Sunday, 21 August 2016

Book Review: Economics in One Lesson by Henry Hazlitt

Economics in One Lesson
Henry Hazlitt 

The whole argument of this book may be summed up in the statement that in studying the effects of any given economic proposal we must trace not merely the immediate results but the results in the long run, not merely the primary consequences but the secondary consequences, and not merely the effects on some special group but the effects on everyone.

Says Henry Hazlitt in the chapter, “How the Price System Works,” of his classic Economics in One Lesson.

Although it was published in 1946, the book is not out of date; in it you can find the answers to almost every economic issue that is making headlines in today’s newspapers. Even when Hazlitt is commenting on the ideas of the intellectuals and politicians of his times, he offers an explanation for the missteps that are wreaking havoc on today’s economy.

Most modern politicians believe that machinery causes loss of employment. But in the chapter, “The Curse of Machinery,” Hazlitt ridicules Eleanor Roosevelt for her view that labor-saving devices get the worker thrown out of his job.

If it were indeed true that the introduction of labor-saving machinery is a cause of constantly mounting unemployment and misery, the logical conclusions to be drawn would be revolutionary, not only in the technical field but for our whole concept of civilization. Not only should we have to regard all further technical progress as a calamity; we should have to regard all past technical progress with equal horror…The technophobes, if they were logical and consistent, would have to dismiss all this progress and ingenuity as not only useless but vicious. Why should freight be carried from New York to Chicago by railroads when we could employ enormously more men, for example, to carry it all on their backs?

Economics in One Lesson is a short book of just over 200 pages, covering all the essentials of economics in a highly condensed presentation. Hazlitt’s focus is on debunking the most common myths in economics. He addresses the economic fallacies in areas like public spending, taxes and their effect on production, tariffs, government bailouts of industry, price-fixing, minimum wage laws, and inflation.

On minimum wages, Hazlitt says that it is not possible for any government to make a man worth a given amount of money by making it illegal for anyone to offer him anything less. “You merely deprive him of the right to earn the amount that his abilities and situation would permit him to earn, while you deprive the community even of the moderate services that he is capable of rendering. In brief, for a low wage you substitute unemployment. You do harm all around, with no comparable compensation.

The best way of ensuring that the workers get higher wages is to have economic freedom in the country, so that the businesses are free to invest in new inventions and improvements that will lead to rise in the productivity of labor.

In the chapter, “Disbanding Troops of Bureaucrats,” Hazlitt equates the idea of taxation with theft. “When your money is taken by a thief, you get nothing in return. When your money is taken through taxes to support needless bureaucrats, precisely the same situation exists. We are lucky, indeed, if the needless bureaucrats are mere easygoing loafers. They are more likely today to be energetic reformers busily discouraging and disrupting production.

It is believed that when government makes cheaper credit available to certain businesses it fuels economic growth. But Hazlitt points out that government encouragement to business must be feared as much as government hostility, and that financial interventions from the government always unleash distortions in the economy.

Now all loans, in the eyes of honest borrowers, must eventually be repaid. All credit is debt. Proposals for an increased volume of credit, therefore, are merely another name for proposals for an increased burden of debt. They would seem considerably less inviting if they were habitually referred to by the second name instead of by the first.

In the final chapter, “The Lesson Restated,” Hazlitt has analyzed the cause of the myriad economic fallacies that are there in people’s minds. He notes that economics is the science of tracing the consequences of some proposed or existing policy. The failure to trace the consequences is the inevitable result of division of labor. In a primitive society, a man works solely for himself, and it is relatively easy for him to observe the connection between his output and consumption. But when the society develops, there is division of labor and the economic structure becomes too complicated, and most people get confused about how the economy works.

While Economics in One Lesson makes a persuasive case for free market ideas, it also entails a problem. Hazlitt has not articulated that the free market ideas must be pursued because people have the right to the products of their own labor. He does not inform the readers that only a free market system can guarantee the protection of man’s rights.

For instance, in the chapter, “The Curse of Machinery,” he points out that the Industrial Revolution has led to great benefits for mankind, but then he goes on to say that the economists should not forget the individuals who get thrown out of their job due to the incorporation of new machines by the businesses. He says that the “central lesson is that we should try to see all the main consequences of any economic policy or development—the immediate effects on special groups, and the long-run effects on all groups.” But why should there be a connection between the interests of special groups and the rights of the business owners to have the kind of machinery that is best suited for their needs?

Hazlitt’s basic claim in the book is that the free market ideas are good because such ideas lead to better economic outcomes—more employment opportunities, higher wages, cheaper goods and services, better infrastructure, and general prosperity.

It is baffling that in a book which is dedicated to explaining the benefits of the free market system, we don’t have a clear articulation of the fact that a free market system is critical for the protection of property rights in particular and man’s rights in general.

Despite these weaknesses Economics in One Lesson is a good primer for a reader who does not have any previous acquaintance with economics. The book’s title promises to teach economics in one lesson and this promise has largely been kept.

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