The X industry is dying. The overwhelming majority of the people, therefore, would probably suffer from the optical illusion that the new industry had cost us nothing. He spends not only by temperament, but on principle. One may go further than this conclusion, and raise the question whether unions have not, in the long run and for the whole body of workers, actually prevented real wages from rising to the extent to which they otherwise might have risen. We shall defer analysis of the effects of inflation of various kinds until a later chapter. . They could, in other words, have worked the same number of hours and got their total weekly incomes increased by one-third, instead of merely getting, as they are under the new thirty-hour week, the same weekly income as before. He installs the machines and drops half his labor force. Where would it have been if the obstructionists and the reactionaries had had their way? [1] George Santayana, The Realm of Truth (1938), p. 16. And if he can prove that he really would be forced out of business if the tariff were removed or reduced, his argument against that action is regarded by Congress as conclusive. The real effect of price stabilization is a reduction of output and production. 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. They mean, I suspect, the freedom of bureaucrats to settle these matters for him. The world is full of so-called economists who in turn are full of schemes for getting something for nothing.”. And sometimes ignorant or shortsighted employers would even reduce their own profits by overworking their employees. But the larger the percentage of the national income taken by taxes the greater the deterrent to private production and employment. If an automobile company lends a man $1,000 to buy a car priced at that amount, and the loan is not repaid, the automobile company is not better off because it has “sold” the car. It confuses need with demand. It may indeed bring benefits for a short time to favored groups, but only at the expense of others. They weigh the prospect of profits against the chances of loss. Labor movement holds that labor interests are identical across a broad spectrum of industries and geographies (“an increase in wages for one union in some obscure way helps all other workers”). It is true that a few persons can profit at the expense of the rest of us from this minute arbitrary subdivision of labor—provided it happens in their case alone. Is it surprising that the champions of public housing should dismiss this, if it is brought to their attention, as a world of imagination, as the objections of pure theory, while they point to the public housing that exists? We stated it first in skeleton form, and then put flesh and skin on it through more than a score of practical applications. One can only hope that future generations of policy-makers and citizens are willing to improve their understanding of basic economics and the long-term consequences of our collective choices. They have even insisted, with the threat of ruining employers, on the hiring of people who are not needed at all. The government then adopts a set of rules concerning who shall have priority in buying that commodity, or to whom and in what quantities it shall be allocated, or how it shall be rationed. For by that time the producers will be ruined and a great scarcity will be upon us. American employment on net balance has not gone down, but American and British production on net balance has gone up. Summary. A young hoodlum, say, heaves a brick through the window of a baker’s shop. Because they wish to make sure of retaining the farmer’s vote, the politicians who initiate the policy, or the bureaucrats who carry it out, always place the so-called “fair” price for the farmer’s product above the price that supply and demand conditions at the time justify. But consumers reduce their buying for another reason. On the supply side, the artificial reduction of interest rates discourages normal thrift and saving. And the product is then produced and sold at a permanently lower price. But today the ancient virtue of thrift, as well as its defense by the classical economists, is once more under attack, for allegedly new reasons, while the opposite doctrine of spending is in fashion. While some workers in the industry will be benefited from the higher wage, therefore, others will be thrown out of employment altogether. In an exchange economy everybody’s income is somebody else’s cost. It is important to notice that the new tariff on sweaters would not raise American wages. This means that we have forbidden a man to be usefully employed at, say $25 a week, in order that we may support him at $18 a week in idleness. If the government operated by the same strict standards, there would be no good argument for its entering the field at all. via investments in which money is turned over to others who can use it to increase production). Economics In One Lesson by Henry Hazlitt: Book Summary. It may mean a forced restriction of acreage, as in the American AAA plan. The point, in short, is plain enough when we make the case extreme enough. We are not trying to boost the price; we are only trying to stabilize it. A free market system is “democratic” in that each consumer effectively “votes” with their wallet on the state of supply and demand. They see “miracles of production” which it requires a war to achieve. But an examination of duties imposed for other purposes would carry us beyond our present subject. That would be the same as having no price control at all. Each man sees that if he personally had more money he could buy more things from others. They will become self-supporting civilians. This “purchasing power” argument is, when one considers it seriously, fantastic. They do not re-examine their reasoning even when they emerge with conclusions that are palpably absurd. It is a tax not only on every individual’s expenditures, but on his savings account and life insurance. . A Note on Books. Henry Hazlitt was a libertarian philosopher, an economist, and a journalist for various publications including The Wall Street Journal and The New York Times, and Newsweek.He was the founding vice-president of the Foundation for Economic Education and an early editor of The Freeman, an important libertarian magazine.In 1946 Hazlitt wrote Economics in One Lesson… Yet the same principles apply to a small war destruction as to an overwhelming one. . But there are always any number of schemes for saving X industries. Various locals of the painters’ union imposed restrictions on the use of spray-guns, restrictions in many cases designed merely to make work by requiring the slower process of applying paint with a brush. If we assume the latter, we cannot assume that the amount of labor to make the machines was as great in terms of payrolls as the amount of labor that the clothing manufacturer hopes to save in the long run by adopting the machine; otherwise there would have been no economy, and he would not have adopted it. The most important change it is designed to bring about is to raise commodity prices in relation to wage rates, and so to restore business profits, and encourage a resumption of output at the points where idle resources exist, by restoring a workable relationship between prices and costs of production. This involves a misapplication and waste of capital. My third debt is to Ludwig von Mises. Therefore the government attempts to compensate for this by paying a subsidy to the milk and butter producers. But no one will ever properly understand any of these specialized fields unless he has first of all acquired a firm grasp of basic economic principles and the complex interrelationship of all economic factors and forces. Foreign trade is essential because critical imports that are NOT produced domestically can be accessed at better prices. Private lenders risk their own capital. After reading one or two of these volumes the student who aims at thoroughness will go on to some two-volume work. There is no reason to go into the technical details of all this, which can be found in any good textbook on foreign exchange. It is seldom, moreover, that any honest effort is made by the price-fixing authorities merely to preserve the level of prices existing when their efforts began. this book is, surely, the lesson: “the art of economics consists in looking not 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 for In a free economy, in which wages, costs and prices are left to the free play of the competitive market, the prospect of profits decides what articles will be made, and in what quantities—and what articles will not be made at all. Ordinarily these selfish feelings would have no effect on the total production of wheat. The shrinkage at that point may have merely released labor and capital to permit the expansion of other industries. I have not spoken of the hundreds of boondoggling projects that are invariably embarked upon the moment the main object is to “give jobs” and “to put people to work.” For then the usefulness of the project itself, as we have seen, inevitably becomes a subordinate consideration. 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. . It means, in short, that both capital and labor are less efficiently employed than they would be if they were permitted to make their own free choices. Government should “create and enforce a framework of law that prohibits force and fraud.”. Taxpayers have greater discretion over spending and consumption and pump these funds back into the economy (spurring job growth). Please, enable JavaScript and reload the page to enjoy our modern features. It would be just as unsettling if consumers suddenly switched their demand from one consumers’ goods to another. It is precisely because a professional class of speculators exists to take these risks that farmers and millers do not need to take them. The only element of truth in the contention is that any change that is sudden may be unsettling. 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.”, “The interest rate is merely the special name for the price of loaned capital. for automobiles it is not only the factory workers but also raw materials, purchase parts, transportation charges, etc.). The result, alas, is stagnation. Now suppose, again for the sake of arithmetical simplicity, that the price of the product that each group of workers makes rises by the same percentage as the increase in that group’s wages. The Blessings of Destruction4. But it is not only in reducing scheduled working hours that union policy has worked against productivity. 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. But the basic reason for this ought not to be mysterious. Such prices are a special privilege. 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. If money and credit are so inelastic that they do not increase when wages are forced up (and if we assume that the higher wages are not justified by existing labor productivity in dollar terms), then the chief effect of forcing up wage rates will be to force unemployment. The result would be that while consumers were as well provided with new overcoats as before, each buyer would now have $20 left over that he would not have had left over before. They want to find employment for their funds. The same writer’s book on Money has recently been reprinted. Special interests will seek special government policies/treatment. They are being subsidized to the extent of the difference—that is, by the amount of subsidy paid ostensibly to the producers. Logically, it is true, nothing could be more inconsistent. The picture that we get for an eleven-year period, say, would then run something like this in terms of index numbers: * This of course assumes the process of saving and investment to have been already under way at the same rate. subsidies, special tax breaks, etc.). Alternatively, hiring and employee spending may be reduced in favor of capital investments (machinery/technology to boost worker output) or investments in other industries with lower labor costs. . As this is being written, in fact, printing money is the world’s biggest industry—if the product is measured in monetary terms. Every dollar of the amount he has saved in direct wages to former coat makers, he now has to pay out in indirect wages to the makers of the new machine, or to the workers in another capital industry, or to the makers of a new house or motor car for himself, or of jewelry and furs for his wife. But there is an inevitable corollary of this. And this is our lesson in its most generalized form. Once again the fallacy comes from looking at the effects of this action only on the dismissed officeholders themselves and on the particular tradesmen who depend upon them. It usually consists of two balls or weights which work by centrifugal force. If the bridge costs $1,000,000 the taxpayers will lose $1,000,000. . The larger cash balances of firms and individuals are merely one link in the chain of consequences from that uncertainty. But that very fact would not only cause every firm in that line to expand its production to the utmost, and to reinvest its profits in more machinery and more employment; it would also attract new investors and producers from everywhere, until production in that line was great enough to meet demand, and the profits in it again fell to the general average level. It is often sadly remarked that the bad economists present their errors to the public better than the good economists present their truths. The more he produces, the more his services are worth to consumers, and hence to employers. But the officeholders can take private jobs only by supplying equivalent services to those who provide the jobs—or, rather, to the customers of the employers who provide the jobs. What is true of this elementary equation is true of the most complicated and abstruse equations encountered in mathematics. On the one side are savers automatically, pointlessly, stupidly continuing to save; on the other side are limited “investment opportunities” that cannot absorb this saving. It would carry us too far afield to describe in detail what actually happened when this program was applied, for example, to American cotton. Even the most efficient producers may be called upon to turn out their product at a loss. For the dying industries absorb labor and capital that should be released for the growing industries. For it is the very commodities selected for maximum price-fixing that the regulators most want to keep in abundant supply. . But it is a doctrine that is always publicly false. One often hears New Dealers and other statists boast about the way government “bailed business out” with the Reconstruction Finance Corporation, the Home Owners Loan Corporation and other government agencies in 1932 and later. They may do this in either of two ways. Suppose we do assume that the right number of additional workers of each skill is available, and that the new workers do not raise production costs. yet the number of men who were employed in effecting this great movement had decreased in 1880, as compared with 1870, to the extent of about three thousand (2,990 exactly). But that very fact may make the orange growers as a group poorer than before, unless the greater supply of oranges compensates or more than compensates for the lower price. As the champions of the doctrine do not seem to have made any clear effort to answer such questions, we are obliged to try to find the answers for ourselves. Of course the international commodity controls that are being proposed now, we are told, are going to avoid all these errors. It means, therefore, a lowering of production which must reflect itself in a lower average living standard. The banker is not giving something for nothing. But they surely cannot mean that the makers of cheap dresses should have enough to buy back cheap dresses and the makers of mink coats enough to buy back mink coats; or that the men in the Ford plant should receive enough to buy Fords and the men in the Cadillac plant enough to buy Cadillacs. It should be immediately obvious that if the loans we make to foreign countries to enable them to buy our goods are not repaid, then we are giving the goods away. This is the lesson that has been the special concern of this book. An individual worker, without the help of a union or a knowledge of “union rates,” may not know the true market value of his services to an employer. When the process has been completed, nearly everybody will have a higher income measured in terms of money. Consider the broken-window fallacy whenever a public leader exalts the prosperity that results from natural disasters, wars or other calamities. (It is possible no doubt to imagine that improvements and new inventions merely in replaced machinery and other capital goods of a value no greater than the old would increase the national productivity; but this increase would amount to very little, and the argument in any case assumes enough prior investment to have made the existing machinery possible.) It is obvious in the case of a subsidy that the taxpayers must lose precisely as much as the X industry gains. All that has happened, at best, is that there has been a diversion of jobs because of the project. They lend him the other three-fourths; and he gets the farm. What other result could we expect from a policy of deliberately using our resources of capital and manpower in less efficient ways than we know how to use them? The musicians’ union requires so-called “stand-in” musicians or even whole orchestras to be employed in many cases where only phonograph records are needed. Here we need concern ourselves only with loans to farmers either made directly by some government bureau or guaranteed by it. But these complications may be put aside for the moment.). Is there unemployment? He brings it into the bank with him. Wherever business is increased in one direction, it must (except insofar as productive energies may be generally stimulated by a sense of want and urgency) be correspondingly reduced in another. Do Unions Really Raise Wages?20. So he may be tempted to take a wage that he knows to be below his “real worth” rather than face these risks. [2] Cf. This is the error often made by the classical economists. But we can examine here the mother fallacy that has given birth to this progeny, the main stem of the network. What is Hazlitt’s purpose in writing this book? For speculators serve their own interest precisely in proportion to their ability to foresee future prices. In the case of an agricultural commodity it is the least competent farmers, or those with the poorest equipment, or those working the poorest land, that are driven out. In the past it has been the lure of high profits in special firms or industries that has led him to take that great risk. Again we must make an effort of the imagination to see the private power plants, the private homes, the typewriters and radios that were never allowed to come into existence because of the money that was taken from people all over the country to build the photogenic Norris Dam. They present more complicated issues, but their net results can be traced through the same kind of reasoning that we have just applied to tariff barriers. Such a policy would lead to evils of many different kinds. Price-fixing may often appear for a short period to be successful. One device consists in restricting the membership of the union on some other basis than that of proved competence or skill. Reading I: Through Page 70, Chapter IX: Disbanding Troops and Bureaucrats ** Preface ** 1. Because there is less for everybody, because there is less to go around, real wages and real incomes must decline either through a fall in their monetary amount or through higher living costs. He has no savings; he has no impressive record as a good farmer; he is perhaps at the moment on relief. In the long run, notwithstanding the mountains of argument pro and con, a tariff is irrelevant to the question of employment. In order to make the fundamental issue as clear as possible, we cannot do better, I think, than to start with the classic example used by Bastiat. In other words, they either increase money wages or, by reducing prices, they increase the goods and services that the same money wages will buy. Crusoe must attend to the most pressing need. This is a beguiling fiction, but unfortunately the politicians in power have never acted that way. These other workers are willing to take the jobs that the old employees have vacated, and at the wages that the old employees now reject. These questions and conclusions stem from the fallacy of looking at one industry in isolation, of looking at the tree and ignoring the forest. Printed in the U.S.A.   and published by arrangement with Harper & Brothers. If progress were completely even all around the circle, this antagonism between the interests of the whole community and of the specialized group would not, if it were noticed at all, present any serious problem. Economic commentators across the political spectrum have credited Hazlitt with foreseeing the collapse of the global economy which occurred more than 50 years after the initial publication of Economics in One Lesson. We shall disregard the income tax, and the question whether both brothers really ought to work for a living, because such questions are irrelevant to our present purpose. The real result of the machine is to increase production, to raise the standard of living, to increase economic welfare. All this is equally true of economics. What justification could there possibly be, in fact, for asking the taxpayers to take the risks while permitting private capitalists to keep the profits? Economics in One Lesson by Henry Hazlitt (1978 revised edition) is a short introduction to basic economics for the layperson. The results would be palpable and direct. The power capacity already being exerted by the steam engines of the world in existence and working in the year 1887 has been estimated by the Bureau of Statistics at Berlin as equivalent to that of 200,000,000 horses, representing approximately 1,000,000,000 men; or at least three times the working population of the earth. The family too has the constant problem of choosing among alternative applications of labor, and, if it is lucky enough to have acquired guns, fishing tackle, a boat, axes, saws and so on, of choosing among alternative applications of labor and capital. For it is precisely the most powerful unions, whose wage rates are most likely to be in need of correction, that will insist that their wage rates be raised at least in proportion to any increase in the cost-of-living index. It does not make that assertion directly, but it inevitably implies it. Yet so powerful is the verbal ambiguity that confuses money with wealth, that even those who at times recognize the confusion will slide back into it in the course of their reasoning. The supply of motor cars constitutes the demand of the people in the automobile industry for wheat and other goods. Spread-The-Work Schemes9. My second debt is to Philip Wicksteed: in particular the chapters on wages and the final summary chapter owe much to his Common Sense of Political Economy. And they see a post-war world made certainly prosperous by an enormous “accumulated” or “backed-up” demand. The Assault on SavingPart Three: The Lesson Restated24. But if, under the forty-hour week, the workers were already getting as high a wage as the level of production costs and prices made possible (and the very unemployment they are trying to cure may be a sign that they were already getting even more than this), then the increase in production costs as a result of the 33 1/3 per cent increase in hourly wage rates will be much greater than the existing state of prices, production and costs can stand. It also means a forced cut in the production of farm commodities to bring up the price. Americans would be employed in a sweater industry who had not previously been employed in a sweater industry. For as Alexander Hamilton pointed out in the Federalist papers a century and a half ago, “A power over a man’s subsistence amounts to a power over his will.”. For we may define “savings” and “investment” as constituting respectively the supply of and demand for new capital. There is no escape from the conclusion that the minimum wage will increase unemployment. They do not state their case with complete candor; and they end by deceiving even themselves. How can it be “paid for”? Related fallacy believes there is a fixed amount of work to be done. The consumers, therefore, will obviously be better off. In good times he does this to increase his profits further; in normal times he does it to keep ahead of his competitors; in bad times he may have to do it to survive at all. The destruction of war will make more business for the producers of certain things. It is not merely that all its visible gains are offset by less obvious but no less real losses. In the case of the workers who use the new machines it increases their real wages in a double way by increasing their money wages as well. It is true that its reduction would help the country on net balance. The book was originally published in 1946, but the economic lessons presented remain vital to the present day. Learn to view the setting of interest rates as a form of price fixing. We must apply the same reasoning, once more, to great projects like the Tennessee Valley Authority. It is not true that it benefits all producers as such. He was a skilled workman, and paid as a skilled workman. If it is built to meet an insistent public demand, if it solves a traffic problem or a transportation problem otherwise insoluble, if, in short, it is even more necessary than the things for which the taxpayers would have spent their money if it had not been taxed away from them, there can be no objection. Those who desire to read further in economics should turn next to some work of intermediate length. A decline in gambling would force croupiers and racing touts to seek more productive occupations. But let us assume that the facts in this case are precisely as the sweater manufacturer has stated them. It must be preserved at all costs. But suppose this were not so? It can be brought about by the government’s standing ready to buy all the farm products offered to it at the “parity” price. Even the clerk who used to get $25 a week and now gets $35 thinks that he must be in some way better off, though it costs him twice as much to live as it did when he was getting $25. The product will now be made only by the more efficient producers who operate on lower costs. This time prices are going to be fixed that are “fair” not only for producers but for consumers. B is seen; A is forgotten. These consequences follow as long as the relief payment is a penny less than $30. If we are wrong about these, there are few things in economics about which we are likely to be right. It was that of considering merely the immediate effects of a tariff on special groups, and neglecting to consider its long-run effects on the whole community. A typical illustration is the automobile business. For example: coffee and tea are not produced in the USA. Supporting an industry via direct government financial intervention (e.g. The savings, in other words, will begin to be passed along to the buyers of overcoats—to the consumers. Such a result is not likely, but it is conceivable. Their net effect, therefore, in the long run and for all groups of workers, has been to reduce real wages—that is, wages in terms of the goods they will buy—below the level to which they would otherwise have risen. If the car cost $900 to make, and only half the loan is repaid, then the company has lost $900 minus $500, or a net amount of $400. Nobody would be any better off, in the long run, than if wages had not been raised at all. The latter attempt is made in our day by nearly all governments in wartime. On the contrary, if I am a grower of wheat, say, I want my particular crop to be as large as possible. “If we assume that the men who would otherwise have been retained in the armed forces are no longer needed for defense, then their retention would have been sheer waste. Moreover, because of his investments, the national wealth and income are greater; there are more factories and more production. We shall then have a situation in which the cost of living has risen by an average of 25 per cent. The plan that started out so gravely to “stabilize” prices and conditions brings incomparably greater instability than the free forces of the market could possibly have brought. The result was that the farmer could not buy industrial products; the city workers were laid off and could not buy farm products, and the depression spread in ever-widening vicious circles. Each of us is trying to save his own labor, to economize the means required to achieve his ends. [1] A. C. Pigou, The Theory of Unemployment (1933), p. 96. “When the government makes loans or subsidies to business, what it does is to tax successful private business in order to support unsuccessful private business.”, “Among the most viable of all economic delusions is the belief that machines on net balance create unemployment.”, “The belief that machines cause unemployment, when held with any logical consistency, leads to preposterous conclusions. A plumber will not remove or put back a tile incident to fixing a leak in the shower: that is the job of a tile-setter. The introduction of Arkwright’s invention was opposed on the ground that it threatened the livelihood of the workers, and the opposition had to be put down by force. This will affect future supply. ryan robinson computer skills for economic analysis economics in one lesson critical analysis critical analysis in 1946, author henry hazlitt wrote the book . Their “purchasing power” is thereby increased. And the results of that have already been discussed. It follows that it is foolish and misleading to concentrate our attention merely on some special point—to examine, for example, merely what happens in one industry without considering what happens in all. “Everything he does delays or prevents him from doing something else…he is faced constantly by the problem of alternative applications of his time and labor.”. [3] Historically 20 per cent would represent approximately the gross amount of the gross national product devoted each year to capital formation (excluding consumers’ equipment). The investors once had liquid funds. But then we come to the second argument. Protecting “overcrowded” industries by preventing new entrants. The reason is that the transaction must then be traced mentally through a few more stages. In this case the “marginal” producers, that is, the producers who are least efficient, or whose costs of production are highest, will be driven out of business altogether. The human shortcoming of only considering short-run, immediate effects of a given policy (and ignoring long-run or secondary consequences). . 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. The fears of unemployment arise because people look at only one side of the process. In a primitive community, or among pioneers, before the division of labor has arisen, a man works solely for himself or his immediate family. Sometimes he makes a mistake, and then it is not only the banker who suffers, but the whole community; for values which were supposed to be produced by the lender are not produced and resources are wasted. bricklayers not allowed to work on stone chimneys which are the domain of the stonemasons). Where business is increased in one direction, it is correspondingly reduced in another. What happens when a large number of soldiers return to civilian life? We are all accustomed to measuring our income and wealth in terms of money. Some of them, like precision instruments, like nylon, lucite, plywood and plastics of all kinds, simply improve the quality of products. Now few people recognize the necessary implications of the economic statements they are constantly making. The Printing History of ECONOMICS IN ONE LESSON: Harper & Brothers edition published July, 1946; 1st printing July, 1946; 2nd printing July, 1946; 3rd printing August, 3946; 4th printing October, 1946; 5th printing February, 1947; 6th printing February, 1948; Reader’s Digest condensed version published August, 1946; February, 1948; Spanish edition (Editorial Kraft, Buenos Aires) published December, 1947; Pocket Book edition published November, 1948; 1st printing October, 1948; Special edition for The Foundation for Economic Education, Inc. May, 1952. All this is what is seen by those who look merely at the immediate consequences of policies to the groups directly involved. The smashed window will go on providing money and employment in ever-widening circles. Each grasps for the same Dead Sea fruit that turns to dust and ashes in its mouth. more machinery that boosts worker productivity. Perhaps in an individual case it may work out all right. People who recognize this situation are deterred from starting new enterprises. An American exporter sells his goods to a British importer and is paid in British pounds sterling. It was a gain to leisure, but not necessarily to production and income, to reduce a forty-eight-hour week to a forty-four-hour week. But in addition to this, production of that commodity is discouraged. 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? They will see the new window in the next day or two. . They do not stop to tell us at precisely what personal income level a man saves a fixed minimum amount regardless of the rate of interest or the risk at which he can lend it. It is an historic irony that when this phrase, the Forgotten Man, was revived in the nineteen thirties, it was applied, not to C, but to X; and C, who was then being asked to support still more X’s, was more completely forgotten than ever. The other is a loan to provide capital—often to set the farmer up in business by enabling him to buy the farm itself, or a mule or tractor, or all three. In other words, the government tries to do through rationing part of the job that a free market would have done through prices. The introduction of steam-hoisting machines and grain elevators upon the wharves and docks, the employment of steam power, etc. That is the assumption of this volume and of its somewhat ambitious and belligerent title. Other sections of the country, we should remember, are then comparatively poorer. It is said to be just downright silly. In Europe they joyously count the houses, the whole cities that have been leveled to the ground and that “will have to be replaced.” In America they count the houses that could not be built during the war, the nylon stockings that could not be supplied, the worn-out automobiles and tires, the obsolescent radios and refrigerators. It is possible, no doubt, to conceive of a case in which the profits in a whole industry are reduced without any corresponding reduction in employment—a case, in other words, in which an increase in wage rates means a corresponding increase in payrolls, and in which the whole cost comes out of the industry’s profits without throwing any firm out of business. Increased production costs can also result in industry contraction or consumers moving to alternative substitute goods (that are cheaper). We may clarify the process further by a hypothetical set of figures. But the shopkeeper will be out $50 that he was planning to spend for a new suit. But if they have taught themselves to look for indirect as well as direct consequences they can once more see in the eye of imagination the possibilities that have never been allowed to come into existence. A new textile machine, weaving a better cloth at a faster rate, will make thousands of old machines obsolete, and wipe out part of the capital value invested in them, so making poorer the owners of those machines. 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. If the strikebreakers consist merely of professional thugs who themselves threaten violence, or who cannot in fact do the work, or if they are being paid a temporarily higher rate solely for the purpose of making a pretense of carrying on until the old workers are frightened back to work at the old rates, the hatred may be warranted. He has already, perhaps, through industry, frugality and foresight, accumulated enough cash to pay a fourth of the price of the farm. We remarked at the beginning of this chapter that government “aid” to business is sometimes as much to be feared as government hostility. If we had tried to keep the horse-and-buggy trade artificially alive we should have slowed down the growth of the automobile industry and all the trades dependent on it. But my indebtedness to at least three writers is of so specific a nature that I cannot allow it to pass unmentioned. They showed that the rational saver, in making provision for his own future, was not hurting, but helping, the whole community. If he wishes to buy a tractor, the tractor company itself, or a finance company, will allow him to buy it for one-third of the purchase price with the rest to be paid off in installments out of earnings that the tractor itself will help to provide. Consumptive spending and investment are then both contracted. They either bring into existence goods that completely unaided hand labor could not bring into existence at all (and this now includes most of the goods around us—books, typewriters, automobiles, locomotives, suspension bridges); or they increase enormously the quantities in which these can be produced; or (and this is merely saying these things in a different way) they reduce unit costs of production. Or here is a farmer struggling along with primitive methods of production because he has not the capital to buy himself a tractor. Total national production, the wealth of everybody, is higher. When the inflation collapses, or is brought to a halt, the misdirected capital investment—whether in the form of machines, factories or office buildings—cannot yield an adequate return and loses the greater part of its value. It may mean the actual physical destruction of what has already been produced, as in the burning of coffee in Brazil. The reason is that the demagogues and bad economists are presenting half-truths. But it is precisely from the persistent and lazy habit of thinking only of some particular industry or process in isolation that the major fallacies of economics stem. For Paul H. Douglas in America and A. C. Pigou in England, the first from analyzing a great mass of statistics, the second by almost purely deductive methods, arrived independently at the conclusion that the elasticity of the demand for labor is somewhere between -3 and -4. There is always a direct and immediate connection between his output and his satisfactions. Taxes Discourage Production6. The government will cease to support the soldiers. John Stuart Mill and other classical writers, though they sometimes failed to take sufficient account of the complex consequences resulting from the use of money, at least saw through the monetary veil to the underlying realities. Most of these policies have been followed under the assumption that there is just a fixed amount of work to be done, a definite “job fund” which has to be spread over as many people and hours as possible so as not to use it up too soon. But somebody would be hurt. Mistakes of judgment are far more costly to him than to an employer. Minimum Wage Laws19. Once again, however, the matter does not end there. Cost considerations cannot only look at manufacturing labor alone; it must consider the entirety of the system. It can be brought about by the government’s enforcing restrictions in the size of crops. What ultimately happens to the prices of goods will depend upon what monetary policies are then followed. The whole economic progress of mankind has consisted in getting more production with the same labor. It increases demand and reduces supply. For they are solved by a system under which each consumer makes his own demand and casts a fresh vote, or a dozen fresh votes, every day; whereas bureaucrats would try to solve it by having made for the consumers, not what the consumers themselves wanted, but what the bureaucrats decided was good for them. There is a second group, less naive, who see that if the whole thing were as easy as that the government could solve all our problems merely by printing money. A certain amount of public works—of streets and roads and bridges and tunnels, of armories and navy yards, of buildings to house legislatures, police and fire departments—is necessary to supply essential public services. But where there is a relief system under which the general taxpayer is forced to provide for the unemployment caused by excessive wage rates, this restraint on excessive union demands is removed. Whether the net effect of the tariff is to lower money wages or to raise money prices will depend upon the monetary policies that are followed. To grow rich is to get money; and wealth and money, in short, are, in common language, considered as in every respect synonymous.”. Most of the “good” economic results which people attribute to war are really owing to wartime inflation. But the more sophisticated proponents of inflation believe that this is now politically impossible. It is argued that if interest rates are too high it will not be profitable for industry to borrow and invest in new plants and machines. We shall come back to this money illusion later. The world will be richer by that many more oranges. But there is another consequence, no less inevitable. The coal miners, with a money-wage increase of 30 per cent, will have made in purchasing power only a slight gain. He can see the inequity in holding down the price of that. The credit supplied by private mortgage companies, insurance companies or country banks is never “adequate.” Congress is always finding new gaps that are not filled by the existing lending institutions, no matter how many of these it has itself already brought into existence. [1] Cf. Moreover, the demand for the product has increased, and the business should be allowed to charge the prices necessary to encourage its expansion to supply this demand.” And so on. . Their competition for jobs will drive down the pay offered even in these alternative occupations. But what of it? (This resounding error, as we shall see, is also the starting point of most currency cranks and share-the-wealth charlatans.) If money is kept either in savings banks or commercial banks, as we have already seen, the banks are eager to lend and invest it. Much of this factual research has already been done for him by others. Its net effect, therefore, is to reduce American efficiency, as well as to reduce efficiency in the countries with which we would otherwise have traded more largely. It is enough to recognize that deficit financing is irrelevant to the point that has just been made; for if we assume that there is any advantage in a budget deficit, then precisely the same budget deficit could be maintained as before by simply reducing taxes by the amount previously spent in supporting the wartime army. More diverse labor pool to work with despite more mouths to feed. The function of profits, finally, is to put constant and unremitting pressure on the head of every competitive business to introduce further economies and efficiencies, no matter to what stage these may already have been brought. It forces workers into industries with even lower wages and prospects than they could find in the allegedly sick X industry. This produces an alarming gap between what they call “A payments” and what they call “A+B payments.” So they found a movement, put on green uniforms, and insist that the government issue money or “credits” to make good the missing B payments. The more the individual worker produces, the more he increases the wealth of the whole community. This should be obvious enough in Germany and Japan, where scores of great cities were leveled to the ground. “The economic goal of any nation, as of any individual, is to get the greatest results with the least effort.”, The real effect of a tariff: “It is not merely that all its visible gains are offset by less obvious but no less real losses. To fix the price of bread, it may fix the wages in bakeries, the price of flour, the profits of millers, the price of wheat, and so on. Producers cannot make a living and will go out of business. The argument that labor should receive enough to buy back the product is merely a special form of the general “purchasing power” argument. The net loss to the community is the loss of production, because people are supported for not producing.

henry hazlitt economics in one lesson summary

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