Economics in One Lesson: The Shortest and Surest Way to Understand Basic Economics

by Henry Hazlitt

originality with regard to any of the chief ideas that it expounds. Rather its effort is to show that many of the ideas which now pass for brilliant innovations and advances are in fact mere revivals of ancient errors, and a further proof of the dictum that those who are ignorant of the past are condemned to repeat it.

Ce qu’on voit et ce qu’on ne voit pas,

The bad economist sees only what immediately strikes the eye; the good economist also looks beyond. The bad economist sees only the direct consequences of a proposed course; the good economist looks also at the longer and indirect consequences. The bad economist sees only what the effect of a given policy has been or will be on one particular group; the good economist inquires also what the effect of the policy will be on all groups.

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.

But need is not demand. Effective economic demand requires not merely need but corresponding purchasing power.

To most people this seemed like an increase in total demand, as it partly was in terms of dollars of lower purchasing power. But what mainly took place was a diversion of demand to these particular products from others. The people of Europe built more new houses than otherwise because they had to. But when they built more houses they had just that much less manpower and productive capacity left over for everything else.

After a war there is normally a stimulation of energies for a time.

Those who think that the destruction of war increases total “demand” forget that demand and supply are merely two sides of the same coin. They are the same thing looked at from different directions. Supply creates demand because at bottom it is demand. The supply of the thing they make is all that people have, in fact, to offer in exchange for the things they want.

The simple truth is that there is an optimum rate of replacement, a best time for replacement. It would be an advantage for a manufacturer to have his factory and equipment destroyed by bombs only if the time had arrived when, through deterioration and obsolescence, his plant and equipment had already acquired a null or a negative value and the bombs fell just when he should have called in a wrecking crew or ordered new equipment anyway.

THERE IS NO more persistent and influential faith in the world today than the faith in government spending.

Everything we get, outside of the free gifts of nature, must in some way be paid for.

Here we shall have to say simply that all government expenditures must eventually be paid out of the proceeds of taxation; that inflation itself is merely a form, and a particularly vicious form, of taxation.

either immediately or ultimately every dollar of government spending must be raised through a dollar of taxation.

A certain amount of public spending is necessary to perform essential government functions. A certain amount of public works—of streets and roads and bridges and tunnels, of armories and navy yards, of buildings to house legislatures, police and fire departments—is necessary to supply essential public services.

Therefore, for every public job created by the bridge project a private job has been destroyed somewhere else.

Where full employment already exists, new machines, inventions and discoveries cannot—until there has been time for an increase in population—bring more employment.

Yes, we should keep at least one eye on Joe Smith. He has been thrown out of a job by the new machine. Perhaps he can soon get another job, even a better one. But perhaps, also, he has devoted many years of his life to acquiring and improving a special skill for which the market no longer has any use. He has lost this investment in himself, in his old skill, just as his former employer, perhaps, has lost his investment in old machines or processes suddenly rendered obsolete. He was a skilled workman, and paid as a skilled workman. Now he has become overnight an unskilled workman again, and can hope, for the present, only for the wages of an unskilled workman, because the one skill he had is no longer needed. We cannot and must not forget Joe Smith. His is one of the personal tragedies that, as we shall see, are incident to nearly all industrial and economic progress.

Contrary to the way that it works in the real world. This can either happen because of regulation or disruptive technologies. In the case of disruptive technologies, the new technology provides new means for wealth building, whereas regulation helps no one and everyone suffers. The coal industry comes to mind - if there was a disruptive technology that was head and shoulders better than coal, i.e. natural gas. Those who are in the coal industry suffer, but the population, by and large are provided with a better/cheaper/cleaner energy source. However, if the market doesn't say that coal is cheaper and there is still some demand for it...then regulating coal away harms everyone since we are removing an alternative (albeit dirtier) form of energy from the market.

This is the belief that a more efficient way of doing a thing destroys jobs, and its necessary corollary that a less efficient way of doing it creates them.

Sounds like the past argument of the cotton mill and the future argument of artificial intelligence.

All that will have happened, even under the most favorable assumptions (which would seldom be realized) is that the workers previously employed will subsidize, in effect, the workers previously unemployed.

It is true that, when millions of men are suddenly released, it may require time for private industry to reabsorb them—though what has been chiefly remarkable in the past has been the speed, rather than the slowness, with which this was accomplished. The fears of unemployment arise because people look at only one side of the process.

They make it possible for private industry to function in an atmosphere of law, order, freedom and peace.

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.

Nothing is easier to achieve than full employment, once it is divorced from the goal of full production and taken as an end in itself. Hitler provided full employment with a huge armament program. World War II provided full employment for every nation involved. The slave labor in Germany had full employment. Prisons and chain gangs have full employment. Coercion can always provide full employment.