David Henderson’s recent post at EconLog on pencils — “We Cheap Pencils” — obviously calls to mind “I, Pencil.” I write here only to emphasize the significance and the marvel of the inexpensiveness of pencils.
Each semester I explain to my principles-of-microeconomics students that no one in the world knows how to make a pencil — that no one in the world has ever known how to make a pencil — that no one in the world could ever possibly possess all the knowledge and information that are used to produce and make available any ordinary commercial-grade pencil of the kind that is so familiar. I further explain that the production and availability of each pencil requires the knowledge, information, and efforts of literally millions (likely, hundreds of millions, or even billions) of different people. These people are spread out across time and space, almost all strangers not only to each other but also to the users of the pencils that their efforts combine to produce.
And yet, high-quality pencils exist in such quantities today that they are close to costless for ordinary denizens of modern society.
Hold a pencil with your fingers. You hold a product that was produced by — and could have been produced only by — the coordinated efforts of literally (at least) millions of people. And yet what did that pencil cost you to acquire? If it’s like most pencils in modern America, it cost you almost nothing. You found it on a desk, or someone gave it to you when you were filling out a form somewhere, or it’s one of the office supplies that your employer allows you to take from the office-supply cabinet. (I’m 57 years old, and I do not recall ever paying money to buy a pencil or a package of pencils. They just somehow appear; that’s how ubiquitous pencils are.)
Of course, someone paid for the pencil you hold. That person paid only a few cents. Let’s take the per-pencil price that David just paid and round it up a bit: ten cents. That’s less than half of one percent of the average hourly wage ($21.49) of production and nonsupervisory workers in 2016 America. For a mere ten cents — for a paltry 17 seconds of this ordinary-worker’s work time — you effectively persuade millions of strangers to toil for you — toil to produce the pencil that you hold with your fingers.
It’s a marvel that is almost impossible to adequately explain with words! For such a tiny expenditure of your time as a worker you command goods and services the production of which requires the knowledge, information, and efforts of millions of people, nearly all of whom are strangers to each other and to you.
Actually same applies to these ball pens as well. It is surprising how some of the pens like the Reynolds continue to cost the same as they did twenty years ago while we were at school. These white bodied blue capped pens (cap color depended on the choice of ink color) changed India’s pen industry forever. On an average prices of other things has increased by some 300-400%. But not these pens. And they are pretty much ubiquitous as well like pencils. Actually, there was a time when there was a difference between prices of pens and pencils. Now some of these pens cost as much as pencils.
It is funny actually. So much of our work depends on these stationery products. But we barely pay attention to functioning and economics of this industry. What keeps it ticking? How does it remain so competitive?