Economics in One Lesson

Too many people, even within the alternative media, are awfully ignorant of basic economic principles. They refuse to see that which is not seen, and they are very distrustful of each human making his own decisions in the marketplace by voluntarily cooperating with others towards a common goal. Not only do they neglect to think along the margins, but these Internet pundits that I’ve noticed are not afraid of engaging in Sophist trickery to propagandize their economic fallacies.

 

 

Reiterating Frédéric Bastiat’s thesis from That Which is Seen, and That Which is Not Seen, Henry Hazlitt (the same author who wrote Man v. The Welfare State) says:

 

“The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.”

 

Unfortunately, it is all too common for economic analyses to stop awfully short, whether they emanate from mainstream Keynesians such as Paul Krugman or phony alternative media pundits such as Ellen Brown. Hazlitt further details that:

 

“Economics, as we have now seen again and again, is the science of recognizing secondary consequences. It is also a science of seeing general consequences. It is the science of tracing the effects of some proposed or existing policy not only on some special interest in the short run, but on the general interest in the long run.”

 

Using this as his formula, Hazlitt proceeds to illustrate not only that which is not seen, but more importantly, to categorize the most pernicious economic fallacies.

Hazlitt begins by taking Bastiat’s parable of the broken window and relabeling it to be the broken window fallacy. Next, Hazlitt describes the fears of machines “stealing” people’s jobs to be the Luddite fallacy, because he saw the increased use of automation in much the same way that, ironically, the Zeitgeisters do; namely, that automation frees people from manual drudgery, thereby leaving them to allocate their labors elsewhere. Hazlitt says:

 

“One might pile up mountains of figures to show how wrong were the technophobes of the past. But it would do no good unless we understood clearly why they were wrong. For statistics and history are useless in economics unless accompanied by a basic deductive understanding of the facts – which means in this case an understanding of why the past consequences of the introduction of machinery and other labor-saving devices had to occur.”

 

Here, Hazlitt cautions that the exclusive use of statistics and banal history can actually be used to trick people into believing economic fairy tales. Much like Sherlock Holmes, Hazlitt insists that deductive reasoning must be used in order to make sense out of economic behavior.

Popular fallacies are always difficult to dislodge, because people have been deliberately propagandized to believe in their efficacy. Hazlitt attempts such dislodgement here by telling us that tariffs always reduce wages, that so-called “parity pricing” benefits farmers at the expense of reducing everyone else’s wages, and that the minimum wage destroys jobs by criminalizing all those jobs that would have paid a wage below of that of what “the law” required to be the minimum amount. He further warns us that the implications of the economic slogans commonly made are not recognized by their own adherents, for to advocate an increase in credit is to necessarily increase debt, to increase farm prices also increases the food prices for those who are urbanized (which is currently ~ 82% of the domestic American population), to increase government subsidies is to increase taxes, to increase exports is to increase imports, and to increase wage rates is to increase the price of production. If greater debt, higher grocery bills, larger taxes, more imports, and pricier productions costs are your goal, then by all means advocate for easy bank credit, greater farm profits, larger subsidies, more exports, and higher wages.

Anti-propertarians of various stripes and colors really don’t understand the law of the diminishing marginal utility or the price system itself. What they have called “Crusoe economics” is what best illustrates how prices work; that is, prices are determined by the interplay of supply and demand, not by the costs of production. This is why price controls actually increase the shortage of goods, which consequently, decreases living standards. As Hazlitt says:

 

“It is only the much vilified price system that solves the enormously complicated problem of deciding precisely how much of tens of thousands of different commodities and services should be produced in relation to each other. These otherwise bewildering equations are solved quasi-automatically by the system of prices, profits, and costs. They are solved by this system incomparably better than any group of bureaucrats could solve them. For they are solved by a system under which each consumer makes his own demand and casts a fresh vote, or a dozen fresh votes, every day; whereas bureaucrats would try to solve it by having made for the consumers, not what the consumers themselves wanted, but what the bureaucrats decided was good for them. Yet though the bureaucrats do not understand the quasi-automatic system of the market, they are always disturbed by it. They are always trying to improve it or correct it, usually in the interests of some wailing pressure group.”

 

Put another way, it is the demands of customers relative to the supply provided by the businessmen that determines prices. Government bureaucratic invention in the market distorts this valuable interplay of prices, usually under the guise of “fixing” some problem (which more often than not, they themselves created in the first place). They will misidentify the Forgotten Man as the beneficiary of government regulations, when it fact, he is the one bearing the costs of enforcement, all for someone else’s gain.

Much of the diatribes against the free market are targeted at the supposed unethical nature of profits, all the while turning a blind eye to the inherent evils of central banking. Unions only care about preserving their membership’s unearned privilege to be paid for their skilled labor irrespective of market demand. Hazlitt pointed out:

 

“Thus we are driven to the conclusion that unions, though they may for a time be able to secure an increase in money wages for their members, partly at the expense of employers and more at the expense of non-unionized workers, do not, in the long run and for the whole body of workers, increase real wages at all.

 

Contrary to the propaganda spewed by the union bosses, the stated goals of unionization are never actually achieved whenever they’ve been experimented with; the only observable result lays with the mandatory membership dues that these union bosses regularly collect into their own coffers. Regarding profits themselves, Hazlitt says:

 

“The function of profits, finally, is to put constant and unremitting pressure on the head of every competitive business to introduce further economies and efficiencies, no matter to what stage these may already have been brought. In good times he does this to increase his profits further; in normal times he does it to keep ahead of his competitors; in bad times he may have to do it to survive at all. For profits may not only go to zero; they may quickly turn into losses; and a man will put forth greater efforts to save himself from ruin that he will merely to improve his position.”

 

Competition in supplying market demand is what drives production, not “regulations.” Administrative Agency bureaucrats are not at all incentivized to serve those whom they “regulate” like how businessmen are incentivized to satisfy customer demand. Central banking, for example, does not serve the users of its fiat currency. Inflation reduces the purchasing power of the currency, thereby becoming a hidden tax. On this point, Hazlitt said:

 

“Like every other tax, inflations acts to determine the individual and business policies we are all forced to follow. It discourages all prudence and thrift. It encourages squandering, gambling, reckless waste of all kinds. It often makes it more profitable to speculate than to produce. It tears apart the whole fabric of stable economic relationships. Its inexcusable injustices drive men toward desperate remedies. It plants the seeds of fascism and communism. It leads men to demand totalitarian controls. It ends invariably in bitter disillusion and collapse.”

 

Notice also how savings, as a preserved form of expended labor (aka, liquid capital) can be used to trade for goods and services in the future during unforeseen scenarios or for a deliberate purpose, has been decried by the Keynesians as harmful to the economy, because they claim that reckless spending leads to financial prosperity. Hazlitt’s rebuttal to them is that:

 

“When your money is taken by a thief, you get nothing in return. When your money is taken through taxes to support needless bureaucrats, precisely the same situation exists. We are lucky, indeed, if the needless bureaucrats are mere easy-going loafers. They are more likely today to be energetic reformers busily discouraging and disrupting production.”

 

This statement of Hazlitt’s appears to justify the position that all taxation is theft. Regardless, the secondary and larger consequences of bureaucratic policies must be ruthlessly critiqued if there is to be any embryonic resemblance of a free market.

Henry Hazlitt’s Economics in One Lesson is a truly wonderful exposition about the fallacies popularly believed in by many Americans. Originally published in 1946 (which is the same year the Administrative Procedures Act was passed), Hazlitt remarks:

 

“The classical economists, refuting the fallacies of their own day, showed that the saving policy that was in the best interests of the individual was also in the best interests of the nation. They showed that the rational saver, in making provision for his own future, was not hurting, but helping, the whole community. But today the ancient virtue of thrift, as well as its defense by the classical economists, is once more under attack, for allegedly new reasons, while the opposite doctrine of spending is in fashion.”

 

This is the kind of craziness that lovers of liberty are still dealing with decades later with all of the government supremacists and their fetish for central planning. Interestingly enough, Hazlitt also said:

 

“But the solution is never to reduce supplies arbitrarily, to prevent further inventions or discoveries, or to support people for continuing to perform a service that has lost its value. Yet this is what the world has repeatedly sought to do by protective tariffs, by the destruction of machinery, by the burning of coffee, by a thousand restriction schemes. This is the insane doctrine of wealth through scarcity.”

 

I find it quite remarkable that Hazlitt considered scarcity, in this context, to be artificially imposed by legislators and bureaucrats who tax, ban, or regulate the free market. Unfortunately, Hazlitt was not entirely consistent when it came to his condemnation of government employees, though:

 

“I must insist again that in all this I am not talking of public officeholders whose services are really needed. Necessary policemen, firemen, street cleaners, health officers, judges, legislators, and executives perform productive services as important as those of anyone in private industry. They make it possible for private industry to function in an atmosphere of law, order, freedom, and peace. But their justification consists in the utility of their services. It does not consist in the ‘purchasing power’ they possess by virtue of being on the public payroll.”

 

Besides what could possibly be construed as pandering, Hazlitt’s condemnation of economic fallacies is something I wish more patriots would stress in their own rhetoric.

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2 Responses to Economics in One Lesson

  1. Pingback: Grassroots Lobbying Does Not Work: A Review of Chris Cantwell’s “Anarcho-Lobbyist” Series (Season One) | From the Trenches World Report

  2. matthew says:

    I think there is a mistake in this paragraph: Put another way, it is the demands of customers relative to the supply provided by the businessmen that determines prices. Government bureaucratic invention <—(intervention?)– in the market distorts this valuable interplay of prices, usually under the guise of “fixing” some problem (which more often than not, they themselves created in the first place).

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