Economics in One Lesson

Summary

Economics in One Lesson is a short primer that sets out to explain the economic fallacies most common in public debate and to show that nearly all of them come from a single mistake. Henry Hazlitt, then an editorial writer for The New York Times, published it in 1946, and a revised edition with a new concluding chapter appeared in 1979. Hazlitt's lesson is that a policy must be judged by its effects on everyone and over the long run, not only by its immediate effects on one group. Special interests have strong reasons to argue for measures that benefit them, and the benefits of such measures are usually easy to see while the costs are spread thinly or appear later. The bad economist, in Hazlitt's phrase, sees only what strikes the eye; the good economist also looks beyond. The book opens with a version of the French economist Frédéric Bastiat's parable of the broken window. A boy breaks a baker's window, and onlookers decide that the damage is good for trade because the glazier now has work. They forget the suit the baker would have bought with the money and the tailor who now loses the order. From this example Hazlitt builds a series of short chapters that apply the same reasoning to wartime destruction, public works, taxes, government credit, labor-saving machinery, spread-the-work schemes, tariffs, export subsidies, farm price supports, efforts to save particular industries, price-fixing, rent control, minimum wage laws, the effects of unions on wages, profits, inflation and saving. In each case he asks who gains, who pays and what happens later. He argues, for example, that public works paid for by taxes do not create net employment, since the taxes destroy the jobs that private spending would have created; that rent control reduces the supply and upkeep of housing; and that a legal minimum wage can price the least skilled workers out of jobs altogether. He also explains how freely moving prices direct resources to their most valued uses. The book became a best seller and has sold millions of copies in many languages. It is widely used as an introduction to free-market economics and to the Austrian school, though critics argue that it understates market failures and the case for active monetary and fiscal policy.

Top Lessons

• The seen and the unseen

  Every policy has visible beneficiaries and less visible costs. Learning to look for the unseen is a basic habit of economic reasoning.

• Special interests

  Hazlitt argues that groups who gain from a policy will argue for it persistently while those who pay may not notice. Students can practice identifying concentrated benefits and dispersed costs.

• Prices as signals

  Prices tell producers what to make and consumers what to economize. Fixing them by law, Hazlitt argues, distorts that information.

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