PEAK OIL THEORY MAKES BIZARRE RETURN.
One of the greatest expositions of the benign power of economic markets is Leonard Read’s essay “I, Pencil,” in which the humblest of writing instruments explains the effortless co- ordinated complexity behind its manufacture. Recently, however, I came across a piece of history that some might claim undermines Read’s message. The modern pencil was the invention of the French government!
This intriguing fact is contained in an entertaining little book, The Perfection of the Paper Clip, by English writer James Ward, who, as his book’s title suggests, is far from concerned with economic policy.
The story goes like this: Adam Smith — father of the Invisible Hand and Read’s self- aware pencil — was barely three years in his grave when France declared war on Great Britain. An economic blockade meant that the French no longer had access to high- quality British pencils. Nor could they access the inferior German variety, so the minister of war, Lazare Carnot, assigned NicolasJacques Conte, a former painter, to develop a domestic version.
French graphite was inferior to the British variety, but Conte developed a process for mixing powdered graphite with clay, which was then extruded into thin rods and fired in a kiln, producing a consistent product. As Ward writes, this “is still the process by which pencils are produced today.”
Given statists’ penchant for finding any rationalization for government as an essential partner in economic growth, I am surprised that interventionists have not seized on this example of the “Entrepreneurial State” ( the title of a book by academic Mariana Mazzucato, which is reportedly of interest to the Trudeau government), particularly given the iconic significance of “I, Pencil.”
Then again, the French Revolution didn’t turn out to be much of a model of economic development, based as it was on terror and dictatorship. Also, justifying a revolution by its refinements in a writing technology surely ranks with rationalizing a multi- billion dollar space program because it produced the non- stick frying pan. Then again, the space race did help give us communications satellites. The critical question is whether such benefits would have appeared without Sputnik.
Markets are inevitably embedded in a political context because markets and politics evolve together in an often uneasy relationship. That makes it difficult to separate out the respective roles of the two in generating growth and wealth. We can’t re- run history, but history surely provides mountains of evidence that governments blunder when they try to get into the innovation game. Unfortunately, the interventionist mentality is inclined to see failure only as valuable input for future intervention.
French companies did not go on to conquer the pencil market. Indeed, France’s resolute dirigisme was one of the reasons Britain’s Industrial Revolution — based on a nation of tinkerers and a ( relatively) laissez- faire environment — left France behind. The pencil manufacture that had started, and continued, in Britain was further developed in Germany, then leaped to the U.S., where it came once more under government influence.
During the Civil War, demand for cheap reliable pencils, with which soldiers could write notes, was cap- italized upon by an entrepreneur named Joseph Dixon. Less than 10 years after the war, Dixon was producing 86,000 pencils a day, thus further elaborating the benefits of Smith’s division of labour, and providing subject matter for Read’s essay.
In fact, the complex, government- permeated history of the pencil — or any technology — in no way undermines t he f undamental message of I, Pencil, which is about the co- ordinating power of money- mediated and profit- driven markets. Moreover, the role of revolution and war in the development of the pencil in fact fits with one of Adam Smith’s key functions of government: defence.
A pencil is rarely considered a killing machine (except in the case of the late Heath Ledger’s Joker in that really dark Batman movie), but it is a communications technology, and communications have always been a key aspect both of defence and the expanding consumer society. To that extent, the pencil is the predecessor of the Internet, which statists claim was another government invention that justifies a greater direct policy role in innovation.
One of the more intriguing claims of Mazzucato is that Steve Jobs’ Apple is really just the beneficiary of government- funded ingenuity in areas such as the Internet, batteries and display technology. Hence, perhaps, the narrative of “I, Pencil” should be replaced by “I, Government iPhone.”
Certainly government is pervasive in the history of technology, but the overarching question is whether it is possible for government to raise overall productivity and growth rates except by promoting Adam Smith’s policy triumvirate of “peace, easy taxes, and a tolerable administration of justice.”
Picking Canadian winners has never turned out well. The most prominent current examples — green energy and Bombardier — don’t offer much hope. Nevertheless, like any thoroughly modern government, the Trudeau Liberals are promising an “Innovation Agenda” devoted to vague buzz concepts such as incubation, acceleration and commercialization. Details to follow on March 22.
On top of carbon taxes and complex boondoggles like the cap- and- trade scheme announced by Ontario this week, we can expect more direct government funding for “low- carbon” technologies. But it doesn’t matter how much the Liberals sharpen their policy pencils, low carbon means low productivity and low growth, which would be going in the wrong direction, even if governments weren’t terrible at picking winners.
HISTORY PROVIDES MOUNTAINS OF EVIDENCE THAT GOVERNMENTS BLUNDER WHEN THEY TRY TO GET INTO THE INNOVATION GAME.