Economics In One Lesson, by Henry Hazlitt: A book review
Have you ever been confused when politicians speak of tariffs and subsidies? Does talk of inflation make your head spin? Henry Hazlitt helps clear away the fog of economics in his book, “Economics in One Lesson
” (Amazon affiliate link).
The one lesson is very simple: It’s all about looking at the unseen, as well as the seen. It’s about considering the opportunity costs. When considering any economic policy, we must not only look at the short-run effects on some groups, but we must also look at the long-run effects on all groups. One prominent example of this is the broken window fallacy.
Even though the book was written quite a while ago, I found it to be a highly illuminating read. All of the examples still make sense even today, and perhaps even more so, given the recent financial crisis and the failure of western economics to find their way forward.
Some sections of the book are quite telling, like this excerpt from chapter six: “Government-guaranteed home mortgages, especially when a negligible down payment or no down payment whatever is required, inevitably mean more bad loans than otherwise. They force the general taxpayer to subsidize the bad risks and to defray the losses. They encourage people to “buy” houses that they cannot really afford.” This is wisdom that we had available to us, and that we unfortunately chose to ignore.
Hazlitt’s book “Economics In One Lesson” is just as highly relevant today as it was when it was written; I would recommend it to anyone looking to decode the unseen consequences of the proposed actions of politicians and economists. From the Mises Store: “Written for the non-academic, it has served as the major antidote to fallacies in the popular press, and has appeared in dozens of languages and printings. It’s still the quickest way to learn how to think like an economist. And this is why it has been used in the best classrooms more than sixty years.”
Here’s how you can get the book:
- Softcover (Amazon affiliate link)
- Modern-typesetted hardcover (Mises Store)
- Online PDF (1946 edition; Hispanic American Center for Economic Research)
There is also a video series available.
About the author
Henry Hazlitt was a journalist who had a great deal of interest in economics and the free market; he wrote for The Wall Street Journal, and he was also the finance and economics editor of The New York Times.
Related reading and media
If you are interested in “Economics In One Lesson”, then you may also enjoy Robert Murphy’s “Lessons for the Young Economist” (Mises store link; also available in electronic formats). This title gives an intro into economics, barter, money, the laws of supply & demand, and entrepreneurship. It also looks at the differences between capitalism, communism, and a mixed economy, as well as the effects of inflation, deficit spending, and an intro into business cycle theory. Robert Murphy’s entry-level book is a great companion to Henry Hazlitt’s classic, and the two complement each other well.
Here is a video by John Stossel on the broken window fallacy (thanks to DIY Investor for the recommendation):
Have you read “Economics In One Lesson”? If so, what did you think about the lesson and the examples, as well as their applicability to today? Please tell me about it in the comments section below!
I read that one a good number of years back, Kevin. I recall it being a good one. I recommend that your readers give it a shot.
My recollection is that it makes the case for what I think of as Adam Smith/Classical Economics, which is opposed to the Keynesian Economics, which is popular among liberals (the stimulus bill was a Keynesian response to the economic crisis). One thing that I think the Keynesians are right about is to focus on the emotional/psychological aspects of the economics question (something I don’t think the Classicals do a good job of). I think the stimulus failed because it made people even more scared than they were because they understand that the deficit is out of control.
I personally favor a mix of the Classical and Keynesian approaches, in which the psychological/emotional factors are given consideration but in more creative ways than the ways in which politicians following the Keynesian model tend to go. I don’t think there’s a name yet for the approach to economics that I prefer!
Rob
The Austrians do recognize that humans act and that “rational” doesn’t mean free of emotion, but rather that people do whatever they perceive to be the best action, even if it’s something that we would disagree with.
I do agree that emotions and “animal spirits” are an important part of economics and of life. They are in large part why politicians are so successful at appearing to be champions for the poor and the underprivileged, even though they often come from elitist backgrounds themselves and are truly in the hands of the special interests. I think people naturally seek hierarchy and order, but the problem is that in the old tribal days, the leaders were much more personally accountable than they are today!
I think in the short-run Keynesianism might make sense especially in regards to the psychological factors, but where I think the Austrians excel is in explaining how things got so bad in the first place, and why stimulus actually hurts things overall, even though in the short run people scream for the government to do something. I would like to study both of these economic philosophies more in depth to truly understand what’s behind them someday.
That excerpt from chapter 6 should be required reading for all government officials to prevent future pain.
I wonder if Henry was being clairvoyant when he wrote that passage!
If you can call common sense being clairvoyant, then he was definitely clairvoyant.
Makes you wonder sometimes if competent economists were at the right place
(government) when the real estate bubble seed was planted!
Thing is, it’s the politicians that call the shots, and many of the economists seek to validate the politicians’ theories rather than the other way around!
They should require this be read in high school/college. It is amazing the tenets of the book still hold true, maybe even more so today than when it was written. Or maybe it is just more obvious now.
I wonder about that. Much of the 20th century was dominated by communism, socialism, and fascism, and the intellectual mindset of the times (with exceptions) leaned toward central planning and controls. In the 80s there was a shift toward liberalization but with an over-reliance on debt and central planning of money.
These lessons are being seen in a new light now that we are finally seeing the long-run effects of all of these policies over the decades. Education is important so that people can see both sides of the debate, because after all, you still have plenty of talking heads out there screaming for more stimulus, more bailouts, more of everything. 🙂
I found it very insightful Kevin. It’s funny how things come full circle or at least come to “light” during different times.
Yep, nothing is ever static, though history does often repeat itself and human nature is slow to change, since much of it is biological and not cultural!
I definitely need a book about economics, as I am trying to understand how money works. This title really caught my eye – thanks for the insightful review.
Henry Hazlitt’s book is a great read, and you might also like “Lessons for the Young Economist” by Robert Murphy, which has just been released. I haven’t yet read this one myself, but it seems to have gotten good reviews so far. You can read it for free online (or purchase a hardcover copy) here: http://mises.org/resources/5706/Lessons-for-the-Young-Economist-Beta
Your readers might be interested in the youtube at
http://www.youtube.com/watch?v=UPmo2e-bAMQ&feature=related
where Stossel talks about the “Broken Window Fallacy”.
Very visual. Thanks for sharing that video, Robert, I’ve added it to the post.
Hazlitt’s book is a great read. One of his more interesting qualities I find is that he was not a “trained” economist, but rather a journalist and a briliant writer.
That’s a good point. His position as a journalist exposed him to many facets of the world which an academic would not necessarily have. This allowed him to write using a unique perspective, even if one that was unfortunately not widely shared. We are still better off for him fighting the good fight.