A few more thoughts on You-Didn’t-Build-That-Gate. (See my earlier posts here and here.)

Leonard Read explained that literally no one on earth can make a pencil from scratch. This guy tried to make a toaster from scratch and failed. (Note that he didn’t really start from scratch, either.) In A Brief History of Liberty, Schmidtz and I say,

…if you want pizza today, you can acquire a slice of it in exchange for a few minutes of work. But if you tried to make a pizza all by yourself, eschewing all reliance upon the division of labor, you would not live long enough. On your own, you would not even be able to smelt the iron to make the oven and other basic tools that you would need to get started. (139)

Many on the Left argue that the Randian ideal of the self-made superhero entrepreneur is illusory. No matter how tall we stand, we always stand on the shoulders not just of giants, but of everyone else. We rely upon and make use of background institutions, other people’s knowledge, public goods and utilities, and so on.

This isn’t an especially left-wing point of view, though. In fact, as Read (channeling Hayek, Smith, and others) shows, classical liberals proffer an even more radical version of that thesis. When I talk to friend’s on the Left about “I, Pencil,” they tend to assume Read is kidding or exaggerating, at least until they think about it and realize Read is right.

Now suppose a pencil-maker claims she is entitled to or deserves the wealth she obtains through business. (To simplify things, imagine she is a lone artisan pencil-maker, rather than a factory owner.) Read’s “I, Pencil” does not refute her. Sure, that businessperson cannot build the pencil from scratch. But the market does not reward her for building the pencil from scratch. It’s not as if the market mistakenly behaves as if she created the pencil ex nihilo. Rather, the market will tend to pay her her marginal contribution or marginal product. We can still debate whether she deserves or is entitled to her marginal product. Yet, it’s not as though the market just pays her everything and fails to pay all of the other people she relied upon to make the pencil. Rather, the market tends to pays everyone their marginal product.

Now, if she relied upon certain public goods to make the pencil, perhaps she should help pay for those public goods as well. (There are some interesting arguments against this claim, but I’ll be nice to other side and ignore them here.) Still, it’s hard to see why Obama would use this to argue for higher federal income taxes for the rich. At most–if I estimate far higher than I really should–about 3% of the federal budget goes to these kinds of public goods. Most of the budget goes to welfare entitlements, debt interest, and murdering people in the third world.