Saturday, April 16, 2011


by James Craig Green

Part 8 - Henry Hazlitt

Economics in One Lesson

Henry Hazlitt (1894-1993) was an economist, journalist, and educator. He cut through the confusion surrounding fiscal and monetary issues, stating elegant, timeless economic principles. Profoundly influenced by Frederic Bastiat, Hazlitt recognized the practical limits of the irrational decisions large collectives often make. The contribution of Hazlitt’s book was a wide focus on the consequences of public policies rather than the limited perspectives commonly used to promote and expand them.

In the introduction to Economics in One Lesson, Hazlitt packs a big punch with a handful of words to summarize what the book is about:

While certain public policies would in the long run benefit everybody, other policies would benefit one group only at the expense of all other groups. 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 (emphasis added) 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.

In addition to these endless pleadings of self-interest, 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 not only on that special group but on all groups. It is the fallacy of overlooking secondary consequences.

After introducing his general thesis, Hazlitt proceeds to illustrate it with his first example, updated from Bastiat’s essay That Which is Seen, That Which is Not Seen.

Hazlitt uses the example of a brick thrown through a baker’s window. As often occurs in today’s short-sighted public policy discourse, it is easy to see that breaking the window creates new business for a glazier to fix it, plus additional spending by the glazier that would not have occurred without the broken window. From this, one could (incorrectly) conclude that the act of breaking the window stimulated the economy, since it resulted in more work for the glazier and others.

This common perspective, focusing on only what is seen, is only part of the picture, and the least important. Unseen is what the baker would have done with, say, the $300 he spent fixing the window, if he didn't pay the glazier to fix it. If, for example, the baker planned to buy a suit with the $300, the loss of the window would have reduced the tailor’s income by the same amount that the glazier gained. The gain to the glazier came out of the pocket of the baker, as did the second, third and further gains recycling the glazier’s new money. But, wouldn't these gains be offset by the second, third, and other lost opportunities from the baker’s spending on the suit, had the window not been broken? Since it is so easy to show the gains to the glazier and others after the window was broken but so difficult to say what would have happened had the window not been broken, the false conclusion that the economy is stimulated by breaking the window is easily sold to anyone who doesn’t consider the wider, unseen perspective.

In this example, the baker’s loss is a net loss to the economy because his choice to buy a suit was taken from him—no different than if the Commissar of Glaziers forced him to replace an unbroken window to help create jobs. Even if you assume that the glazier’s gain is equal to the tailor’s loss—and so on down the line—the baker still loses his choice to spend money, and the economy is worse off.

Hazlitt also explains how this fallacy is multiplied by other mistakes, such as the confusion of need and demand (demand requires purchasing power which may not exist). Another common fallacy pointed out by Hazlitt is that purchasing power doesn’t mean dollars, which can be created out of thin air by the Federal Reserve. All expanding the money supply does is to reduce the value of every dollar, without an increase in production (real wealth). Those who benefit from getting the first of the new dollars are seen, but the cost to everyone else whose dollars lose value is not seen.

Through such succinct examples, Hazlitt presents economic principles in plain English, hoping that the public at large will begin to take notice of the way so-called experts try to dupe the American people. For Hazlitt, economics is not about line graphs and calculus. It is about common sense. It does not take a PhD to understand supply and demand. It takes an engaged public willing to stand up to government and its tyranny.

Unchain the Builders - Again

This series of articles has celebrated the work of seven relatively unknown builders, pioneers all, each a champion for the cause of human freedom. I encourage you to read the books and other works by these authors to better understand the ideas that made the American Republic a unique and beneficial experiment in human action.

Bastiat’s simple message in The Law shows why the American Republic has declined so much over the last century. Once the law started transferring wealth by force, its primary purpose – the protection of people and their property – was violated, and became secondary, even trivial. Since it is easy to vote for someone who will take others’ property and give it to you, the steady trend has been to avoid long term economic consequences, and give people what they want now – seemingly endless government programs at someone else’s expense.

If there were more people today like Locke, Paine, Madison, Bastiat, Thoreau, Lane and Hazlitt, the public debate on individual freedom and the purpose of government would take quite a different turn than it has since the New Deal socialism of the 1930's. Though some voices today praise the rights of the individual against the collective, few will stand up to the crowd, which is what each of these builders did. Government's most dangerous narcotic - easy money - must always be taken from someone else by force, whether immediately by taxes, or later by inflation and public debt. This always results in a net loss to the economy and produces increasing tyranny at the expense of freedom and responsibility.

If you paid attention to Rose Wilder Lane (The Discovery of Freedom), you now know a secret most people never learn. Builders don’t have to be unchained - they just have to unchain themselves.


PREVIOUS - Rose Wilder Lane

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