The story, I, Pencil, demonstrates many economic principles. Having every part of the pencil made in different areas around the world, trees grown in Northern California and Oregon, graphite mined from Sri Lanka, and a rubber like product for the eraser from Indonesia to name a few, illustrates specialization. Each area has comparative advantage for making what they produce. The story also illustrates division of labor. The parts of the pencil are divided among groups of people to make. The people who mine the graphite are better at it then the people who cut down the trees because they have done the task over and over again. The graphite worker could also cut down the trees but he would lose time moving from one task to another and wouldn’t have the experience and skill as the worker whose career is to cut down trees. Therefore by dividing the labor and allowing people to do what they are good increases productivity. All of these people working “together” to make a pencil don’t want just a pencil in the end. They exchange their labor for the good and services they need and want.
Adam Smith’s “invisible hand” is illustrated in the story by having each person working for themselves to make a profit thus creating something society wants, pencils. The government may have a problem in producing a pencil because choosing the people who would be the most efficient in each job is extremely complicated, if not impossible.
I am amazed by how the most simplistic objects, such as a pencil, that people use in everyday life, are so complex to make. It is astounding how many different products there are circulating around the world today. And without people being self-interested most of these goods would never even be made.