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Economics in One Lesson (by Henry Hazlitt)

Henry Hazlitt was, according to Wikipedia, "the founding vice-president of the Foundation for Economic Education. He was also one of the original members of the classical liberal Mont Pelerin Society in 1947." (I've commented both on FEE and Mont Pelerin elsewhere on this blog). These are considerable contributions to liberty. 

Unfortunately I've not read Hazlitt. Why? Perhaps because my studies of economics commenced directly at the postgraduate (mathematical) level. So when PD wrote: "Would like to hear your thoughts on Clay vis-a-vis Hazlitt’s Economics in One Lesson and Thomas Sowell’s work", I had to first find out what Hazlitt wrote.

Since I like to read Word versions of old books (so I can annotate/comment on them), I searched for Hazlitt's book and found that it is widely available on the net in many formats. I've tweaked an existing Word version to suit my needs and annotated a part of it. I'll upload further annotations as I work through the book (time permitting). 

Download my (partially annotated) Word version here (0.5MB)

The book is very short (just 60,000 words or so). Not having read either Clay's and Hazlitt's work yet, it is too early for me to provide comparative comment, but I can definitely state that Hazlitt's lesson is in the right direction.

I'm posting his lesson for those who haven't read it yet. Unfortunately, even most professional economists don't follow his lesson. (Hazlitt hints at why Keynesian economics is popular, and why it is hugely defective and dangerous, being focused on short-term adjustments, ignoring overall longer term effects.)

The (one) lesson
 
Economics is haunted by more fallacies than any other study known to man. This is no accident. The inherent difficulties of the subject would be great enough in any case, but they are multiplied a thousandfold by a factor that is insignificant in, say, physics, mathematics or medicine-the special pleading of selfish interests. While every group has certain economic interests identical with those of all groups, every group has also, as we shall see, interests antagonistic to those of all other groups. While certain public policies would in the long run benefit everybody, other policies would benefit one group only at the expense of all other groups. The group that would benefit by such policies, having such a direct interest in them, will argue for them plausibly and persistently. It will hire the best buyable minds to devote their whole time to presenting its case. And it will finally either convince the general public that its case is sound, or so befuddle it that clear thinking on the subject becomes next to impossible.
 
In addition to these endless pleadings of self-interest, there is a second main factor that spawns new economic fallacies every day. This is the persistent tendency of men to see only the immediate effects of a given policy, or its effects only on a special group, and to neglect to inquire what the long-run effects of that policy will be not only on that special group but on all groups. It is the fallacy of overlooking secondary consequences.
 
In this lies the whole difference between good economics and bad. The bad economist sees only what immediately strikes the eye; the good economist also looks beyond. The bad economist sees only the direct consequences of a proposed course; the good economist looks also at the longer and indirect consequences. The bad economist sees only what the effect of a given policy has been or will be on one particular group; the good economist inquires also what the effect of the policy will be on all groups.
 
The distinction may seem obvious. The precaution of looking for all the consequences of a given policy to everyone may seem elementary. Doesn't everybody know, in his personal life, that there are all sorts of indulgences delightful at the moment but disastrous in the end? Doesn't every little boy know that if he eats enough candy he will get sick? Doesn't the fellow who gets drunk know that he will wake up next morning with a ghastly stomach and a horrible head? Doesn't the dipsomaniac know that he is ruining his liver and shortening his life? Doesn't the Don Juan know that he is letting himself in for every sort of risk, from blackmail to disease? Finally, to bring it to the economic though still personal realm, do not the idler and the spendthrift know, even in the midst of their glorious fling, that they are heading for a future of debt and poverty?
 
Yet when we enter the field of public economics, these elementary truths are ignored. There are men regarded today as brilliant economists, who deprecate saving and recommend squandering on a national scale as the way of economic salvation; and when anyone points to what the consequences of these policies will be in the long run, they reply flippantly, as might the prodigal son of a warning father: “In the long run we are all dead.” And such shallow wisecracks pass as devastating epigrams and the ripest wisdom. 
 
But the tragedy is that, on the contrary, we are already suffering the long-run consequences of the policies of the remote or recent past. Today is already the tomorrow which the bad economist yesterday urged us to ignore. The long-run consequences of some economic policies may become evident in a few months. Others may not become evident for several years. Still others may not become evident for decades. But in every case those long-run consequences are contained in the policy as surely as the hen was in the egg, the flower in the seed.
 
From this aspect, therefore, 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 effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.
 
2
Nine-tenths of the economic fallacies that are working such dreadful harm in the world today are the result of ignoring this lesson. Those fallacies all stem from one of two central fallacies, or both: that of looking only at the immediate consequences of an act or proposal, and that of looking at the consequences only for a particular group to the neglect of other groups.
 
It is true, of course, that the opposite error is possible. In considering a policy we ought not to concentrate only on its long-run results to the community as a whole. This is the error often made by the classical economists. It resulted in a certain callousness toward the fate of groups that were immediately hurt by policies or developments which proved to be beneficial on net balance and in the long run.
 
But comparatively few people today make this error; and those few consist mainly of professional economists. The most frequent fallacy by far today, the fallacy that emerges again and again in nearly every conversation that touches on economic affairs, the error of a thousand political speeches, the central sophism of the new economics, is to concentrate on the short-run effects of policies on special groups and to ignore or belittle the long-run effects on the community as a whole. The “new” economists flatter themselves that this is a great, almost a revolutionary advance over the methods of the “classical” or “orthodox,” economists, because the former take into consideration short-run effects which the latter often ignored. But in themselves ignoring or slighting the long-run effects, they are making the far more serious error. They overlook the woods in their precise and minute examination of particular trees. Their methods and conclusions are often profoundly reactionary. They are sometimes surprised to find themselves in accord with seventeenth-century mercantilism. They fall, in fact, into all the ancient errors (or would, if they were not so inconsistent) that the classical economists, we had hoped, had once and for all got rid of.
 
3
It is often sadly remarked that the bad economists present their errors to the public better than the good economists present their truths. It is often complained that demagogues can be more plausible in putting forward economic nonsense from the platform than the honest men who try to show what is wrong with it. But the basic reason for this ought not to be mysterious. The reason is that the demagogues and bad economists are presenting half-truths. They are speaking only of the immediate effect of a proposed policy or its effect upon a single group. As far as they go they may often be right. In these cases the answer consists in showing that the proposed policy would also have longer and less desirable effects, or that it could benefit one group only at the expense of all other groups. The answer consists in supplementing and correcting the half-truth with the other half. But to consider all the chief effects of a proposed course on everybody often requires a long, complicated, and dull chain of reasoning. Most of the audience finds this chain of reasoning difficult to follow and soon becomes bored and inattentive. The bad economists rationalize this intellectual debility and laziness by assuring the audience that it need not even attempt to follow the reasoning or judge it on its merits because it is only “classicism” or “laissez faire” or “capitalist apologetics” or whatever other term of abuse may happen to strike them as effective.
 
We have stated the nature of the lesson, and of the fallacies that stand in its way, in abstract terms. But the lesson will not be driven home, and the fallacies will continue to go unrecognized, unless both are illustrated by examples. Through these examples we can move from the most elementary problems in economics to the most complex and difficult. Through them we can learn to detect and avoid first the crudest and most palpable fallacies and finally some of the most sophisticated and elusive. To that task we shall now proceed.
 
For examples, read the book, here.

Sanjeev Sabhlok

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6 thoughts on “Economics in One Lesson (by Henry Hazlitt)
  1. Saurabh Agarwal

    Sanjeev,

    Thanks for this post. I had already read this book a few years back. But when I re-read it through your post, it became more clearer why bad economics (e.g. Keynesiansm) sells.

    There seems to be 2 reasons: vested interests, and short-termism. I would also include PD’s point (made earlier) on doing-something-bias, as the 3rd reason.

    I think the biggest issue of these 3 is: short-termism. I think this is the toughest nut to crack intellectually. It is rampant across several spheres of life. For instance, I think , short-termism is the reason why Allopathic treatment sells more than Ayurvedic or Homeopathic.

    I also think that Hazlitt does not do a rigorous job in defending long-termism.

    I will elaborate on my views gradually – as I keep on engaging with you through your blog. Thanks!

     
  2. Polevaulter Donkeyman

    Sanjeev–

    Always happy to point you to useful books. Hazlitt’s book, as you accurately put it, is geared towards the layperson. It is a great introduction to economics along with Bastiat.

    Saurabh–

    I am disappointed that you believe that allopathy sells more than homeopathy because of cognitive bias of humans to prefer allopathy since it is quicker solution. Allopathy or modern medicine is based on rigorous scientific testing and modern scientific methodology and has been tested using the gold standard of all tests — double blind controls.

    If you have the time please read the following papers which have studied homeopathic medicine and have found low efficacy (if any) on part of homeopathy

    1. Kleijnen, J; Knipschild, P; Ter Riet, G (1991), “Clinical trials of homoeopathy”, BMJ 302 (6772): 316–23, DOI:10.1136/bmj.302.6772.316
    2. Linde, K; Clausius, N; Ramirez, G; Melchart, D; Eitel, F; Hedges, L; Jonas, W (1997), “Are the clinical effects of homoeopathy placebo effects? A meta-analysis of placebo-controlled trials”, The Lancet 350 (9081): 834–43, DOI:10.1016/S0140-6736(97)02293-9
    3. Linde, K; Scholz, M; Ramirez, G; Clausius, N; Melchart, D; Jonas, WB (1999), “Impact of Study Quality on Outcome in Placebo-Controlled Trials of Homeopathy”, Journal of Clinical Epidemiology 52 (7): 631–6, DOI:10.1016/S0895-4356(99)00048-7
    4. Cucherat, M; Haugh, MC; Gooch, M; Boissel, JP (2000), “Evidence of clinical efficacy of homeopathy. A meta-analysis of clinical trials. HMRAG. Homeopathic Medicines Research Advisory Group”, European journal of clinical pharmacology 56 (1): 27–33,

     
  3. Saurabh Agarwal

    PD and Sanjeev,

    Actually what I mean is not that Allopathy is unscientific. It has lot of merits. But that many people prefer it more because it offers a quick-fix – even if the treatment is often symptomatic. But, you are right that there are other reasons too. I mis-communicated.

    But my main issue is with short-termism in Economics. I brought medicine up as an example to show that most of us prefer to go for a symptomatic and quick treatment – but avoid a root-cause based (and hence likely lengthy) treatment.

    If this hypothesis is true, then this could be why bad economics sells.

    My goal is to figure out the ‘root’ causes behind man-made evils.

     

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