One of the great classics of modern libertarianism is Henry Hazlitt’s Economics In One Lesson, a short (201 pages) very readable book that really will teach you economics by focusing on the effects of a single observation: namely,
the whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence. The art of economics consists in looking not merely at the immediate but at the longer effect of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.
Hazlitt was a friend of the great libertarian writer H.L. Mencken, and even took over the editing of Mencken’s magazine The American Mercury after Mencken retired. Although Hazlitt wasn’t a very successful editor, Mencken said that he was “one of the few economists in human history who could really write.” Building on the writing of Frédéric Bastiat, Hazlitt gives an example of his lesson:
A young hoodlum, say, leaves a brick through the window of a baker’s shop. The shopkeeper runs out furious, but the boy is gone. A crowd gathers, and begins to stare in quiet satisfaction at the gaping hole in the window and the shattered glass over the bread and pies. After a while the crowd feels the need for philosophic reflection. And several of its members are almost certain to remind each other or the baker that, after all, the misfortune has its bright side. It will make business for some glazier…. How much does a new plate glass window cost? Two hundred and fifty dollars? That will be quite a sum. After all, if windows were never broken, what would happen to the glass business? Then, of course, the thing is endless. The glazier will have $250 more to spend with other merchants, and these in turn will have $250 more to spend with the other merchants….
But the crowd is wrong to convince itself that destruction can create prosperity. They’ve been misled because they’re focusing only on the visible, not the invisible, effects of the destruction:This little act of vandalism will in the first instance mean more business for some glazier…. But the shopkeeper will be out $250 that he was planning to spend for a new suit. Because he has had to replace a window, he will have to go without the suit…. Instead of having a window and $250, he has now merely a window…. [T]he community has lost a new suit that might otherwise have come into being, and is just that much poorer…. No nemw “employment” has been added. The people in the crowd were thinking only of two parties to the transaction, the baker and the glazier. They had forgotten the potential third party involved, the tailor. They forgot him precisely because he will not now enter the scene. They will see the new window in the next day or two. They will never see the extra suit, precisely because it will never be made.
The delusion that destroying things can make people wealthy is a common one. There are famous photos of people, during the Great Depression (and later!), pouring milk out, or letting whole trainloads of peaches rot, attempting to raise the prices of these things and thus increase the wealth of farmers.
But all that this really does is make the community poorer, because there is less milk and fewer peaches. These items become more expensive for everyone (including the farmer!) so it does not actually increase wealth at all—it just transfers wealth.
Or consider when government talks about “creating jobs.” Government can never really create jobs, although it might cause jobs. But government jobs come at the price of increased taxes, and that means that money that I might otherwise use to buy products and thereby employ people is being taken from me to give to the government so that it can employ people instead. And it is employing people on a project that I don’t want, since I didn’t choose to spend my money on it. The idea that national prosperity can result from government projects is the same “broken window fallacy”: “For every dollar that is spent on [a government-built] bridge, a dollar will be taken away from taxpayers. If the bridge costs $10 million the taxpayers will lose $10 million. They will have that much taken away from them which they would otherwise have spent on the things they needed most.Therefore, for every public job created by the bridge project a private job has been destroyed somewhere else. We can see the men employed on the bridge. We can watch them at work. The employment argument of the government spenders becomes vivid, and probably for most people convincing. But there are other things that we do not see, because, alas, they have never been permitted to come into existence. They are the jobs destroyed by the $10 million taken from the taxpayers. All that has happened, at best, is that there has been a diversion of jobs because of the project. More bridge builders; fewer automobile workers, television technicians, clothing workers, farmers.
Another example is tariffs. Many people argue that, for example, American steel manufacturers ought to be protected from competition by foreign steel manufacturers; the foreigners, they say, are “dumping” cheap steel on the market, and this drives the price down, which is bad for American workers. But what this argument is really saying is that you aren’t paying enough for steel products, and ought to be forced to pay more—all for the benefit of people whose product you have chosen not to buy. And the result is less steel for everyone, and higher prices for every steel product. Tariffs, writes Hazlitt, “reduce[ ] the American level of wages,” because it raises the price of one product, leaving consumers unable to buy as much of other products—so there is “no net gain to the industry as a whole.” And because more people will be artificially employed in the American steel industry, where it would be more efficient for them to work in other jobs, productivity ends up being less than what it otherwise would be. If we look at it now from the consumer’s point of view, we find that he can buy less with his money. Because he has to pay more for [steel], he can buy less of everything else. The general purchasing power of his income has therefore been reduced… [T]he tariff—though it may increase wages above what they would have been in the protected industries—must on net balance, when all occupations are considered, reduce real wages— reduce them, that is to say, compared with what they otherwise would have been.
Yet people see the jobs of protected steel workers, and they can never see the jobs that would have come into existence if the tariff wasn’t in existence.
It might seem strange to have to teach people that You can’t get rich by breaking things, but that is really one of the most important ideas in economics that too many people have never learned.
Hazlitt’s book is eloquent, concise, readable, and very wide-ranging. It won’t teach you the most obscure ideas in economics, but it will give you the ideas you need to understand, rather than merely to repeat, the obscure ideas. You should buy and read it now.
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