Product Manufacturing and the Free Market-A Fresh Perspective – Feb. 18, 2005

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”’Editor’s Note: Ever wonder what Hawaii’s college and high school students are thinking about? Here is a glimpse of some of the best these future leaders have to say about issues that concern them.”’

“I Pencil,”‘ by Leonard E. Read, is a brief, sophisticated story about the
economic forces that penetrate our daily life and help to make us better


Through the story of how a pencil is manufactured Read shows us the
principles of Adam Smith’s “invisible hand.” Pencils, such as many other
items, are not produced for the personal pleasure of the producer; they
are produced to satisfy the needs and desires of other people in the
society; to make their life easier by supplying them with items they
need. In turn, the producer is then rewarded when people buy the
product. Each person involved in the manufacturing is willing to devote
his energy, skills and creativity to produce goods and services in
exchange for the satisfaction of his own needs and wants. Provided that
“all creative energies are left uninhibited” and free of “master mind,”
the producer can manufacture and supply products and services at better
quality, wider range and lower price, than if these processes are
controlled and directed by one single force; such as the government. If
in a free market companies can organize a complicated process of pencil
manufacturing, involving dozens of people, complex equipment and time,
why is it that people only consider government capable of performing
other specific economic activities such as mail delivery, public
transportation, etc.?

There are many examples in the world’s economic history that show that,
in most cases, the governmental “master mind” over production is less
efficient and more expensive than that of private business. The planned
economy in the communist Soviet Union did not consider individual
interests and desires; as a result all products were alike, highly
standardized and lacked creativity and quality. Governmental agencies
and companies, facing no competition, directed the flow of materials,
set designs and models, stipulated the amount of goods to produce,
creating products that couldn’t find their customers. Society then had
to create a grey market to distribute “rare” goods, such as household
appliances, fashionable clothing, furniture etc., while government spent
even more money on sprawling giant factories and power plants. Millions
of dollars perished in the shelves of stores and were thrown away, and
millions of dollars went under the table to the hands of “grey dealers.”
Vice versa, in countries with a free market economy we can find a
variety of goods and services carefully designed and individualized by
companies to fully satisfy customers’ wishes and survive under the
pressure of severe competition. Instead of one standard type of cereal,
parents can find a dozen of them with different flavors, colors and
nutritional components. Instead of one “made at home” car, a man can
purchase a vehicle from any corner of the world. Undoubtedly, it has its
own negative aspect in terms of efficient allocation of resources and
the protection of national economy, but it’s much more desirable the
customers’ point of view. And if you can’t find something you need, go
ahead, start your own business, find and supply your clients and make

Lastly, “I Pencil” shows that every product we use is a result of
complex interaction between people of a society. Such a small and
relatively simple item such as a pencil, for which we rarely pay more
than a dollar, requires an intricate combination of management,
marketing, and logistics. And if we don’t take all that surrounds us for
granted, if people understand the value of each item they use, there
will be more respect for copyrights and patents, which in turn will
bring more ideas and innovations.

”’Pivovarova Anna, 20, is an exchange student from far East Russia. She is currently a student at Hawaii’s Pacific University majoring in economics and marketing. Upon graduation, Anna wants to work as a marketer for a Russian retail company.”’

”’A Fresh Perspective is a project of the Grassroot Institute of Hawaii. Project manager is Stephanie Ghilarducci, Director of Development. Submit proposed articles to her at:”’ ”’addressed: Stephanie. Recommended word count 500-750. Any and all comments or questions regarding articles or authors can also be sent to Stephanie.”’

”’This editorial is intended to provoke thought, discussion and an examination of issues. It does not reflect official policy of the Grassroot Institute of Hawaii. See the GRIH Web site at:”’

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