Sorry, I think it's very interesting and makes some nice points with beautiful language, but I don't follow the conclusion. It oversteps in arguing without proof that all forms of enterprise must function just like pencils, soluble by the natural dynamics of a free market. But not all forms of enterprise have the same properties as pencil production.

You could imagine an antithetical essay "I, police" involving a lawless village in which each person trains extensively in martial arts and marksmanship in order to protect themselves. Then each realizes it is more efficient to focus on their own vocation and hire a private security guard. Then a few neighbors realize it is more efficient to pool their money and hire just enough security to protect their block, and finally the whole village realizes it is most efficient to pool their money into just enough security, at which point they realize they have formed a government with taxes and police force. The story could end with "It is a fact most astounding that the forces of an unencumbered free market lead directly to an inevitable centralization into a collective governing whole."

Of course this story does not prove that all affairs should be handled by the government; but the pencil doesn't prove the opposite either.