[This review originally appeared in the Spring 2012 issue of the Journal of Faith and the Academy.]
Hazlitt, Henry. Economics in One Lesson. Baltimore: Laissez Faire Books, 2012 . 181 pp., paperback, $14.95 (ebook $9.00).
Ordinarily, the reissuing in paperback of a bestselling book sixty-six years after its original publication does not excite much comment, particularly when the work in question has been in print continuously for nearly all of that period. However, the 2012 release of Henry Hazlitt’s Economics in One Lesson is different for two reasons. First, this event represents a potentially significant change in the business model of book publishing. Second, the ideas contained in Hazlitt’s book are extremely pertinent to the economic woes experienced for the last several years in the developed world, and thus its re-release is quite timely.
Since its founding in 1972, Laissez Faire Books, the publisher of Economics in One Lesson, has been one of the better known niche publishers in the industry. Its bookstore in New York City was an important social center for the libertarian movement in its infancy, and it produced or otherwise acquired the publishing rights to several significant works in the classical liberal tradition, such as The Discovery of Freedom by Rose Wilder Lane (daughter of Laura Ingalls Wilder). However, like many other book publishers, Laissez Faire Books had difficulty adjusting to the internet age and the many problems it raised for organizations dependent on copyright. It passed through the hands of several non-profit organizations between the 1990s and 2011, all of which struggled to develop a viable business model for the publisher.
In 2011, the still-languishing Laissez Faire Books was acquired by Agora International, one of the foremost innovators in information publishing over the last ten years. To lead the turnaround effort, Agora hired Jeffrey Tucker away from the Ludwig von Mises Institute, where he had established a reputation for himself by criticizing the very concept of intellectual property and (legally) posting thousands of works in economics and political philosophy on the Mises Institute’s website for free. Convinced that the traditional publisher’s business model of simply issuing catalogues and charging for “raw” copyrighted material has no long-term viability, Tucker has revamped Laissez Faire Books by greatly expanding its online presence and, more significantly, establishing a subscription service called the Laissez Faire Club, which offers its members a weekly ebook, private discussion forums, and curation of the vast amount of online material related to classical liberalism and libertarianism. If Tucker and Agora are correct, the future of the boutique bookstore lies in this subscription model because the cost to readers of “raw” content continues to drop towards zero online. If the Laissez Faire Club’s model proves successful, it’s likely that other niche publishers will move in this direction, creating “gated communities” online to facilitate the exchange of ideas among people with common interests.
The new edition of Hazlitt’s Economics in One Lesson figures prominently in the Laissez Faire Club’s marketing strategy because it’s one of four books offered as an inducement to potential new members for joining the club. This new edition includes an editorial preface by Tucker and forewords by economist Robert Murphy and billionaire publisher Steve Forbes. All three of these pieces stress the timeliness of Hazlitt’s “one lesson” in the twenty-first century.
What is the “one lesson”? Hazlitt states in his first chapter that “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. Nine-tenths of the economic fallacies that are working such dreadful harm in the world today are the result of ignoring this lesson.”
The archetypal example of the failure to recognize this lesson is the 19th-century French economist Frederic Bastiat’s parable of the broken window, recounted by Hazlitt in Chapter 2. A boy throws a brick through a baker’s window, and a crowd gathers in front of the shop as he runs away. An economist in the crowd proclaims that the broken window will stimulate economic activity because the baker must now pay $200 to the glazier to make a new window. The glazier will then use that $200 to buy a suit of clothes, and the ripple effects of the baker’s spending will help to create prosperity throughout the community. Hazlitt wryly states, “The logical conclusion of all this would be, if the crowd drew it, that the little hoodlum who threw the brick, far from being a public menace, was a public benefactor.”
Following Bastiat, Hazlitt then points out the problem with this reasoning; the baker was probably planning to use that $200 he must now pay the glazier for some other purpose, such as buying a suit of clothes. The same benefits of spending in the community under the scenario of the broken window would have followed. The only difference is that when the hoodlum breaks the window, the baker ends up with just a repaired window instead of a window and a suit of clothes. The community is poorer by exactly that amount. The economist in the example focused only on the visible spending pattern resulting from the broken window and failed to consider the alternative pattern of spending that would have occurred had the window remained whole, a pattern that now will never be seen.
An obvious parallel to Bastiat’s broken window is property destroyed by natural disasters such as tornadoes, earthquakes, and floods. These acts of nature impose tremendous hardships on those affected by them. For example, anyone who has to pay to replace a roof torn off by high winds will have fewer resources with which to pursue other goals. Yet in the wake of practically every natural disaster in this country, we hear media reports about how devastated communities will get “an economic boost” from all the rebuilding efforts that must now take place. This is the sort of fallacious reasoning that frustrated Hazlitt to no end. Destruction of wealth cannot lead us to prosperity.
Most of the remaining twenty-four chapters of Economics in One Lesson apply the “one lesson” to various aspects of public policy, such as the encouraging of exports, minimum-wage laws, and inflation. Although Hazlitt originally wrote in the 1940s, in many cases he seems to be writing intentionally for the public policy environment of the twenty-first century. For example, the following passage eerily anticipates the activities of Fannie Mae, Freddie Mac, and the Federal Reserve, 2002-2008:
Government-guaranteed home mortgages, especially when a negligible down payment or no down payment whatever is required, inevitably mean more bad loans than otherwise. They force the general taxpayer to subsidize the bad risks and to defray the losses. They encourage people to “buy” houses that they cannot really afford. They tend eventually to bring about an oversupply of houses as compared with other things. They temporarily overstimulate building, raise the cost of building for everybody (including the buyers of the homes with the guaranteed mortgages), and may mislead the building industry into an eventually costly overexpansion. In brief, in the long run they do not increase overall national production but encourage malinvestment.
Anyone familiar with the housing bubble of the 2000s will recognize nearly all of the effects described above.
All of Hazlitt’s examples are illuminating and deserve careful reflection, but I must single out for special consideration Chapter 24, “The Assault on Saving.” In this brief but brilliant chapter, Hazlitt convincingly shows that the long-term health of civilization depends to a great degree on savings, and that the denigration of savings by many economists and the governmental policies that discourage it are destined to have harmful effects. Readers in 2012 who are frustrated with the zero interest being paid on their savings accounts in local banks or who have made unwise decisions to go into debt for current consumption because of artificially low interest rates courtesy of the Federal Reserve system know what sort of harm Hazlitt means.
Hazlitt thus gives us many important things to consider with his “one lesson.” Although he was not a Christian, his emphasis on resisting the special pleading from interest groups meshes very well with a Christian view of policymaking, as does his common-sense insistence on counting every cost of a proposed policy. John Maynard Keynes claimed that his proposals would produce the economic equivalent of “turning stones into bread.” Hazlitt knows that we mere mortals can never get away with that, and that we need to come back down to earth. It’s a lesson of which we should all be reminded from time to time.