Goktug Yilmaz's Reviews > Economics in One Lesson: The Shortest & Surest Way to Understand Basic Economics

Economics in One Lesson by Henry Hazlitt
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3 Keys:
- The lesson: For many things that seem to be true when we concentrate on a single economic group are seen to be illusions when the interests of everyone are considered.
- Once people have decided to deride a practice or an institution, any argument against it, no matter how illogical, is considered good enough.
- Each economic propositions, like a coin, has its reverse side.

- Economics is haunted by more fallacies than any other study known to man.
- Economics is a science of recognizing secondary consequences. It is the science of tracing the effects of some proposed or existing policy not only on some special interest in the short run, but on the general interest in the long run.
- Demand and supply are merely two sides of the same coin. They are the same thing looked at from different directions.
- War and destruction does not increase demand. It decreases supply.

- For every public job created by the government, a private job has been destroyed somewhere else. We can see the men employed by the government. We can watch them at work. The employment argument of the government spenders becomes vivid, and probably for most people convincing. But there are other things that we do not see, the jobs destroyed by the $10M taken from the taxpayers. All that has happened, at best, is that there has been a diversion of jobs.
- Taxation for public housing destroys as many jobs in other lines as it creates in housing. It also results in unbuilt private homes, in unmade washing machines and refrigerators, and in lack of innumerable other commodities and services.
- The larger the percentage of the national income taken by taxes the greater the deterrent to private production and employment.
- 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.
- Government make loans to people who could not get them from private lenders. This is another way of saying that the government lenders will take risks with taxpayers money that private lenders will not take with their own money.
- The proposal is frequently made that the government ought to assume the risks that are “too great for private industry.” This means that bureaucrats should be permitted to take risks with the taxpayers money that no one is willing to take with his own.
- Bureaucrats taking risks with taxpayers money lead to evils of many different kinds. Like favoritism: making of loans to friends, or in return for bribes. Scandals, recriminations etc.
- Loans from government will waste capital and reduce production. They will throw the available capital into bad projects. They will throw it into the hands of persons who are less competent or less trustworthy than those who would otherwise have got it. For the amount of real capital at any moment is limited. What is put into the hands of B cannot be put into the hands of A.
- Private loans will utilize existing resources and capital far better than government loans. Government loans will waste far more capital and resources than private loans. Government loans, in short, as compared with private loans, will reduce production, not increase it.
- In the long run government loans do not increase overall national production but encourage malinvestment.
- Government “aid” to business is sometimes as much to be feared as government hostility. This applies as much to government subsidies as to government loans. The government never lends or gives anything to business that it does not take away from business.
- Inflation itself is a form of taxation. It is perhaps the worst possible form, which usually bears hardest on those least able to pay.
- The main problem we face today is not economic, but political. Sound economists are in substantial agreement concerning what ought to be done. Practically all government attempts to redistribute wealth and income tend to smother productive incentives and lead toward general impoverishment. It is the proper sphere of government to create and enforce a framework of law that prohibits force and fraud. But it must refrain from specific economic interventions. Government’s main economic function is to encourage and preserve a free market. When Alexander the Great visited the philosopher Diogenes and asked whether he could do anything for him, Diogenes replied: “Yes, stand a little less between me and the sun.” It is what every citizen is entitled to ask of his government.

- An economics nobel prize winner. in 1970s opposed the introduction of labor-saving machines in the underdeveloped countries on the ground that they “decrease the demand for labor”! The logical conclusion from this would be that the way to maximize jobs is to make all labor as inefficient and unproductive as possible.
- The real result of the machine is to increase production, to raise the standard of living, to increase economic welfare.
- Machines, inventions and discoveries increase real wages.
- After the machine has produced economies sufficient to offset its cost, the manufacturer has more profits than before. At this point, it may seem, labor has suffered a net loss of employment, while it is only the manufacturer, the capitalist, who has gained. But it is precisely out of these extra profits that the subsequent social gains must come. The manufacturer must use these extra profits in at least one of 3 ways: (1) he will use the extra profits to expand his operations by buying more machines to make more products (2) he will invest the extra profits in some other industry (3) he will spend the extra profits on increasing his own consumption. Whichever of these three courses he takes, he will increase employment.

- In the long run imports and exports must equal each other. It is exports that pay for imports, and vice versa. The greater exports we have, the greater imports we must have, if we ever expect to get paid. Without imports we can have no exports, for foreigners will have no funds with which to buy our goods. When we decide to cut down our imports, we are in effect deciding also to cut down our exports. When we decide to increase our exports, we are in effect deciding also to increase our imports.
- An American exporter sells his goods to a European importer and is paid in Euros. But he cannot use Euros to pay the wages of his workers, to buy his wife’s clothes or to buy theater tickets. For all these purposes he needs USD. Therefore his Euros are of no use to him unless he either uses them himself to buy European goods or sells them to some American importer who wishes to use them to buy European goods. Whichever he does, the transaction cannot be completed until the American exports have been paid for by an equal amount of imports.
- Foreign exchange, is a clearing transaction in which, in America, the dollar debts of foreigners are canceled against their dollar credits.

Health Economy:
- It is just as necessary to the health of a dynamic economy that dying industries be allowed to die as that growing industries be allowed to grow. The first process is essential to the second.
- If we try to run the economy for the benefit of a single group or class, we shall injure or destroy all groups, including the members of the very class for whose benefit we have been trying to run it. We must run the economy for everybody.
- 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.

- Prices, wages and profits should be determined by the distribution of that product, the best prices are not the highest prices, but the prices that encourage the largest volume of production and the largest volume of sales. The best wage rates for labor are not the highest wage rates, but the wage rates that permit full production, full employment and the largest sustained payrolls. The best profits, from the standpoint not only of industry but of labor, are not the lowest profits, but the profits that encourage most people to become employers or to provide more employment than before.
- Profits are achieved not by raising prices, but by introducing efficiencies that cut costs of production. It seldom happens that every firm in an industry makes a profit. The price charged by all firms for the same commodity or service must be the same; those who try to charge a higher price do not find buyers. Therefore the largest profits go to the firms that have achieved the lowest costs of production. It is thus that the consumer and the public are served.

- The present valuation will often depend upon what people expect the future quantity of money to be. And, as with commodities on the speculative exchanges, each person’s valuation of money is affected not only by what he thinks its value is but by what he thinks is going to be everybody else’s valuation of money.
- There will not be a surplus of capital until the most backward country is as well equipped technologically as the most advanced, until the most inefficient factory in America is brought abreast of the factory with the latest and finest equipment, and until the most modern tools of production have reached a point where human ingenuity is at a dead end, and can improve them no further. As long as any of these conditions remains unfulfilled, there will be indefinite room for more capital.

- Credit, is something a man already has. He has it, because he already has marketable assets of a greater cash value than the loan for which he is asking. Or he has it because his character and past record have earned it. He brings it into the bank with him. That is why the banker makes him the loan. He is merely exchanging a more liquid form of asset or credit for a less liquid form. Sometimes he makes a mistake, and then it is not only the banker who suffers, but the whole community; for values which were supposed to be produced by the lender are not produced and resources are wasted.
- We are all accustomed to measuring our income and wealth in terms of money. The mental habit is so strong that even professional economists and statisticians cannot consistently break it. It is not easy to see relationships always in terms of real goods and real welfare.

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Reading Progress

September 6, 2018 – Shelved
September 6, 2018 – Shelved as: to-read
September 6, 2018 – Shelved as: audio
October 27, 2018 – Started Reading
December 2, 2018 – Finished Reading

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