Economics in One Lesson

1 Economics in One 3/3/2008 8:42 AM Page iThe Ludwig von Mises Institute dedicates this volume to all of its generous donors and wishes to thank these Patrons, in particular:Mr. and Mrs. Brantley I. Newsom Carl A. Davis; David Keeler; Chris J. Rufer Robert G. Beard, Jr.; Mr. and Mrs. J. Robert Bost; Mary E. Braum;Mr. and Mrs. Jeremy S. Davis; Richard J. Kossmann, ;Hunter Lewis; Arthur L. Loeb; Mr. and Mrs. Peter K. Martin;Mr. and Mrs. William W. Massey, Jr.; Wiley L. Mossy, Jr.;James M. Rodney; Ann V. Rogers; Sheldon Rose; top dog ;William P. Weidner; Mr. and Mrs. Walter Woodul III Ross K. Anderson; Dr. Vern S. Boddicker; John Hamilton Bolstad;John E. Burgess; in memory of (Norge) Cook;Mr. and Mrs. George Crispin; Kerry E. Cutter;Mr. and Mrs. Willard Fischer; James and Dannell Fogal;Larry R. Gies; Bettina Bien Greaves; Charles C. Groff;Keith M. Harnish; Dr. Frederic Herman; Doyle P. Jones;Warner Knight; David M.

2 Kramer; Jim Kuden; John R. Lee;Ronald Mandle; Joseph Edward Paul Melville;Robert A. Moore; Francis M. Powers, Jr., ;Robert M. Renner; Michael Robb;Mr. and Mrs. Joseph P. Schirrick; Conrad Schneiker;Ernesto Selman; Norman K. Singleton;Mr. and Mrs. Thomas W. Singleton;Henri Etel Skinner; Mr. and Mrs. Byron L. Stoeser;Charles A. Strong; Edward Van 3/3/2008 8:42 AM Page iiEconomics in One LessonHenry HazlittIntroduction by Walter BlockLudwig von Mises InstituteAuburn, 3/3/2008 8:42 AM Page iiiCopyright 1946 by Harper & BrothersIntroduction copyright 2008 by the Ludwig von Mises InstituteThe Ludwig von Mises Institute thanks Three Rivers Press for permission to repro-duce the first edition ofEconomics in One rights reserved. No part of this book may be reproduced or transmitted in anyform or by any means, electronic or mechanical, including photocopying, recording,or by any information storage and retrieval system, without permission in writingfrom the published in the United States in hardcover by Harper & Brothers Pub-lishers, New York, in 1946.

3 Subsequently a revised edition was published in softcoverby Three Rivers Press, an imprint of the Crown Publishing Group, a division of Ran-dom House, Inc., New York, in 1988. This edition is published by arrangement withThree Rivers and published by the Ludwig von Mises Institute, 518 West MagnoliaAvenue, Auburn, Alabama 36832 USA. : 978-1-933550-21-3 Printed in 3/3/2008 8:42 AM Page ivContentsIntroduction by Walter Block ..viiPreface to the First Edition by Henry Hazlitt ..xiPart One: The Lesson ..11 The Lesson ..3 Part Two: The Lesson Applied ..92 The Broken Window ..113 The Blessings of Destruction ..134 Public Works Mean Taxes ..175 Taxes Discourage Production ..236 Credit Diverts Production ..257 The Curse of Machinery ..338 Spread-the-Work Schemes ..459 Disbanding Troops and Bureaucrats ..5110 The Fetish of Full Employment ..5511 Who s Protected by Tariffs? ..5912 The Drive for Exports.

4 6913 Parity Prices ..7514 Saving the X Industry .. 3/3/2008 8:42 AM Page v15 How the Price System Works ..8916 Stabilizing Commodities ..9717 Government Price-Fixing ..10518 Minimum Wage Laws ..11519Do Unions Really Raise Wages? ..12120 Enough to Buy Back the Product ..13321 The Function of Profits ..14122 The Mirage of Inflation ..14523 The Assault on Saving ..159 Part Three: The Lesson Restated ..17324 The Lesson Restated ..175viEconomics in One 3/3/2008 8:42 AM Page viIntroductionto the 2007 Edition ofEconomics in One LessonWriting this introduction is a labor of love for me. You know howwomen sometimes say to each other This dress is you! Well,this book is me!This was the first book on Economics that just jumpedout and grabbed me. I had read a few before, but they were boring. Did I mention boring? In sharp contrast, Economics in OneLesson grabbed me by the neck and never ever let me go.

5 I first read itin 1963. I don t know how many times I have reread it since , a half-dozen times in its entirety, and scores of times, partially,since I always use it whenever I teach introductory Economics am still amazed at its freshness. Although the first editionappeared in 1946, apart from a mere few words in it (for example, itholds up to ridicule the economic theories of Eleanor Roosevelt, aboutwhich more below) its chapter headings appear as if they were rippedfrom today s headlines. Unless I greatly miss my guess, this will still betrue in another 60 years from now, namely in 2068. Talk about a bookfor the ages. Other books on Austrian Economics , too, are classics, andwill be read as long as man is still interested in the subject. Mises sHuman Actionand Rothbard s Man, Economy, and Statecome to mind inthis regard. But those are epic tomes, numbering in the hundreds ofpages.

6 This little book of Hazlitt s is merely an introduction, written,specifically, for the beginner. I wonder of how many introductions to 3/3/2008 8:42 AM Page viisubject it can be truly said that they are classics? I would wager very,very few, if any at is nothing that pleases a teacher more than when thatexpression of understanding lights up a student s face. The cartoonsdepict this phenomenon in the form of a light bulb appearing rightabove the depiction of the character. Well, let me tell you: I have got-ten more ahas out of introductory students who have read thisbook than from any other. I warrant that there have been more con-versions to the free market philosophy from this one Economics bookthan, perhaps, from all others put together. It is just that only thing I regret in this regard is that never again will I read thisbook for the first time. That, gentle reader, is a privilege I greatly envyyou for word about style.

7 The content, here, we can take for the number of economists who could reallywrite can be countedupon one s fingers, but Hazlitt is certainly one of them. His verbiagefairly leaps off the page, grabbing you by the neck. In fact, I now ven-ture a very minor criticism : the author of this book is so elegant awordsmith that sometimes, rarely, I find myself so marveling at hispresentation, that I take my eye off the ball of the underlying eco-nomics enough of my personal slavering, drooling appreciation for Eco-nomics in One us now get down to some specifics. The core ofthis book is, surely, the Lesson : the art of Economics consists in lookingnot merely at the immediate but at the longer effects of any act or pol-icy; it consists in tracing the consequences of that policy not merely forone group but for all groups. Coupled with Hazlitt s suspicion of the special pleading of selfish interests, and his magnificent rendition ofBastiat s broken-window example, the plan ofEconomics in One Lessonis clear: drill these insights into the reader in the first few chapters, andthen apply them, relentlessly, without fear or favor, to a whole host ofspecific examples.

8 Every widespread economic fallacy embraced bypundits, politicians, editorialists, clergy, academics is given the back ofthe hand they so richly deserve by this author: that public works pro-mote economic welfare, that unions and union-inspired minimumviiiEconomics in One 3/3/2008 8:42 AM Page viiiwage laws actually raise wages, that free trade creates unemployment,that rent control helps house the poor, that saving hurts the economy,that profits exploit the poverty stricken, the list goes on and on. Exhil-arating. No one who digests this book will ever be the same when itcomes to public policy cannot leave this Introduction without mentioning two favoritepassages of mine. In chapter 3, The Blessings of Destruction, Hazlitt applies the Lesson of the broken-window fallacy (who can everforget the hoodlum who throws a brick through the bakery window?)to mass devastation, such as the bombing of cities.

9 How is this for agem?: It was merely our old friend, the broken-window fallacy, innew clothing, and grown fat beyond recognition. Did Germany andJapan really prosper after World War II because of the bombinginflicted upon them? They had new factories, built to replace thosethat were destroyed, while the victorious had only middle-agedand old factories. Well, if this were all it takes to achieve prosperity,says Hazlitt, we can always bomb our own industrial here is my all-time favorite. Says Hazlitt in chapter 7, TheCurse of Machinery, Mrs. Eleanor Roosevelt .. wrote: We havereached a point today where labor-saving devices are good only whenthey do not throw the worker out of his job . Our author gets right tothe essence of this fallacy: Why should freight be carried fromChicago to New York by railroad when we could employ enormouslymore men, for example, to carry it all on their backs?

10 No, in this direc-tion lies rabid Ludditism, where all machinery is consigned to the dustbin of the economy, and mankind is relegated to a stone-age of Hazlitt the man? He was born in 1894, and had a topnotch education, so long as his parents could afford it. He had to leaveschool. A voracious reader, he learned more and accomplished morethan most professional academics. But he remained university ever awarded him its degree in Economics . Hazlittwas all but frozen out of higher education. Apart from a few Austro-libertarian professors who assigned his books such as this one, to theirclasses, he was ignored by the academic 3/3/2008 8:42 AM Page ixWhen it came to publishing and writing, Hazlitt was a veritablemachine. His total bibliography contains more than 10,000 is nota misprint. (As you can see, those who relish Economics inOne Lessonwill have a lot of pleasant reading in front of them.)