As this is being written, in fact, printing money is the world’s biggest industry—if the product is measured in monetary terms. The Fetish of Full Employment11. Every employer, small as well as large seeks constantly to gain his results more economically and efficiently—that is, by saving labor. [17], Even prior to her success with The Fountainhead, the novelist Ayn Rand was a friend of both Hazlitt and his wife, Frances, and Hazlitt introduced Rand to Mises, bringing together the two figures who would become most associated with the defense of pure laissez-faire capitalism. This time prices are going to be fixed that are “fair” not only for producers but for consumers. The second part of capital is what we may call capital proper. This assumption is utterly false. The local banker or his neighbors know him and know his record. One of these is the idea that labor is being “underpaid” generally. Economics in One Lesson is an introduction to economics written by Henry Hazlitt and first published in 1946. But not only will the government, if it pursues this course, find it necessary to extend price control more and more downwards, or “vertically”; it will find it no less necessary to extend price control “horizontally.” If we ration one commodity, and the public cannot get enough of it, though it still has excess purchasing power, it will turn to some substitute. This is what is immediately seen. Henry Hazlitt explains the primary lesson contained in his book, "Economics in One Lesson." But there are also results which, while much more difficult to trace, are no less immediate and no less real. It cannot be wondrously increased merely by printing more pieces of paper called dollars. There is a psychopathic fear of “excessive” interest rates. This is likely to happen only in special circumstances or localities where competitive forces do not operate freely or adequately; but nearly all these special cases could be remedied just as effectively, more flexibly and with far less potential harm, by unionization. And just as the supply of and demand for any other commodity are equalized by price, so the supply of and demand for capital are equalized by interest rates. It is reflected in hundreds of make-work rules and feather-bed practices by labor unions; and these rules and practices are tolerated and even approved because of the confusion on this point in the public mind. We are lucky, indeed, if the needless bureaucrats are mere easy-going loafers. “On some large farms which have been completely mechanized and are operated along mass production lines, it requires only one-third to one-fifth the amount of labor to produce the same yields as it did a few years back.”[1] Yet all this is ignored by the apostles of “parity” prices. Now as a result of this annual saving and investment, the total annual production of the country will increase each year. Economics in One Lesson Audiobook – Henry Hazlitt Stream. Though some of them would disdain to say that there are net benefits in small acts of destruction, they see almost endless benefits in enormous acts of destruction. As these are likely to consist for the most part of workers, they will simply have their real wages reduced by having to pay more for a particular product. It is railways and roads and motor cars; ships and planes and factories; schools and churches and theaters; pianos, paintings and books. On the other hand, we offset this investment in efficient transportation by a tariff that makes it commercially even more difficult to transport goods than it was before. Finally, by the greatest miracle of all, this post-war world of super-international controls and coercions is also going to be a world of “free” international trade! They weigh the prospect of profits against the chances of loss. In England, the pound sterling debts of foreigners are cancelled against their sterling credits. Equilibrium wages and prices are the wages and prices that equalize supply and demand. But they contend that this will be more than offset by the added production brought into existence by the borrowers who pay back, and even by most of the borrowers who do not pay back. Xlll. Improved machinery and better-equipped factories come into existence much more slowly than they otherwise would. Moreover, as we have already noted, “adequate” relief will cause some men not to seek work at all, and will cause others to consider that they are in effect being asked to work not for the wage offered, but only for the difference between that wage and the relief payment. Whichever of these three courses he takes, he will increase employment. They do not know (to quote from the TNEC studies) that “should conditions of business averaging the experience of the last fifty years prevail, about seven of each ten grocery stores opening today will survive into their second year; only four of the ten may expect to celebrate their fourth birthday.” They do not know that in every year from 1930 to 1938, in the income tax statistics, the number of corporations that showed a loss exceeded the number that showed a profit. Costs of production themselves, in fact, might be defined as the things that are given up (the leisure and pleasures, the raw materials with alternative potential uses) in order to create the thing that is made. People live in them, and proudly show their friends through the rooms. To that task we shall now proceed. [citation needed] After a series of public debates with socialist Louis Fischer, Hazlitt and The Nation parted ways. Meanwhile they do not, in combination, even out anything. For depth in economics consists in looking for all the consequences of a policy instead of merely resting one’s gaze on those immediately visible. But it is now obviously selling far below its natural level. Yes, we should keep at least one eye on Joe Smith. It can be brought about by the government’s lending to farmers enough money on their crops to enable them to hold the crops off the market until “parity” or a higher price is realized. They even solemnly discuss a “multiplier,” by which every dollar printed and spent by the government becomes magically the equivalent of several dollars added to the wealth of the country. For inflation is a kind of tax that is out of control of the tax authorities. It was precisely the great merit of the classical economists that they looked for secondary consequences, that they were concerned with the effects of a given economic policy or development in the long run and on the whole community. But there are an endless number of X industries. Then there will be a real scarcity, and consumers will have to pay exorbitant prices for the commodity. We stimulated enormously the growth of cotton in other countries. By 1940, 35,000 people were employed in making electric refrigerators, and 60,000 were in the radio industry. But he has just that much less money left over to spend on something that would employ somebody else. A runaway monetary inflation, lifting prices a thousand fold, might none the less make the “national income” figures in monetary terms higher than before the war. We are not concerned with them here. Taxes Discourage Production6. [12], According to Hazlitt, the greatest influence on his writing in economics was the work of Ludwig von Mises, and he is credited with introducing the ideas of the Austrian School of economics to the English-speaking layman. But what is clear is that the 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. It changes the number of occupations, the kind of occupations, and the relative size of one industry as compared with another. Sometimes, in fact, apologists will freely acknowledge that the percentage of losses will be higher on these government loans than on private loans. Suppose, for example, that the government prints money to pay war contractors. For now sweaters that formerly cost $15 apiece can be bought for $10. Group B, as a result of higher sales and prices, will now in turn buy more goods and services from a still further group, C. Group C in turn will be able to raise its prices and will have more income to spend on group D, and so on, until the rise in prices and money incomes has covered virtually the whole nation. The analysis of our illustrations has taught us another incidental lesson. It is cruel and wasteful to put them on relief. But perhaps, also, he has devoted many years of his life to acquiring and improving a special skill for which the market no longer has any use. In our modern world there is never the same percentage of income tax levied on everybody. A peaceful strike is possible. They will see the new window in the next day or two. If the engine goes too slowly, on the other hand, the balls drop, widen the throttle valve, and increase the engine’s speed. They have certainly been a force working to hold down or to reduce wages if their effect, on net balance, has been to reduce labor productivity; and we may ask whether it has not been so. In brief, on net balance machines, technological improvements, economies and efficiency do not throw men out of work. The Function of Profits22. If we are wrong about these, there are few things in economics about which we are likely to be right. But such facts and their modern counterparts have led some writers to the opposite extreme of looking only at the immediate effects on certain groups. . Because the commodity is cheaper, people are both tempted to buy, and can afford to buy, more of it. Later, when the publisher W. W. Norton suggested he write an official biography of their author Bertrand Russell, Hazlitt spent "a good deal of time," as he described it, with the famous philosopher. The whole argument of this book may be summed up in the statement that in studying the effects of any given economic proposal we must trace not merely the immediate results but the results in the long run, not merely the primary consequences but the secondary consequences, and not merely the effects on some special group but the effects on everyone. Their place is taken by fly-by-night concerns with little capital and little accumulated experience in production. Their methods and conclusions are often profoundly reactionary. xv. In other words, the gains of the first groups of producers to benefit by higher prices or wages from the inflation are necessarily at the expense of the losses suffered (as consumers) by the last groups of producers that are able to raise their prices or wages. Henry Hazlitt. And the means they suggest in the fiscal field are like those of the battlefield. . Now let us see, apart from Benjamin’s ideas, what happens to the $20,000 that he neither spends nor gives away. The harm was both economic and moral. . Government “encouragement” to business is sometimes as much to be feared as government hostility. I hear immediate cries that such comparisons are absurd, because everybody knows not only that the present-day automobile is incomparably superior in every way to the car of 1912, but that it costs only a fraction as much to produce, and that the same is true also of aluminum. It reduces the costs of goods to consumers, and it increases the wages of the labor that uses the new machines because it increases the productive power of that labor. Suppose the wheat which would otherwise sell at $1 a bushel is pushed up by this policy to $1.50. We should merely have added an army of needless bureaucrats to carry out the program, with all of them lost to production. By the time money incomes of group B have increased 20 per cent, prices have still increased an average of only 10 per cent. The belief that machines cause unemployment, when held with any logical consistency, leads to preposterous conclusions. Yet when all these allowances have been made, even the groups whose wages have been advanced the most will probably be found, when their unemployed are averaged with their employed members, to be worse off than before. Hazlitt opposed the Bretton Woods agreement, primarily fearing the risk of inflation. We shall come back to this money illusion later. There is not space here to explain all the fallacies in this plausible picture. His early heroes were Herbert Spencer and William James, and his first ambition was for an academic career in psychology and philosophy. It is one more example of the fallacy of looking at the effects of a policy only on one group and forgetting the effects on another. It is on the fallacy of isolation, at bottom, that the “production-for-use-and-not-for-profit” school is based, with its attack on the allegedly vicious “price system.” The problem of production, say the adherents of this school, is solved. Each private lender risks his own funds. It would be considered unspeakably silly for the wood-gathering member of the family to complain that they could gather more firewood if his brother helped him all day, instead of getting the fish that were needed for the family dinner. But there are other schemes for “spreading the work,” often put forward by union spokesmen and legislators. The destruction of war will, it is true, divert post-war demand from some channels into others. These practices, and the public toleration of them, spring from the same fundamental fallacy as the fear of machines. This is to talk as if the country were the same sort of unit of pooled resources as a huge corporation, and as if all that were involved were a mere bookkeeping transaction. The result is that his income does not go up in proportion to his prices. Yet the same principles apply to a small war destruction as to an overwhelming one. The proposal is frequently made that the government ought to assume the risks that are “too great for private industry.” This means that bureaucrats should be permitted to take risks with the tax payers’ money that no one is willing to take with his own. And to many the conclusion seems obvious that if the government merely issued more money and distributed it to everybody, we should all be that much richer. Let us even it all out, say some, by giving equal “protection” to everybody. The war, in short, will change the post-war direction of effort; it will change the balance of industries; it will change the structure of industry. So he may be tempted to take a wage that he knows to be below his “real worth” rather than face these risks. But production is the end, employment merely the means. And this superior position for the old employees could continue to be maintained, in fact, only by the ever-present threat of force. “Work relief” means that we are paying the beneficiaries more than the open market would pay them for their efforts. Vlll. But this will not cancel out the gains and losses of the transition period. And sometimes ignorant or shortsighted employers would even reduce their own profits by overworking their employees. It is because inflation confuses everything that it is so consistently resorted to by our modern “planned economy” governments. Flashcards. It does not necessarily follow that wage-earners would make no relative gains. The result must be that other industries on the average must be smaller than otherwise in order that the X industry may be larger. Everyone as consumer buys a hundred different products; as producer he makes, usually, only one. The wage-rate structure, in fact, may become even more distorted; for the great mass of unorganized workers, whose wage rates even before the inflation were not out of line (and may even have been unduly depressed through union exclusionism), will be penalized further during the transition by the rise in prices. This has prevented most people from recognizing that the same principles govern both. We can see the men employed on the bridge. Suppose we take an industry like that of the railroads, for example, which cannot always pass increased wages along to the public in the form of higher rates, because government regulation will not permit it. Hayek, and others, Henry Hazlitt (1894-1993), was a libertarian philosopher, an economist, and a journalist. The more sophisticated advocates of inflation, in brief, are disingenuous. A pound of aluminum from 1909 to 1913 inclusive averaged 22 1/2 cents; its price early in 1946 was 14 cents; but at “parity” it would then have cost, instead, 41 cents. The reader should not overlook, finally, Frédéric Bastiat’s classic Economic Sophisms, and particularly his essay on What Is Seen and What Is Not-Seen. The case is different, however, when the State steps in and either buys the farmers’ crops itself or lends them the money to hold the crops off the market. But it is also necessary to produce coats, shirts, trousers, homes, plows, shovels, factories, bridges, milk and bread. In the case of consumers we may say either that it supplies them with more and better goods for the same money, or, what is the same thing, that it increases their real incomes. Henry Hazlitt (1894–1993) was a well-known journalist who wrote on economic affairs for the New York Times, the Wall Street Journal, and Newsweek, among many other publications.He is perhaps best known as the author of the classic, Economics in One Lesson (1946). In the case of government-lending the money is that of other people, and it has been taken from them, regardless of their personal wish, in taxes. This parity existed in the period from 1909 to 1914, when farmers were prosperous. If new capital and new labor are forcibly kept out of the X industry, however, either by monopolies, cartels, union policy or legislation, it deprives this capital and labor of liberty of choice. In the depression of 1932, the game of blaming unemployment on the machines started all over again. It would lead to favoritism: to the making of loans to friends, or in return for bribes. Mises’ Socialism is the most thorough and devastating critique of collectivist doctrines ever written. This, of course, was not their intention: it has simply been the result of a persistent tendency to over-optimism on the part of speculators. Obviously, think the people who see only what hits them in the eye, he is providing less than half as much employment as Alvin, and the other $25,000 is as useless as if it did not exist. Yet a fall in post-war demand may be concealed from many people by the illusions caused by higher money wages that are more than offset by higher prices. The scientists, the efficiency experts, the engineers, the technicians, have solved it. Test. For the present “temporary” low price cannot last. Henry Hazlitt (1894-1993), was a libertarian philosopher, an economist, and a journalist. Mencken, "one of the few economists in history who could really write," Henry Hazlitt achieved lasting fame for his brilliant but concise work. And it ignores, finally, that bad as were the wages paid in the X industry, they were the best among all the alternatives that seemed open to the workers in that industry; otherwise the workers would have gone into another. Why should he not prefer, for example, to make $1 a week out of a workman rather than see some other employer make $2 a week out of him? Is private industry partially stagnant? It makes no claim to originality with regard to any of the chief ideas that it expounds. If we look at it now from the consumer’s point of view, we find that he can buy less with his money. At that time it was estimated that there were in England 5,200 spinners using spinning wheels, and 2,700 weavers—in all, 7,900 persons engaged in the production of cotton textiles. I call him the Forgotten Man. If no effort is made to tamper with money rates through inflationary governmental policies, increased savings create their own demand by lowering interest rates in a natural manner. There are two main types of such proposals in addition to those we have already considered, and we shall take a brief glance at them. Having put aside for later consideration the network of fallacies which rest on chronic government borrowing and inflation, we shall take it for granted throughout the present chapter that either immediately or ultimately every dollar of government spending must be raised through a dollar of taxation. Doesn’t he have to pay higher prices on industrial products because of it? . A Note on Books. We destroyed the foreign market for our cotton. But when they limit the wages and the profits of those who make these commodities, without also limiting the wages and profits of those who make luxuries or semi-luxuries, they discourage the production of the price-controlled necessities while they relatively stimulate the production of less essential goods. 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