on July 17, 2004
Henry Hazlitt's book starts with a single lesson-that economics means looking beyond the immediate effects of any act or policy to the consequences of it for everyone. The rest of the book is a series of short chapters giving examples of the application of this lesson.
Hazlitt's lesson in itself is great. I wish it were better known. His examples vary in quality. Some are a bit dated; natural for a book which mostly dates to 1946. The chapter on rent control is as relevant today as ever. The discussion of the cost of war and other types of destructive activities punctures a misconception that is still common. In his discussion of unemployment, however, he fails to mention immigration and population growth as part of the cause.
The section on tariffs is good as far as it goes. The problem with his analysis is that transportation today is in effect heavily subsidized. Oil companies and the like don't have to pay for the air pollution and climate change caused by their products, or for roads, or for the armies protecting the oil flow. Subsidized transportation costs make nonsense of the idea that local and imported goods are really on the same footing. Free trade with countries having non-existent environmental laws simply sets up a race to the bottom, with responsible companies heading for bankruptcy and irresponsible companies destroying the economic foundations of their own countries.
Hazlitt swallows whole the idea that growth in GNP is always good and can continue indefinitely. Given that GNP doesn't include the costs of pollution, resource depletion, the effects of population growth, or quality of life, this is very questionable. Hazlitt needs to apply his own "one lesson" here.
Hazlitt states in his first sentence that economics is haunted by more fallacies than any other study known to man. I tend to agree. Hazlitt points out some of them and does it in a very readable way. Hazlitt fails with some of the other fallacies. Read the book, but read it with a grain of salt.
on January 11, 2004
Reviewer David Willis' attempts to rebuke Hazlitts point about tearing down factories and SnappyCrab's attempt to revive the broken window fallacy may come off as looking intelligent, but most certainly are not.
"Hazlitt mentions that if it were productive for a society to have its factories destroyed by war, then all factory owners would destroy their factories. But this is not so. In the real world, there are costs to tear down plants - and these are generally borne by the factory owners. If those same plants were destroyed by external forces, those costs are borne by others. We'll use a simple analogy to stay on Hazlitt's level. Suppose a man owns a factory that produces net present value profits of $1000. Suppose that he could build a new factory that would earn NPV profits of $1200 on the same land. But the costs for tearing down the old factory would be $300. He won't do it. But if the factory were destroyed by external forces, then he no longer has to pay the $300. Now, he will build the new factory. Those costs to destroy the factory may in fact be borne by others, but that is irrelevant to the point. Hazlitt ignores the costs associated with tearing down the plant altogether, and therefore reaches an erroneous conclusion. And so it goes."
Hopefully, this was a result of sloppy thinking and not deliberate ledgerdemain. Willis accurately restates Hazlitts condition of the destruction of plants being beneficial to society at large, but then "debunks" a completely different condition, a straw man that he fabricates.
There is a significant difference between the conversion of certain factories being productive for society, and the productive capacity of a new factory exceeding that of the old one. The difference is precisely the conversion costs that Willis is so adamant about.
Lets use Willis' example to illustrate this point.
Lets assume that the Discounted marginal value product (the illusory terms of "NPV" and "cost to tear down" will be replaced with DMVP and conversion costs, while still retaining the exact meaning) of a present factory is 1000. A possible new factory that can be built is 1200, and the opportunity cost for conversion is 300.
Tearing down the factory will not, as willis correctly states, be profitable for the factory owner. However, it won't be beneficial for society either. If the conversion costs are externalized to society, and they must be borne by someone, society still nets a loss.
This situation obviously does not meet Hazlitt's original condition.
Now, on to snappythecrab's unbeleivably fallacious review.
His review is inherently flawed becuase every single point he makes relies on the assumption that Keynes is correct. But lets look at what I think he is saying.
If the Baker must spend money on repairing his window that he would have on a suit, the resulting situation is definitely negative. We may certainly say, which was actually what Bastiat was attempting to point out, that the Suit makers lost gain is off set by the windowmakers gain, but in the AGGREGATE (perhaps this will catch the Keynesian's eyes), society loses.
Why? Because the baker loses. He now only has a window when he could have had a window AND a suit.
on May 13, 2004
"Economics in One Lesson", Henry Hazlet's, book makes a powerful and persuasive argument in favor of a free market economy. Written in a very lucid style "Economics in One Lesson" makes the usually dry subject of economics easily understandable and a pleasure to read. Hazlitt doesn't obfuscate the truths of matters with cumbersome graphs and math. For non-economists like my self it makes a great introductory book to the subject. Even though the book was published in 1946, the topics covered by Hazlitt are still pertinent and examine issues that still confound us more than 50 years later. Chapters include inflation, tariffs, taxation, price fixing, labor unions, savings, and the importance of profits, rent control, and more.
As a retired Army officer and student of political philosophy, I found "Economics in One Lesson" a great book for anyone who wants to understand basic economic theory.
on June 26, 2004
Don't buy the audio version from audible.com .
Their programming skills are terrible. I could not download some of the books I bought, could not burn into cd the ones I could download, and forget about making it work with an mp3 player, unless you're lucky.
I know about 5 people who bought stuff from there and only one had the luck of downloading a working file and burning it successfully to a cd.
The quality of the narrations is awful, at least in the books I managed to hear (only on windows media player, nothing else worked). If you're used to books on cd or tape, you're up for a big disappointment buying from audible.
On top of all that, they have the worst customer service I have ever witnessed. The site was not working right when I tried to purchase there for the first time. I sent them a message with no answer.
In a second attempt, I bought the stuff and some files never downloaded (which means they just stole my money and I don't know what I can do since I don't live in USA). I sent another message with no answer again.
Then their weird program, which turns Windows Media Player automatically on instead of working alone, showed no compatibility to Itunes and no possibility of burning cds or dreaming about hearing books on Ipod. I sent them a third message and nothing. A fourth and guess what? Nothing again.
So I am at least trying to warn other people here to avoid being caught by such scheme. I hope Amazon gets rid of audible as soon as possible. I always got great service from Amazon and the affiliated bookstores, or even other stores selling electronics, health products and others, but audible is just the worst company I ever wasted my money with. Too bad we cannot give notes to them like with the affiliated booksellers.
Sorry by the poor text, I am just mad with them.
on February 21, 2004
This is a very old book.
The author is talking from a 50 year away point of view... so it's like reading something very thought-provoking that was written 50 years ago (the ideas are still valid, but it seems that you are reading something that you discovered on your grand-father's book-shelf).
The way the book is written seems like if you were living in a socialist country, and the author is tryig to slap you in the face and trying to convince you that the open and free-market capitalism is the right choice. He tries very hard to force you to see that it's very, very wrong to think otherwise.
In the end, the book still has some valid ideas, and presents the Economy as Thatcher and Reagan viewed it.
I think this is a very basic book, with no graphics, no analisys, just plain talk. Talks about the things modern Economics live on as if it was the greatest discovery on the modern world, even if nowadays we take it for granted.
Just good if you want to know a bit about Economics and you don't like to see graphics or analise any kind of data.
Try to read "Principles of Macroeconomics" if you want an up-to-date approach to the same subjects in a thicker and more in-depth book (although written for begginners).
on October 21, 2003
OK - no "ad hominems" here. One bitter reviewer mentions that many of the "one star" reviewers don't discuss content. But several do. And many of the "five star" reviewers don't discuss content either. So let's stick to the issue - is this a "good" book?
Two major positives for Hazlitt: First, he writes well. His prose is usually easy to understand, and he takes pains to create simple models and analogies for the reader. Second, he elucidates most of the arguments put forth by "free market" apologists, so if you want to know how these people think, this is a great place to get started.
The negatives...ah, where to begin?
1.) The simplicity of his models and analogies is of course the greatest flaw. The real world is never as simple as Hazlitt suggests it is. Even the classic (and flawed) broken window analogy is a dramatic oversimplification. And even the most extreme positions that he takes are flawed. FOr example, at one point, Hazlitt mentions that if it were productive for a society to have its factories destroyed by war, then all factory owners would destroy their factories. But this is not so. In the real world, there are costs to tear down plants - and these are generally borne by the factory owners. If those same plants were destroyed by external forces, those costs are borne by others. We'll use a simple analogy to stay on Hazlitt's level. Suppose a man owns a factory that produces net present value profits of $1000. Suppose that he could build a new factory that would earn NPV profits of $1200 on the same land. But the costs for tearing down the old factory would be $300. He won't do it. But if the factory were destroyed by external forces, then he no longer has to pay the $300. Now, he will build the new factory. Those costs to destroy the factory may in fact be borne by others, but that is irrelevant to the point. Hazlitt ignores the costs associated with tearing down the plant altogether, and therefore reaches an erroneous conclusion. And so it goes.
2.) As another reviewer notes, Hazlitt also conveniently ignores all of the following: externalities, public goods, frictions in labor markets, game theory (especially relevant in discussing tariff policy), monopolies and oligopolies, etc. In short, his reasoning is completely circular: if you assume away all of the real world complications that gave rise to various regulations and welfare policies, then OF COURSE you are going to conclude that those regulations and policies are unnecessary and destructive. Rather than being used for economics 101, Hazlitt's book should taught as a primer in logic 101 - he makes all of the classic mistakes.
3.) Hazlitt does not deal at all with the horribly destructive economic beast that is the modern corporation. Kudos to the one pro-Hazlitt reviewer that pointed this out (and see his review for more detail). But the point for readers to understand is that Hazlitt, by wanting to end all government intervention,implicitly gives even more power to the corporations. This is not Adam Smith's small-farmer, local-shop-owner economics. Multi-national corporate economics is a far different game, requiring a far different set of rules.
There are other problems as well. Read Hazlitt for a thorough grounding in the fallacies of the libertarians, think through his arguments for yourself and you'll soon find yourself refuting almost every conclusion that he reaches. Then you'll be well poised to do battle with your closest misguided Republican friends, not to mention the truly bizarre followers of Ayn Rand.
on June 30, 2004
This book seems to be a political pamphlet, all the way. I like the narrative approach though. Too much anger at the government I guess. Analysis please. Reader will draw their own conclusions.
on October 10, 2002
This book is excellent reading and establishes most of the truths of economics - forces that are powerful and true. To that extent it covers 80% of economics.
Free markets are better. Resources are allocated better through markets. Government somtimes can be a corrupt force that disrupts the best allocation of resources. Most of the lessons in this book are true and especially relevant for the semi-socialist citizens of Europe. Free economics must be the basis of a strong economy.
But 20% of the important lessons of economics are left out. Pure free economics do not work 100% of the time, and this book gets a failing grade for omitting that fact.
Monopolists tend to take over in pure free market economies and destroy free economiic trade. Others operate in business ways that are harmful and unethical, like Enron. Free markets tend to quickly drift to disfunction unless there are rules of fail play enforced by the government. And the economy is not stable on its own.
Look at the Great Depression. Look at all the severe depression before that. Look at the history of world's economy, from the Potato Famine to the Panic and economic collapse following the Civil War. Say's law - that the economy would always correct itself - was proven incorrect. It needs help.
Just look at the liquidity trap that Japan is in.
Government is needed to slightly tame the economic cycle and provide services (that benefit the overall value of the economy) that the economy would never provide on its own, like transportation, access to education for all, safety regulation, urban planning, etc. Indeed, there has not been enough government in some areas. The free marker will not provide everything.
The fact of the matter is that the free market works 80% of the time, and the government should play the role of the referee to ensure that the economy handles the other 20% that otherwise would fail by pure free economics.
If you take this book to its logical conclusion, then the GI Bill after World War II, Social Security, Medicare, child labor laws, safety laws, Public Education, and Transportation spending would have destroyed this country.
Take a look at what America was like 100 years ago for most people and see if you like the living and working conditions for the average person. You will not. Now look at our world today, which was built through some basic government regulations.
America now has had a broad middle class and the best economy in world history, instead of the old super rich controlling everything, with the rest of us in unsafe cities working long hours for poor wages, or on farms barely making a living.
This book is excellent reading. Just be aware that it ignores 20% of economics where the economy will not work perfect all by itself.
on October 22, 2003
I am not a giant fan of Hazlitt's works, however I will say that EIOL is very simply and succinctly written. However his criticism of the unnamed "brilliant economists"(p. 28)- read: Keynes-is certainly baseless and an attempt to debase another economist's (though I struggle to put Hazlitt in such a class) work for the reason that their works are difficult to read is quite contemptible. Are the works of Shakespeare less valuable, less brilliant because they are not easily interpreted by the average man? I think not, and it is from whence which we are lead to the largest, if not only, redeeming quality of EIOL: it is easy to read. A simple book by and for the simple man. True economics is fare more complicated that Hazlitt would have the reader believe, and despite what others might say, is fairly math intensive. However, I digress...
EIOL, as such, a fallacious title, begins with what is a brief comment on economic theory and policy. However, as he sums up his point by saying that "The art of economics consists of looking not merely at the immediate but at the longer effects of any act or policy; it consists of tracing the consequences of that policy not merely for one group, but for all groups."(p. 17) All right folks, that's it. There is your one lesson. Go forth and spread the word. Those who are not versed in the study of economics I'm sure may arrive at the conclusion that this is something new, somehow ground breaking. However to anybody who is well-read in economics, to those who are a student of this subject, this seems to be, and is, nothing more than a pointing out of the obvious. Thanks for letting us know though, Henry. I thought all that stuff about the long run, short run, micro and macro economics was all fiction. Glad he told us.
One could write an entire book refuting that which Hazlitt postulates, pointing out the errors, miscues, and theory which Hazlitt left out. I'm sure it was a mistake. Really. I am. I will note a few lines here, adding to that which has already been said by like-minded reviewers.
Hazlitt ultimately ignores aggregate demand in chapters 2 & 3. Did he not say that we were supposed to be examining this with the perspective of "all groups" in mind? Furthermore, he attempts to use chapter 2, an examination into microeconomics, and apply it to aggregates and macroeconomic situations. Economists have long learned that this is not feasible. In the broken window example Hazlitt has us assume, only for the
reason, we can suspect, to illustrate his point, that the Baker in question will spend the $250 on a suit. However, what fails to mention is that the possibility of savings exists. Had the Baker been planning to save the money, Hazlitt would struggle to make his point.
In chapter 3, Hazlitt again ignores aggregate demand, but also the consumption function, and goes on to assume full employment, which is again, a special case which cannot be applied to the whole. In a number of instances he contradicts himself, though this is not limited to chapter 3. It would be a waste of time here to list all of them, however, consider the following: if the destruction of a building is a harm to all of those in a community (p. 28), and no demand is created, and more importantly, lost, where then is the harm? If my $250 which I would have spent a spent on a suit now goes to repairing my house, how then does the demand of the community suffer? Again on 28, when examining the farmer, can his demand not be greater, or less, than the available quantity of wheat he is able to supply? Could the demand on wheat not be less or greater than that which the farmer is able to supply? But we are supposed to believe that supply is equal to demand? I think not. On the subject of contradictions, returning to Lesson 1 for a second, Hazlitt criticizes the "terms of abuse" (p. 19), but uses the term "new economics", as his favorite whipping boy, falling into the same trap with which he assumes he has ensnared Keynesian economists. He blindly rejects all of Keynesian, or "new economic" theory, not crediting its merits or following reasoning. For shame, Henry. For shame.
Students of economics do not read this book because it holds little value...except perhaps in showing how to present a poor argument. Hazlitt is guilty of employing reactionary "reasoning" to that of Keynesian theory, as noted by the multiple insults and jabs at Keynes and his followers, though he oft fails call them as such. This book makes some interesting, bordering on valid, points at times, however the degree to which it fails far outweighs the benefits. Readers of this book who are not economics students should not that this is certainly note the end-all and be-all of economic works or theory, and that every work on economics will be flawed to some degree. Economics students who reject Keynesian theory, read "The Failure of the New Economics: An Analysis of the Keynsian Fallacies" by Hazlitt. You need to read it with The General Theory though.
In closing, somebody suggested putting this book in your bathroom. I'd suggest that too, though I suspect our reasoning behind doing so might be different.
on June 4, 2004
Mr. Byers "refutation" of my earlier critique is as flawed as Hazlitt's original argument. Hazlitt was discussing "society" in this case as a single nation-state. To use a hypothetical example, let's say Country A has a privately owned factory. Country B attacks Country A with an act of war, and the factory is destroyed.
The owner of the factory rebuilds a newer one, which turns out to be more profitable than the old one. (Further assume that had he borne the costs of tearing down the original factory himself, those costs would have eroded the increase in profits, and he would not have built the new plant.)
Since the costs of destroying the plant were borne in this case by Country B, then both the factory owner AND country A are more productive as a result of the destruction. Yet the factory owner would have not have undertaken the destruction on his own. Hazlitt's claim is that this could not be true.
Hopefully this is just "sloppy thinking, not legerdemain" on Mr. Byers part. I will give the benefit of the doubt that Mr. Byers may believe that Hazlitt was referring to the entire world economy in using the term "society," but this is untenable. The rest of Hazlitt's book analyzes economic decisions in terms of the effects on one country - and argues that economic decisions should be left to private parties, not the government. It is unrealistic to believe that in this one case he instead turns his attention to the entire global economy in making his argument.
And yet it doesn't matter - let's assume that in this one case Hazlitt WAS talking about the entirety of the global economy. We can still refute him by introducing a negative externality - let's say pollution. Assume the same basic scenario as before. Profits for owner = 1000, but now let's assume costs associated with pollution of 1200, all borne by property owners in and around the factory, not by the owner himself. Society loses 200 on net.
A new, cleaner factory could be built that would deliver profits of 800, and with no pollution. Destroying the plant would be profitable for society as a whole (net gain of 1000), but not for the owner (net loss of 200).
And lest anyone think this is ivory tower economics, the above scenario describes very well the actual operating conditions of many energy plants in the United States today. Sorry Mr. Byers, the critique holds.