Economics in One Lesson
While Economics may not be my most watched videos, I personally still want to know more about the topic, so the week of January 23, 2022, I read Economics in One Lesson by Henry Hazlitt. Original review posted on YouTube, but is now available on Rumble and PodBean.
I’m going to start with a basic biography, which is relevant to the review to understand just how awesome Henry Hazlitt was. He was not a trained economist, he did not have a degree in economics, or anything for that matter, having dropped out of college to support his mother, ultimately becoming a journalist. He taught himself economics while writing articles about the topic for The Wall Street Journal, New York Evening Magazine, New York Times, and Newsweek….he wrote for all these publications, specifically on the economy.
And he became recognized as one of the preeminent economists, by such noted figures as Ludwig von Mises, Milton Friedman, Walter E Williams, and Thomas Sowell, to name a few. The 50th anniversary edition, which is the one I read, had the forward written by Steve Forbes, of Forbes Magazine fame. Basically, anyone who actually understands economics, like actual economics, not that bullshit keynsian garbage that governments rely on to make idiot policy…I am actually enraged by how much governments rely on Keynes to make policy. Keyne’s is not the topic of this weeks book.
I was a little surprised this book came in a 200 pages. I thought to myself “Self, that I a lot of words for one lesson.” The one lesson itself is only about 40 words, and it’s compacted into a pretty concise sentence:
“The Art of Economics consists in looking not merely at the immediate, but at the longer effects of any act or policy; it consists of tracing the consequences of that policy, not merely for one group, but for all groups.”
I think it’s safe to say that the Government has failed spectacularly at economics. Starting with Keynes. Again, not the topic of this book.
Anything less than the above definition and you don’t know dick about economics. And he spends the rest of the book applying that lesson to different scenarios and a host of governmental policies and procedures. Starting with the most basic and pernicious evil, the Broken Window Fallacy, and ending with the attack on savings. Which interestingly enough, is happening again.
The attack on savings is in the news again, and it’s interesting I know about it because I don’t watch the news. I get my news through memes and other peoples outrage. But it’s so prevalent in the news that it has now funneled into those memes, which is how I know about it.
Topics like why destruction of property is good. Why taxes are good. Why new machines are bad. Why the government needs to created jobs. Full employment is a good thing. Tariffs are good. Parity in prices are good. Stabilizing exports and price fixing. Rent control, minimum wage laws….all of these have come out of the talking heads in recent news.
Hazlitt breaks down each and every one and applies his lesson to it. In detail. He even tackles that most hated of Libertarian enemies: The Public Road.
Let’s start with the most fundamental of evils, The Broken Window Fallacy. And this one is pernicious because it’s easy to see one aspect of it as good, and that is where most people stop. The example he gives in the book is a Baker, who gets his window broken by a hoodlum….yes he uses the word hoodlum. The book was written in 1946. The hoodlum runs off and no one sees who it was, so the Baker can’t catch him and make his parents pay for it, meaning the fix is entirely on the Baker. Since he can’t leave his store open to the elements, the Baker calls the Glazier (the guy who fixes windows) to come repair his window at a cost of say $250.
This is where the run of the mill government small thinker stops. The broken window has created work for the Glazier, and this is a good thing. But Hazlitt asks “What about the Tailor?” Well, who the fuck is the Tailor? Where does he come into play. See, the Baker was planning on buying a new suit, but with this sudden expense, he can no longer buy the suit, he has to pay the Glazier instead. Business for the Glazier, costs the Tailor business. And it’s also bad for the Baker because instead of buying what he wants, he has to buy what he needs.
Actions have consequences. And the broken glass costs the Baker his new suit, and the Tailor that sale. That’s the long term effect Hazlitt mentions. And that applies outwards in ripple effects. Since the Tailor didn’t get that sale, now he can’t afford the next car payment, for example.
Hazlitt builds on this lesson in each chapter. So the next chapter expands on the Broken Window Fallacy to explain how detrimental war is for the economy. Governments tend to thing that war stokes the economy. Because you know, armaments ramp up, glass and construction businesses boom as they have to rebuild what was just bombed. In reality, war is only good for the arms manufacturers. If we would quit bombing the shit out of each other, think of how much more advanced the world would be.
Civilizations, economy, medicine, everything would be more advanced. Because instead of rebuilding what had been destroyed, we’d be able to focus on advancing existing technique. Better things. We could improve on past technology and knowledge.
This book directly argues in favor of Free Market Capitalism, which has never actually been tried, despite what socialists would want you to think. And the concept of not having governments interfere in the markets, which has also never been tried.
He tears a gaping hole in Unions. He acknowledges that Unions have had their place in history and have done good, but they no longer serve any positive function and are now little more than corrupt obstructionists. He rips them apart. Which means as early as 1946, Unions were obsolete in a market economy.
He updated all the figures in the book for the 30th anniversary edition which was released in 1977, but no updates were done after that for the 50th anniversary edition released in 1996, because it was released posthumously, Hazlitt having died in 1993.
In all, there are 23 applications of The Lesson in the book. The other two I will specifically address in this review are inflation, and the attack on savings. Both highly topical to current events, and honestly, they go hand in hand.
Inflation is a big hot topic, as 80% of all US dollars in circulation were printed between 01/2020 and 10/2021. This is not a good thing. Inflation has been wrecking economies since at least the 13th Century, as I learned while reading about Genghis Kahn and the Byzantine Empire. Ogodei Kahn inherited a solid gold standard from Genghis Kahn, and immediately wrecked it with inflation. The Byzantines devalued their currency by mixing silver with gold. The result was the same in either case: Economic depression always follows inflation. Just printing money does not, in fact, increase the currency value.
Inflation hurst the poor the most. Why is this? Because while there is suddenly more money circulating, the supply of actual goods does not concurrently increase. There is only so much milk a cow can produce. And I don’t mean that as a metaphor, I mean that literally. Since we can’t produce more cows than are born naturally, we can’t produce more milk to keep up with the supply of available dollars. So the cost of milk rises to meet the inflated dollar availability, leaving only the very wealthy able to buy milk.
We saw this in 1930’s Germany, we saw in in Zimbabwe, we see it now in Venezuela, which has been in an economic depression since 2010. Inflation played a role in each and every one of these. A crises is coming here. It has to because the current level of inflation is untenable.
The other side of this coin is the Attack on Savings. If people would just stop saving and spend that money, we could stave off the coming economic depression because people shopping stimulates the economy. Not so much.
Inflation and savings, while the topics go hand in hand, are entirely independent of each other. Which is seen as money left in savings is devalued by inflation. As currency circulation increases, the money in your account is worth less, because more of it is available in the general market. Scarcity breeds value, not availability.
Now, money left in your sock drawer is definitely losing value. There is nothing wrong with having money in your sock drawer just to have cash on hand. But money in a bank account will at least earn you a little interest. Very little at this time, as interest rates have been rapidly outpaced by inflation, but that little is better than nothing.
On the flip side, having money in your sock drawer means when the crash does happen, you won’t have to worry about a run on your bank and not being able to retrieve your funds at all. While everyone else is standing in line at the bank to get what they can, you can be at the store clearing the shelves of needed food supplies for you and your family. So there is that argument to be made.
Eventually the market will correct itself. It has to. It would do so faster if the government would get out of the fucking way. It’s going to be ugly as sin when it happens, but this is where having money in savings can help you. Because when the market crashes, you’ll have money available to buy some of those stocks rock bottom, and build your wealth as the value of stocks rises again. And that’s pretty much all I can say on that, because that’s literally as much as I understand about the markets. The good old buy low and sell high metric.
This book was an excellent primer on economics and the economy, and I highly recommend it to anyone who wants to understand what the heck is going on. It was easy to read and will get you a basic understanding of economics. Which I think is what Hazlitt was hoping for when he wrote it.
