I’m thinking about doing another book, which would be a reply to Henry Hazlitt’s Economics in One Lesson a tract published in 1946, and available online, but still in the Amazon top 1000. It’s largely (as Hazlitt himself says) a rehash of Bastiat.

I’ll try to put up a prospectus soon, but I thought I’d start with something simpler, a response to Leonard Read’s 1958 I, Pencil. This essay is a description of the incredibly complex “family tree” of a simple pencil, making the point that the production of a pencil draws on the work of millions of people, not one of whom could actually make a pencil from scratch, and most of whom don’t know or care that their work contributes to the production of pencils. So far, so good. Read goes on to say that

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.

Hold on a moment!

Read’s first person pencil starts the story like this

My family tree begins with what in fact is a tree, a cedar of straight grain that grows in Northern California and Oregon.

That would probably be in a forest managed by the US Forest Service or the Bureau of Land Management, or maybe a similar state agency.

It goes on to mention “all the persons and the numberless skills” that are involved in forestry and in the various subsequent stages of production. Most of those people would have acquired their basic skills in public schools, and learned more in colleges, trade schools and so on, mostly public or publicly funded.

Next up is the rail trip to San Leandro California. Read’s pencil doesn’t mention the line, but it’s presumably on the network of the Union Pacific Railroad, created by Act of Congress under Abraham Lincoln, with the plan of building a railway line across the US[1].

And, while we learn how the pencil is produced by sandwiching a graphite tube between two wooden slates, the pencil forgets to mention its invention and patenting by Nicolas Conte in the late 18th century. The patent system is a temporary government-created monopoly, and a classic example of the mixed economy[2].

Finally, let’s look at Eberhard Faber, the company that made the pencil. It’s now a subsidiary of Newell Rubbermaid, a multinational consumer goods conglomerate with over 20 000 employees and dozens of different brands. Obviously, someone sees a fair bit of benefit in “dictating and forcibly directing” the work of these thousands of employees, rather than relying exclusively on transactions in the marketplace. And the shareholders seem keen on organizing all this activity under the state-created protection of the limited-liability corporation, rather than acting as independent entrepreneurs.

What can we learn from all this? As Read argues, following Adam Smith, markets can indeed organize very complex production processes, to an extent that might well seem miraculous to anyone who tried to reason about it in the abstract. But that doesn’t mean that markets are the only, or invariably the best, way to organize production.

The majority of economic activity takes place without any direct connection to markets, undertaken in the household or government sector, or within large corporations that trade in the market sector, but use central planning to organize their own activities. The boundaries are constantly shifting as some activities shift between household, government and market sectors, and as households, governments and firms outsource some activities and integrate others.

The fact that a particular form of organization exists and functions does not prove that it is optimal. It is certainly possible to imagine forms of modern society in which markets and private property play no role, or forms in which there are “markets in everything”. And, within the broad class of mixed economies, there’s a wide range of possibilities – most goods and services have somewhere and sometime been provided by governments, and somewhere and sometime by private markets.

Nevertheless, the broad outlines of the mixed economy have remained broadly stable since the 1940s, surviving both the challenge from comprehensive central planning in the Soviet Union and the push for privatisation that began in the 1980s and ended (as a program with a credible theoretical foundation, if not as an ideological agenda) in the Global Financial Crisis. Any serious policy program has to take account of this fact.

fn1. Actually when Read was writing, it was probably the Southern Pacific, successor of the Central Pacific, which built the western half of the line, meeting the Union Pacific line halfway in a marvel of successful planning.

fn2. Libertarians and other free market advocates are divided in their views on patents and other forms of ‘intellectual property’. But their logic-chopping style of argument tends to push them to one or other of the extreme positions, either opposing any patent protection or treating intellectual property similarly to other property, with no time limits. Nozick (and Rothbard) finds an intermediate position, supporting protection against direct copying, but not against independent invention.

For at least the last decade, there has been a boom in work on the economics of happiness. But following Tolstoy[1], I’ve always wondered why we don’t study the economics of unhappiness instead: after all, there’s so much more data.

For the last year or so, I’ve been planning a paper in which I took off from this point and made the case for unhappiness as a driver of economic activity and particularly of economic change (including ‘growth[2]’). But, as usually happens[3] with my thoughts along these lines, it looks as if someone has beaten me to it.

Chris pointed me to this piece by Stefano Bartolini, which argues that people strive to increase their wealth as a response to the negative externalities generated by positional externalities[4] and the destruction of social capital.

I’ve also been reading a translation of Sedlacek’s Economics of Good and Evil, a surprise hit in the original Czech, which discusses many of the same issues, focusing on the contrast between the economics of the ancients and that of Adam Smith.

I have a more positive take on unhappiness. It’s possible, I think, to want something better than what you have (for many different values of “better”) without being actively miserable. In a world where change, both good and bad, is inevitable, cultivating a position of stoical detachment seems to me to be something of a copout[5}

fn1. Tolstoy had his own economic ideas, which drew (not surprisingly for the time, and for a dissident landowner on Henry George)

fn2. Growth, like GDP is a tremendously unsatisfactory and misleading concept when dealing with complicated economic aggregates, some components increasing and others decreasing. But that’s another post.

fn3. Often by a fair stretch of time, as I’m very slack about reading the literature. I was very pleased with my discovery of Ramsey’s Rule of Saving until I discovered that Ramsey had got there first.

fn4. To translate from the economese, the fact that some social benefits depend more on your relative position than your absolute wealth means that if one person becomes better off, others are worse off.

fn5. Does this useful slang term have an equivalent in formal English? I can’t think of one that isn’t a paraphrase.