Economics in One Lesson By Henry Hazlitt (Summary)

The book Economics in One Lesson is based on a simple and the most important part of economics that is looking not only in the immediate effects of any plan or policy but also the longer effects; it is also about tracing the consequences of the policy not only on a single group but for all groups. In this book, the author tries to describe all the fallacies in the thinking of the modern economists by providing different example scenarios and show how the policies made by them hamper the general people and have a lots of effects in the long run which merely strike their eye.

One of the main causes of economic downfall and depression is the government intervention in a lots of places where they are not intended. One of the example is trying to save a industry which is going to break down. By thinking that lots of people will be unemployed, the products made by the industry will not get produced and so on. But what they are actually doing is losing the money of the taxpayers by providing subsidies. They are trying to save an inefficient industry which has now become unable to cope the current market. These money could be utilized in a new growing company. The laid off labor and skills can be utilized there. What they do not understand is the cycle of demand and supply. Increasing supply forcefully is never going to increase the demand. This cycle is natural. If there is less demand of any product, then there may have arrived a replacement for that product. The subsidy should be given for such industry rather an industry whose demand has ended. The dying industries should be let to die so that other newer industries could boom.

Another way a government intervenes is by fixing price and wages. Price of commodities can be fixed lower or higher than the market value. Both ways can bring disastrous results. If the price is fixed above the market price then what is seen is that the producer of the commodities are getting well off and their standard of living has improved. But what is not seen is that life standard of all other groups has declined. This is simply the process of taking the purchasing power from one group and providing it to other group. Similarly, when the price is fixed below the lower market rate, then what happens is the producers will be affected. The less efficient and the marginal ones go out of the business. The production of the products then automatically gets reduced to a lesser extent.

Another case is the minimum wage laws. This is to ensure that the labor is provided with a wage to support his/her family. This again causes lots of problem. This brings unemployment for all those who are worth less than that wage. Also the higher wage increases the cost of production. This makes the producers hard to sustain in the market and ultimately the employees are laid off. Paying relief is not helping at all, since this will be like giving anyone something for nothing.

Another important topic in the book is inflation and saving. People think that government should print money and distribute to the people. This will help all the people in the nation. But that is not the real scenario. When money is printed, the price of the consumer goods will also rise. So in the overall run, the condition will be the same. Inflation is a type of tax and the worse of them all. The one most affected by inflation is the poor ones. This tax is evenly distributed among all the people. All the citizen pay the same amount for this tax. Similarly, a common misconception about saving is that it causes depression. When all the people start saving then the money in circulation will be few which brings down the economy of the nation. For a nation to progress, the money should be changing hands. The velocity should be high. But what they don’t understand is saving is actually in today’s time some kind of saving. The saved money is either invested or loaned or saving in bank which in turn is loaned for some kind of business.

A misconception lurking in the minds of general people is that the increase in use of machinery causes unemployment. It is use when our thinking is bases only in one side. On another side, the same number is employed in making the machines. Also after the producers obtain profits from the machines, they invest them in buying some more machines or in other industry. Thus production increases, price decreases and demand increases and thus employs more labor than before.

Sometimes government start public works in those places where there is not needed with a motive of creating employment. This is just a waste of taxes. It causes destruction of other needed jobs and creation of other important stuffs. Moreover, the increase of taxes discourage production. Less people tend to start businesses. They loose all when they loose but gain only 50% when they profit. Taxes spend to create employment thus destroys employments by demotivating to create new jobs.

In conclusion, the long term effects of the general people should be considered instead of short term effects on a small group of people. Economics is all about the science of recognizing the secondary consequences. It is also about seeing the inevitably implied but not asserted directly. Similarly, the cycle of demand and supply is natural and inevitable. Trying to interfere in this cycle only invites destruction of economy. So the cycle should be let to run on its own.