Hazlitt: Economics in One Lesson

Economics in One Lesson
Henry Hazlitt
(Currency, 1988) [1946]
218 p.

Hazlitt’s approach to economics can be summarized in one key principle:

The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.

That’s it. That’s the one lesson. Elaborating the point, he argues that a great many specific fallacies of economic reasoning stem from either not considering the effects of economic policies in the long term, or not considering the effects on all groups, or both.

The bulk of the book is devoted to systematic examination of a variety of economic policies in the light of this basic principle, and to ferreting out the fallacies that proliferate when the principle is ignored. We get brief but punchy analyses of government stimulus spending and government price-fixing (whether in the form of tariffs, or rent controls, or minimum wages, or subsidies, or something else). He challenges the claims that, for instance, unions raise wages, or that thrift causes economic harm, or that full employment is an ideal, or that technological advances cause unemployment. These claims can be true in the short-term or if we confine our view to certain groups, but they look quite different if we take the longer, wider view. A fairly detailed outline of the arguments in the book can be found here.

The argumentation is generally clear — though, of course, being a notorious dullard in these matters I was unable to follow all of the reasoning. I could understand why government stimulus spending can appear to be a panacea without actually being so — because we see the bridge but we don’t see what would have been done with the capital and labour had the bridge not been built — and he was very good at describing the causes and the evils of inflation, and at tracing the many downstream, often hidden, consequences of price-fixing. But when he described the role of profits in our economy as being “to guide and channel the factors of production so as to apportion the relative output of thousands of different commodities in accordance with demand,” I didn’t know what he was talking about.

His considerations throughout are strictly economic: what happens to productivity, prices, supply, demand, etc. in response to certain policies. He knows that a people might have political or moral reasons to enact a certain policy that is economically disadvantageous, and he agrees that those considerations have their proper and legitimate place. His arguments are intended, however, to contradict the claims, oft made, that such policies are actually economically advantageous.

In the end, after numerous sallies against fallacies great and small, he comes around to the satisfying conclusion that when we follow the key principle stated above, the course of sound economic policy usually corresponds with common sense:

It would not occur to anyone unacquainted with the prevailing economic half-literacy that it is good to have windows broken and cities destroyed; that it is anything but waste to create needless public projects; that it is dangerous to let idle hordes of men return to work; that machines which increase the production of wealth and economize human effort are to be dreaded; that obstructions to free production and free consumption increase wealth; that a nation grows richer by forcing other nations to take its goods for less than they cost to produce; that saving is stupid or wicked and that squandering brings prosperity.

I find this satisfying because, although I could never claim to be well-instructed in the theory of economics, and although there may be challenges to the arguments Hazlitt presents that I have not noticed, I do have a decent intuitive grasp of what does and does not make for good economic policy in my own household’s affairs, and I’ve never been able to understand why things that would be patently foolish when applied on our small scale can be sensible when applied on the large. I am edified to hear Adam Smith endorse my intuitions:

What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom.

The book was originally published in 1946, and in 2021 my Prime Minister, as prices began rising after a year and a half of flooding the country with newly-minted cash, said he was “not interested” in monetary policy. The book is still relevant, and still a good read.