Henry Hazlitt (1894 – 1993) was an American journalist well known for his classic primer Economics in One Lesson (1946). This book has been highly praised by Austrian economists and libertarian thinkers such as Ludwig von Mises, Ayn Rand and Milton Friedman. In this book, Hazlitt explains economic principles without complex formulas or mind-blowing jargon such that even a layman would understand. In the process, he clearly points out the fallacies inherent in the arguments of many supposedly profound economists.
As Hazlitt states:
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 only 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.
This then is Hazlitt’s lesson. If one could understand this lesson and take it to heart, one could recognize the common errors made in economic theory and practice.
As Hazlitt points out:
Nine-tenths of the economic fallacies that are working such dreadful harm in the world today are the result of ignoring this lesson. Those fallacies all stem from one of two central fallacies, or both: that of looking only at the immediate consequences of an act or proposal, and that of looking at the consequences only for a particular group to the neglect of other groups.
Of course, is it not true that concentrating only on the long run is equally wrong? Has not Keynes remarked, “In the long run, we are all dead”? “Yes!”, says Hazlitt. “This is the error often made by the classical economists. It resulted in a certain callousness toward the fate of groups that were immediately hurt by policies or developments which proved to be beneficial on net balance and in the long run.” But then by focusing on the short run alone, we will all be dead wrong!
Hazlitt starts the illustrations of the fallacies with the broken window fallacy. A young lad has broken the window pane of a bakery shop and run away. It may be argued that this is a good thing because now the baker will have to replace the pane, bringing business to some glazier who will in turn spend with some other merchants and so on. So the little hoodlum, far from being a public menace, is apparently a public benefactor. Of course this defies common sense and is easily shown to be a wrong argument. Suppose the shopkeeper was planning to spend for a new suit. Because of the unforeseen expense, he has to go without a suit. Thus the glazier’s gain of business is merely the tailor’s loss of business. This is often missed out because it remains invisible to the eye.
In a similar way, Hazlitt attacks other economic myths. He uses a method of deductive thinking (called praxeology by Austrian economists) to arrive at his conclusions on such issues as tariff protection, government price-fixing, minimum wage laws etc.
The penultimate chapter “The Assault On Saving” is particularly relevant in this time and age. Many Keynesians claim that savings is harmful to economic growth and all that is needed is borrowing and spending. Hazlitt shows that while consumption is investment in consumer goods, savings is investment in capital goods (through the issue of loans by banks). Savings is essential for a healthy economy. Printing money can never take the place of savings and will only lead to “malinvestment”.
Associate Professor, School of Chemical Engineering (SCHEME)
Vellore Institute of Technology, Vellore (VIT)