Economics in One Lesson

In Chapter 23, consumer goods refers to products or services purchased by everyday people. The more production there is, the greater the supply, and, provided demand does not change, the lower the price of goods and services will fall.

Similarly to the equilibrium wage, the equilibrium price is achieved by equalizing supply and demand. Hazlitt believes that asking for a higher price on a product will cause demand to fall, which will in turn force the firm to lay off workers since it is making less profit by making fewer sales. Workers who are laid off cannot consume, which will in turn affect other industries, causing a net loss to economic development. Thus, rather than raising prices above market value or reducing them below, Hazlitt argues that the best long-term economic decision is to set a price that reaches an equilibrium between supply and demand, allowing for the highest volume of production and largest volume of sales.

Discussed in Chapter 20, equilibrium wages involves equalizing supply and demand to determine how much a firm should pay their workers. This is what Hazlitt considers the most optimal way to determine wages to maintain economic stability or growth in the long run. When a firm understands its production costs and maximizes its sales, this market process will help it determine the proper rate to pay their workers without raising its production costs beyond what it can shoulder. If it pays its workers above this equilibrium, it will force either an inflation in the price of the goods it sells, which hurts all other consumers, or it will be looking to lay off workers to cut on production costs. Thus, Hazlitt thinks that the best wage rates are those that allow for full production, full employment, and the largest sustained payrolls.

The New Deal is a series of economic reforms implemented by American President Franklin D. Roosevelt in an effort to reinstate economic stability and provide emergency relief after the Great Depression of 1929. With unemployment rates soaring from 2% to 25% and public trust in American financial institutions frayed, Roosevelt’s New Deal promised to rectify the economy by expanding the power of the State and increasing its involvement in regulating the market. This policy goes against the general tenets of Classical Economics, to which Hazlitt generally adheres, which advocate for reduced State involvement and a self-regulating free market. The New Deal is first mentioned in Chapter 13, where it is criticized for having solidified the belief that the government should give special interest to particular groups of people through “parity” prices.

Although not mentioned explicitly in the book, one of Hazlitt’s central arguments is about noticing the greater picture to avoid what he regards as erroneous economic beliefs. He insists on recognizing secondary and general consequences of economic policies; he encourages the measuring of policies based not on special interests of a particular group, but on general interests of the whole nation or world; and he underlines the importance of calculating not only the short-term and visible impact of economic policies, but considering their long-term and less visible consequences. In short, he is asking economists to consider the opportunity cost of applying a specific policy: If they decide to pour their efforts here, and they can only provide so much relief, then they should be at the very least aware that they are not investing that same effort elsewhere, in a potentially more fruitful project.