Economics in One Lesson

Henry Hazlitt lived through WWI, the Great Depression of 1929, and WWII. He authored Economics in One Lesson and published it shortly after the end of World War II. As a result, his disagreement with the common economic beliefs of his time are best understood within the sociohistorical context of those decades.

Hazlitt’s economic philosophy aligns closely with those of Classical economists, chief among whom is Adam Smith, whose most famous work, The Wealth of Nations (1776), Hazlitt mentions across several chapters. Classical economists defend the concept of the free market as being self-regulating, as reflected in the works of some of Hazlitt’s contemporaries, such as Friedrich Hayek in The Road to Serfdom (1944) and Ludwig von Mises in Human Action: A Treatise on Economics (1949), both of whom also argue for laissez-faire capitalism and oppose government intervention. Similarly, Hazlitt implies throughout Economics in One Lesson that market forces are most efficient when they are left to balance themselves out. Although fluctuations in things such as prices of goods and wages of workers are inevitable in the short run, they will balance each other out when viewed on a longer time scale, as supply and demand equalize. Since Hazlitt believes that these forces are best left alone or handled by private actors, he is skeptical of government intervention in the realm of economics.

In Hazlitt’s time, Classical economic principles were decreasing in popularity among influential politicians, economists, and editorialists. This was in part due to the rise of competing economic schools, such as the Keynesian school under John Maynard Keynes, whose The General Theory of Employment, Interest and Money (1936) and other works became influential on government policy during and after the Great Depression. Keynes argued that market forces are not always self-regulating, and supported government intervention. The Marxist schools, although less influential in North America, also contributed to critiques of unregulated capitalism by seeking to discredit the idea that the redistribution of wealth would benefit everyone equally under a free market system.

The rise of these alternate economic schools was partly accelerated due to the Great Depression of 1929, where a market crash caused unemployment rates in America to skyrocket from 2% to 25%. Believing that the Depression was primarily caused by irresponsibly allowing the market to regulate itself, President Franklin D. Roosevelt and his administration decided to follow Keynesian principles and expand government intervention to attempt to stabilize the economy.

The Roosevelt administration put into motion the New Deal, through which they established several relief programs, implemented social safety net measures, engaged in price-fixing, raised wages, and encouraged spending. This caused a spike of inflation in the 1930s, which did not improve overall purchasing power and did not significantly reduce unemployment rates until a decade later. Although generally considered successful nowadays, economists still dispute whether specific programs pushed by the New Deal were truly beneficial in the long run.

Having lived through this period, Hazlitt finds fault with many of the Keynesian principles adopted by the American government and other influential politicians and editorialists. He argues that, though these programs can, in the short term, provide relief to a particular group of people, the majority of them ultimately lead to a net loss for the American economy as a whole because they only focus on the immediate and visible benefits for a specialized group, without weighing their long-term implications for the economy.