Economics in One Lesson

“Effective economic demand requires not merely need but corresponding purchasing power.”

To criticize the idea that war and destruction bring economic advantages, Hazlitt argues that simply desiring a good without the ability to purchase it does not constitute demand. In other words, destroying many people’s livelihoods will certainly force them to desire the goods to fulfill their basic needs, but without the ability to pay for these goods, their desire can hardly constitute economic demand.

“Whenever business is increased in one direction, it must (except insofar as productive energies may be generally stimulated by a sense of want and urgency) be correspondingly reduced in another.”

This is another core argument of Hazlitt’s book, invoking The Need to Establish Free-Market Efficiency. He argues that many policies advocated by rival economists result in subsidizing one group, and that doing so is the same as the government withholding that money from all other groups. The allocation of effort must therefore be considered carefully.

“The world is full of so-called economists who in turn are full of schemes for getting something for nothing. They tell us that the government can spend and spend without taxing at all; that it can continue to pile up debt without ever paying it off, because ‘we owe it to ourselves.’”

Here Hazlitt employs some of the rhetorical techniques characteristic of the work. In calling any economist who disagrees with him “so-called economists,” he implies that no one who disagrees with him is a true economist, thereby denying any nuance or validity to any counterclaims another economist might make. Hazlitt’s assertions also seek to discredit his opponents by exaggerating their views, such as claiming they think that governments can “spend and spend without taxing at all,” which is not what serious Keynesian economists believe, and even asserting that there is a hedonistic element to their rationale (“we owe it to ourselves”) instead of addressing their own economic reasoning. Such rhetorical strategies reflect the polemical nature of the work, with Hazlitt seeking to persuade the reader to adopt his viewpoints. The passage also illustrates Hazlitt’s arguments about The Problem of Emotionalism in Government Policies, as he often tries to frame his opponents as emotion-driven while presenting himself as driven by logic.

“When the total tax burden grows beyond a bearable size, the problem of devising taxes that will not discourage and disrupt production becomes insoluble.”

This is an argument that is reprised over several chapters in the rest of the book. Hazlitt argues that when taxes are too high, businesses are disincentivized from producing, because the risk of not making a profit must be entirely shouldered by them, whereas the fruits of their effort must be shared with the government.

“When the government makes loans or subsidies to business, what it does is to tax successful private business in order to support unsuccessful private business.”

Hazlitt’s argument stems from the idea that government allocation of resources should not be freely allocated, especially not to help a particular interest group that has not been productive. Hazlitt believes that, in doing so, the government falls into the belief of seeing only the short-term special interests of the few, without considering everyone’s general interest in the long run.

“The belief that machines cause unemployment, when held with any logical consistency, leads to preposterous conclusions. Not only must we be causing unemployment with every technological improvement we make today, but primitive man must have started causing it with the first efforts he made to save himself from needless toil and sweat.”

With this analogy, Hazlitt hopes to convince readers that machines in themselves are not a problem for the average worker. Although technological advancements can temporarily put some workers out of work, he argues that they ultimately help expand the industry and reduce pricing, which helps in job creation and elevates the worker in the long run.

“Yet it is a misconception to think of the function or result of machines as primarily one of creating jobs. The real result of the machine is to increase production, to raise the standard of living, to increase economic welfare.”

Similar to the previous passage, Hazlitt discusses the importance of technological advancement. He believes that increased productivity is the key to achieve net economic growth for everyone on the long run.

“When we can find no better argument for the retention of any group of officeholders than that of retaining their purchasing power, it is a sign that the time has come to get rid of them.”

In Chapter 9, Hazlitt reprises the argument that government subsidy of unproductive tasks is a waste of taxpayers’ money. He applies this same logic to government workers who, he asserts, only remain in office due to seniority or prestige: He argues that these people are better off finding employment in the private sector and letting more competent people replace them.

“We cannot continuously have the fullest production without full employment. But we can very easily have full employment without full production.”

Hazlitt argues here that full employment should not be the end goal of economic development. He argues that it is rather only a byproduct of pursuing a different goal: full production. He believes that this is why less developed countries have almost everyone working, yet their standards of living are lower than in the US. Hazlitt does not address other factors that impact less developed countries, such as the impact of colonialism, the potential scarcity of certain resources compared to the US, and the endurance of structural racism in former empires.

“In the long run, notwithstanding the mountains of argument pro and con, a tariff is irrelevant to the question of employment.”

The central belief explored in this chapter is the idea that adding a tariff on imports on a specific product helps local producers stay in business, which maintains employment. Hazlitt finds this belief untenable because hurting imports also hurts exports: Though a tariff may temporarily and artificially keep a business afloat, what it fails to consider is that those workers could very well have been productive elsewhere. Hazlitt thus argues for The Need to Establish Free-Market Efficiency.

“In the long run imports and exports must equal each other (considering both in the broadest sense, which includes such ‘invisible’ items as tourist expenditures and ocean freight charges). It is exports that pay for imports, and vice versa.”

Hazlitt asserts that there is a belief that America will be much richer from increasing its export. He argues that these same people sometimes vilify imports for putting local firms out of business. Hazlitt finds fault in these beliefs because exports pay for imports and imports pay for exports, both of which, when balanced, help make the greatest economic gains possible.

“None of this means, I repeat, that it is unwise to make foreign loans, but simply that we cannot get rich by making bad ones.”

This passage summarizes the key points of Chapter 12, in which Hazlitt heavily critiques the idea of making bad foreign loans just to increase American exports. He likens this practice to giving American goods away for free just to see sales numbers go up.

“But here it may be pointed out that when the farmer reduces the production of wheat to get ‘parity,’ he may indeed get a higher price for each bushel, but he produces and sells fewer bushels. The result is that his income does not go up in proportion to his prices.”

In this chapter, Hazlitt criticizes the idea of raising prices artificially above market rates. Though this practice seeks to help producers, this quote alleges that it actually does not achieve this goal, and parity prices do not help enrich producers.

“The idea that an expanding economy implies that all industries must be simultaneously expanding is a profound error.”

Hazlitt argues against the government forcibly keeping dying industries alive. Hazlitt believes that there is no reason to believe every product once made must be made forever. Thus, if a company can no longer compete effectively against others in a new market, they should be allowed to die out, and their workers reallocated elsewhere in the economy.

“The whole argument of this book may be summed up in the statement that 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.”

This passage is reiterates on of the core tenets of the book. Hazlitt believes that rival economists do not consider long-term consequences of their policies, often accusing them of causing The Problem of Emotionalism in Government Policies.

“For the loan policy is usually accompanied by, or inevitably leads to, a policy of restricting production—i.e., a policy of scarcity.”

Earlier, Hazlitt argued that an economy is at its best when it achieves full production. He asserts here that it becomes evident that loan policies, which create scarcity and limit production, can only hurt the system in the long run.

“Each one of us, in brief, has a multiple economic personality. Each one of us is producer, taxpayer, consumer. The policies he advocates depend upon the particular aspect under which he thinks of himself at the moment.”

Hazlitt maintains that in today’s economy, every industry is tied to one another. The product of one becomes the resource of another. If the price increases for one product, it will likely affect other parts of the system. However, Hazlitt believes that people often forget this fact and seek to maximize their personal gains, without realizing that the consequence of their action will come back to affect themselves later.

“We cannot distribute more wealth than is created. We cannot in the long run pay labor as a whole more than it produces.”

This belief is anchored in Hazlitt’s economic philosophy. Since full production is, according to Hazlitt, the end goal of economic growth, the price of labor is determined by the worker’s productivity, and raising wages above market rates is unsustainable in the long run.

“The power of labor unions to raise wages over the long run and for the whole working population has been enormously exaggerated. This exaggeration is mainly the result of failure to recognize that wages are basically determined by labor productivity.”

Hazlitt allows in this chapter that labor unions have their purpose in helping workers fight for greater health measures and other benefits, such as increasing their wage when they are paid below market price. However, he argues that unions are not the reason for the general increase in wages during Hazlitt’s time. They are correlated, but he believes that the fundamental cause of increased wages was the adoption of machines that made production exponentially more efficient than before.

“In an exchange economy everybody’s income is somebody else’s cost.”

Here, Hazlitt asserts that seeking personal gain can be detrimental in the long run, because the economy is intrinsically connected. In other words, allocating resources in one area means, according to Hazlitt, depriving all other areas of this resource. It is of utmost importance, then, to invest in the most productive venues rather than attempt to appeal to a specific group. Hazlitt does not consider that, in the works of rival economists, productivity is not always the main goal of every initiative they propose.

“Profits, in short, resulting from the relationships of costs to prices, not only tell us which goods it is most economical to make, but which are the most economical ways to make them.”

Hazlitt is a Classical economist and fundamentally believes in market forces for dictating production and consumption, arguing for The Need to Establish Free-Market Efficiency. Here, he argues that pricing and the size of demand, among other forces, will guide people toward producing the most desirable goods at the most optimal quantities.

“In our own day the most persistent argument put forward for inflation is that it will ‘get the wheels of industry turning’ that it will save us from the irretrievable losses of stagnation and idleness and bring ‘full employment.’ This argument in its cruder form rests on the immemorial confusion between money and real wealth.”

This quote summarizes the central argument of the chapter: Hazlitt believes that people in favor of inflation are mistaken because they confuse money for real wealth. They see printing money as injecting more wealth into the economy, when, according to Hazlitt, real wealth comes from being able to purchase products of better quality and quantity. This passage thus illustrates Hazlitt’s exploration of The Nature of Monetary Policies to Address Inflation.

“‘Saving,’ in short, in the modern world, is only another form of spending.”

During Hazlitt’s time, economists who wanted to help push the economy out of recession encouraged people not to save, as reinvesting their money into businesses would help them regain their productivity. Hazlitt argues that modern methods of savings hardly ever take the form of hoarding cash under the bed. People who deposit their money in banks actually do encourage the recirculation of their savings to help businesses operate.