Economics in One Lesson – Henry Hazlitt – A Short Discussion

Reviewing Mises U 2013 Required Reading List: Part I

Economics in One Lesson - Henry Hazlitt

Economics in One Lesson – Henry Hazlitt

“Economics is haunted by more fallacies than any other study known to man. This is no accident. The inherent difficulties of the subject would be great enough in any case, but they are multiplied a thousandfold by a factor that is insignificant in, say, physics, mathematics, or medicine—the special pleading of selfish interests.” – Hazlitt Economics in One Lesson.

            Henry Hazlitt opens his masterful book Economics in One Lesson without pulling any punches. Hazlitt’s offensive approach to defending free market economics is refreshing and notable. Rather than starting with a conventionally accepted foundational basis for his forthcoming economic theory, which no doubt would have been a way of kissing the asses of whom he later refers to as “so called brilliant” economists, Hazlitt immediately noted his intention of picking them apart with what should be basic foundational economic principles.

            Before going into logical and practical examples of Keynesian fallacies, (though he never mentions Keynes in this particular chapter), Hazlitt introduces us to “The Lesson” that gives root to these pervasive fallacies. One primary lesson that comes across in this opening chapter is that economic policies must be measured not only by those industries targeted by the policy, but all industries, consumers, and entrepreneurs in every sector of the economy. This observation relates directly with Hazlitt’s second main factor in allowing an epidemic of economic fallacy. Hazlitt says:

“…there is a second main factor that spawns new economic fallacies every day. This is the persistent tendency of men to see only the immediate effects of a given policy, or its effects only on a special group, and to neglect to inquire what the long-run effects of that policy will be…”

– Henry Hazlitt, Economics in One Lesson.

This observation, though written in 1946, could not be more accurate today. From the steady increase in the minimum wage, (despite the obvious harmful reality of such policies), the unreasonable taxation of poor rural communities to “help the farmers”, and most blatantly the inflationary policies of the Federal Reserve, robbing the lower and middle classes in the most cowardly of methods, the inflation tax. It is the “new” economists, as Hazlitt terms them, that are unable to see the ways in which inflationary monetary policy affect any other sector of the economy outside of the financial sector, including lending and thus interest rates. When all you have is a hammer, everything looks like a nail, and the Fed’s hammer doesn’t consider the lower or middle class. Hazlitt calls this the fallacy of “overlooking secondary consequences”.Hazlitt demonstrates this concisely here:

“The bad economist sees only what immediately strikes the eye; the good economist also looks beyond. The bad economist sees only the direct consequences of a proposed course; the good economist looks also at the longer and indirect consequences. The bad economist sees only what the effect of a given policy has been or will be on one particular group; the good economist inquires also what the effect of the policy will be on all groups.”

- Henry Hazlitt, Economics in One Lesson.

            Economics in One Lesson has never received its due credit. Many of the principles Hazlitt espoused have become widely accepted amongst free-thinking economists today, but he was writing in a time even more hostile to laissez-faire policies than even today. How is it that such foundational theories, proven right over time, become so demonized in the eyes of the public? It is obvious why the State benefits from fallacious economic policies (see: parasitism), but why the general public? Hazlitt addressed this in the following way:

“The group that would benefit by such policies, having such a direct interest in them, will argue for them plausibly and persistently. It will hire the best buyable minds to devote their whole time to presenting its case. And it will finally either convince the general public that its case is sound, or so befuddle it that clear thinking on the subject becomes next to impossible.”

Henry Hazlitt, Economics in One Lesson.

 

            The Keynesian inflationary economic policies of today are based on obvious falsehoods and illogical justifications. Hazlitt points out the uncontroversial truth by asking “Doesn’t every little boy know that if he eats enough candy he will get sick?” Why is it that public economic policy practices very rarely if ever consider the future? It is after all something we all learn at a rather young age. On this, Hazlitt says:

 

“Yet when we enter the field of public economics, these elementary truths are ignored. There are men regarded today as brilliant economists, who deprecate saving and recommend squandering on a national scale as the way of economic salvation; and when anyone points to what the consequences of these policies will be in the long run, they reply flippantly, as might the prodigal son of a warning father: “In the long run we are all dead.” And such shallow wisecracks pass as devastating epigrams and the ripest wisdom. But the tragedy is that, on the contrary, we are already suffering the long-run consequences of the policies of the remote or recent past. Today is already the tomorrow which the bad economist yesterday urged us to ignore.”

- Henry Hazlitt, Economics in One Lesson.

 

The Broken Window

             Hazlitt includes more than just a sound explanation of the all-pervasive “broken window fallacy”. He also explains how this, and other fallacies are caused by the previously mentioned rejection of the “elementary truth”. Clearly, when a window is broken the local glazier will have a slight increase in sales. The short-sighted “bad economist” would see only the immediate benefit, refusing to account for the legitimate needs and wants of the consumer that would have been more efficiently allocated without the unexpected window repair bill. While this is a fallacy that many accept on the surface, Hazlitt notes that in terms of large scale disasters the fallacy still prevails. To demonstrate this Hazlitt connects the belief of the Keynesians that war improves the economy with the broken window fallacy, under “one of a hundred disguises”.

 

“They tell us how much better off economically we all are in war than in peace. They see “miracles of production” which it requires a war to achieve. And they see a postwar world made certainly prosperous by an enormous “accumulated” or “backedup” demand. In Europe they joyously count the houses, the whole cities that have been leveled to the ground and that “will have to be replaced.” In America they count the houses that could not be built during the war, the nylon stockings that could not be supplied, the worn-out automobiles and tires, the obsolescent radios and refrigerators. They bring together formidable totals.”

-          Henry Hazlitt, Economics in One Lesson

 

Hazlitt answers this fallacious analysis in a concise fashion that is prevalent throughout the entire book, his grasp on market economics is apparent in his opinion of inflationary economists and their policies:

 

“Mere inflation—that is, the mere issuance of more money, with the consequence of higher wages and prices—may look like the creation of more demand. But in terms of the actual production and exchange of real things it is not. Yet a fall in postwar demand may be concealed from many people by the illusions caused by higher money wages that are more than offset by higher prices.”

-          Henry Hazlitt, Economics in One Lesson.

 

 There is no better introduction to free market economics than Hazlitt’s Economics in One Lesson, it has remained timeless and will continue to be an invaluable resource in the promotion of liberty and free markets. You can download this book for free, or support the Mises Institute by ordering a copy for yourself here.

 

-          Adam Alcorn, Editor/Founder the Humane Condition, ,

 

Mail to: thcondition@gmail.com

     @AdamBlacksburg

 

Thoughts? Login, or not, but tell me what you think...

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s