plane of living," she demurred.
Palmer shook his head. "Not at all. Quite the contrary, if anything."
She watched him for a moment, then sat back and folded her hands in her lap. "Anyway," she said then, "that's all there is to the history of Virginia Clary, Except that I'm working on my mother every spare moment I get, trying to wean her from this unreasoning hatred of banks."
"You could have lied to her, told her you were working in a house of ill fame."
"I thought of that," she said. "But then she'd insist on me going to Mass every morning. It's easier this way."
Without warning, the waitress plopped menus in front of them with the question, "Dessert?"
"Just coffee," Virginia Clary said.
"The same."
"You get dessert on the dinner," the waitress reminded Palmer.
"I know."
"Just coffee, please."
"Yes, sir."
Extract 2
Woods Palmer sipped his coffee and sat back in his chair. "What do banks do with money? We keep it in vaults where it can't be stolen, except occasionally. We invest it in bonds and stocks and mortgages and business and personal loans. We handle it. We channel it. We tell it what to do. We mold it and teach it. We create it."
"Money? What do we do, print it?"
"Almost literally," he said.
"Is that legal?"
"Perfectly," Palmer assured her. "As a Federal Reserve Bank, we create a brand-new dollar out of thin air for every four dollars we take in."
"Is that good?"
He slapped his hand palm down on the arm of his chair. "Stop asking philosophical questions. It probably is the worst thing that could happen to the United States of America and our great-grandchildren will pay for it dearly. But right now it's the money that makes our particular mare go."
"In other words, we're responsible for printing money that isn't based on silver?"
In other words, we're creating inflation," Palmer told her. "But inflation is what the American people want."
"You don't really believe that."
"It's not a question of belief. It's a fact. People want to buy all kinds of gimcracks, twenty-one-inch color television sets, two-door refrigerators, overpowered automobiles. They refuse to wait until they have saved up money^ Like little children, when they want something they want it now. All right, behind every automobile and television set stands a man willing to sell.
him the money and get paid for the favor by charging his customer carrying charges. But they need their money now, too. Where do they get it? Most of them don't have enough money to cover the tremendous amount of time. buying that goes on. So, behind them stand banks, providing the money, and more until the supply of money begins to run a little short. You wonder where it's all coming from. But you know where it's coming from. It's rolling off the printing presses."
He stopped, suddenly aware of the fact that his voice had grown in intensity until a man two tables away glanced at him. In the odd silence that followed, Palmer stubbed out his cigarette and wondered why he had got so excited.
"You were beginning to sound like a philosopher there for a second," Virginia Clary said then.
"I do have a philosophy about money," Palmer admitted. "It's an archaic one that would probably wreck the country inside of a week if we ever put it into effect. It's a banker's view of money with centuries of banking behind it."
She leaned forward toward him, watching very closely now. "Tell me this explosive philosophy."
Palmer laughed briefly, without much joy. "Don't spend what you don't have," he said then. "So simple. So impossible." He laid his hands palms up on the small table between them. "When you see a lovely gimcrack, resist the urge to own it at once. Save for it. Then buy it. Chances are, by then the urge to own it will have passed, anyway."
Her rather full eyebrows drew together in an expression of pain. "Oh," she said, "what a terribly limited way to live. I wouldn't like it at all."
Palmer shrugged. "If by limited you mean disciplined, yes."
"Disciplined? Does that sound any better?" She shook her head. "It's a bleak, stark, cold way of life. No adventure, no excitement."
"No problems, no crises."
"You see?" she pounced. "It isn't a way of life at all. It's preview of death."
"Nonsense."
"What is life all about?" she asked. "Problems and crises. Seeing something lovely and wanting it now and taking it and paying for it later."
"Whose life are we talking about?" Palmer wanted to know.
She frowned again. "Yes," she said, "that's right, isn't it? Not everybody wants to live that way. I forgot."
