Monday, 18 February 2013

Book Review: Economics In One Lesson, by Henry Hazlitt (1979)

Originally written in 1946 and updated in 1962 and 1979, Economics In One Lesson is a call to unfettered free-market capitalism. American economist Henry Hazlitt argues forcefully that short-term, single-issue thinking is the path to economic ruin.

A supporter of the Austrian School, Hazlitt introduces his lesson early: ignoring the long-term, broader societal implications of economic policies invariably leads to inefficiencies, misplaced resources, and a drag on the economy. While the appeal of introducing subsidies, tariffs, protectionist measures and cost controls may be strong and clearly beneficial to one sector, the overall results always lead to less efficient producers being propped up, and consumers being asked to pay more than necessary for lesser goods.

Hazlitt makes his points with cold precision. Rescuing a failing industry may temporarily save jobs but represents a colossal waste of tax dollars that could otherwise be deployed to support other, more successful producers. Rent controls may artificially allow low-income families to live in homes larger than they can afford, but the artificial prices devastate the rent-supply industry and ultimately hurt the very people that the rent controls are supposed to help. And national protectionist measures that aim to prop-up a local industry and penalize foreign competitors simply reduce the opportunity for export growth by artificially truncating the competitive exchange of currency.

Hazlitt approaches the global economy as one seamless self-regulating machine, where government intervention can never be more efficient than the fluid laws of supply and demand. Winners and losers should be determined according to the skill and talent of producers and their ability to attract consumers, and interference in the purity of the marketplace serves to only distort the appropriate allocation of capital.

Written in accessible language and structured into short chapters that efficiently make their point and move on, Economics In One Lesson also presents persuasive arguments against practices that promote inflation or artificially increase the money supply, tracing the destructive ripple effects of inequitable increased costs through the economic system.

Hazlitt's lesson is undoubtedly theoretically sound and just as assuredly harsh. Free-market governments have to assess the political math as well as the economic consequence, and when elections loom at predictable cycles it is a brave government (and soon to be ex-government) that patiently stands-by and waits for market forces to re-absorb masses of the unemployed. The reality is that while the longer and greater economic good is all fine, voters think of the here and now, and politicians are therefore conditioned to act accordingly.

The real achievement is to deftly control the economic levers within the confines of a political reality, and here economists may need to look for a second lesson to build a practical layer onto the theoretical fundamentals.

Subtitled "The Shortest And Surest Way To Understand Basic Economics."
211 pages plus A Note On Books and Index.
Published in soft cover by Three Rivers Press.

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