Got a Pencil? You Didn't Build That

Nobody, Leonard Read once explained, can make a pencil by himself.


Most people would never accuse President Obama of memorizing Milton Friedman under the covers at night. Yet the patron saint of laissez-faire probably would not take as much exception as many Republicans have to Obama's comment in Roanoke three weeks ago that "if you've got a business – you didn't build that. Somebody else made that happen."

Republicans have given Obama quite a rhetorical thrashing for that gaffe, and the attacks show little sign of letting up. That's because his remarks are not only extremely convenient to the GOP; they also reopen an ideological fault line that goes back decades.

The gaffe plays right into the Republican narrative about Obama: that he does not understand business and free enterprise, that he thinks everything good flows from government; that he is at heart an economic collectivist. It took the Romney camp roughly two picoseconds to line up a phalanx of entrepreneurs to testify that they built their businesses with their own sweat and blood, thank you very much.

Democrats have counterpunched, but not well. Their argument boils down to: (a) Obama didn't say that, and (b) he was right!

All of this is a fresh gloss on an old debate. In 1934, FDR attacked what he called the notion of "the self-supporting man": "Without the help of thousands of others, any one of us would die, naked and starved. Consider the bread upon our table, the clothes upon our backs, the luxuries that make life pleasant; how many men worked in sunlit fields, in dark mines, in the fierce heat of molten metal, and among the looms and wheels of countless factories, in order to create them for our use and enjoyment."

Yet what journalist Elmer Davis once said of Roosevelt could be said as well of Obama: "You could not quarrel with a single one of his generalities." Nobody denies that man is a social being who relies on others from the moment he is born. Indeed, when Obama said in Roanoke that "somebody helped to create this unbelievable American system that we have that allowed you to thrive," he could have cited Milton Friedman or any one of a dozen other free-market economists as evidence.

Example: In Leonard Read's famous essay "I, Pencil" – later popularized by Friedman – Read demonstrates the miracle of the free market's invisible hand. Nobody, he explains, can make a pencil by himself. A pencil's wood comes from cedar trees in California; can you make a saw or fell a tree? It is shipped by rail; can you run a railroad? It is dried in kilns; can you build a kiln? The graphite comes from mines in Ceylon; can you mine graphite? Each pencil is coated in lacquer; can you make lacquer? The brass ferrule – well, you get the point.

Read and Friedman use the pencil to show the folly of central planning: Nobody can possibly know enough to manage the production of pencils. And indeed, history has proven that when governments create Pencil Ministries (metaphorically speaking), they fail – inevitably and spectactularly.

Obama, by contrast, seems to draw the opposite lesson: that because "there are some things we do better together" (his words in Roanoke), those things should be done by, or at least managed by, central government – preferably with him at the helm. ("That's the reason I'm running for president," as he said.) Like another liberal heartthrob, Elizabeth Warren, Obama also concludes that entrepreneurs deserve less credit than they take – and less earnings than they keep. And that's where he goes astray.

What we need here is a distinction between a necessary and sufficient condition. A complex society is necessary for the creation of business, but it is not sufficient. Countless people made modern computing and the Internet possible. But Elon Musk, not anybody else, made PayPal happen.

And even if that were not so – even if Musk's contribution to the creation of PayPal were no greater than the contribution from Phil, the goateed baristo at Starbucks with the Occupy Everything sticker on his car – Obama's approach leaves a crucial question unanswered: Why should Phil, rather than Elon, enjoy the proceeds from PayPal's success?

Suppose you sell me a pencil. You didn't make that. Still, I freely gave my dollar to you. How much right do you have to that dollar? That's hard to say, but this is not: You have far more right to keep it than any third party has to take it away.