We take for granted much of what we have in the world today. Our basic necessities – food, shelter and clothing – are easily accessible to nearly everyone in the developed world, and things that were once considered luxury items, such as televisions and refrigerators, have become common items in even the poorest of homes. Why do we have all of these possessions so readily available to us? Leonard Read’s explanation can be found in his examination of a pencil’s life.
Read considers it a miracle that even so simple an object as a pencil exists, for no one person knows how to make it. Rather, it is the spontaneous order of the market that allows the pencil to come into existence. The spontaneous order of the market is only possible when individuals have the freedom to exchange their goods and services for those goods and services of others. Erin A. Yetter explained why trade occurs: “People (or entire countries) trade because they will enjoy a wider variety of goods.”
The pencil is a perfect example of one of these “wider variety of goods” that exist because of trade. Read traces the origin of the pencil to the tree, and all the tools that were required to saw down that tree – and all the skills that went into the creation of those tools. The logs are then shipped via train or car (again involving all the individuals who made the cars, trains, roads and railroad tracks) to the lumber mill. The raw materials of the pencil continue to accumulate into what eventually becomes a simple writing utensil, utilized by millions of people every day.
Thousands contributed to the creation of the pencil, whether directly via cutting down the tree, or indirectly by paving the roads used to ship the pencils to the local supermarket. This incredibly complex process can only occur because of trade. Trade allows individuals to specialize in particular fields of work. For example, an individual could theoretically create a single pencil by himself. He could chop down the tree, mine the graphite, zinc and copper, grow castor beans for the lacquer, and label it himself.
But that would require years, if not longer! But with trade, he no longer needs to burden himself with creating the entire pencil. Instead, he can specialize in just one aspect – say, mining the graphite. Everyone else specializes in another task, and eventually, not just one, but billions of pencils are created. Even if someone was the best lumber jack, the best miner and the best farmer – in other words, he has an absolute advantage in those tasks – it is still prudent to specialize in the task with the lowest opportunity cost.
The skill with the lowest opportunity cost for him gives him a comparative advantage in said skill. For example, the miner has a lower opportunity cost in mining zinc than he does in farming castor beans, meaning that were he to farm, the amount of zinc forgone is greater than the amount of castor beans forgone. Thus, the zinc miner has a comparative advantage in mining, while the castor bean farmer has a comparative advantage in farming.
By specializing in the work where they have their comparative advantage, they can produce more zinc and castor beans than if they were to individually both farm and mine. After farming and mining, the two workers can trade their products, making both better off than before the trade. Without trade and the specialization of labor associated with it, many of the goods and services we take for granted today would not exist. We would be stuck in a primitive society, with everyone trying to produce their own food, shelter, clothing, and of course, pencils.
