Henry Hazlitt (1894-1993) was a 20th century American journalist, who specialized in business and economics. Widely regarded as one of the century’s best journalists in economics, Hazlitt wrote for numerous major publications, such as The Wall Street Journal and The New York Times. In addition to his journalistic endeavors, Hazlitt was a prolific author, publishing over two dozen works in his life. In 1946, after 30 years as an economics journalist, Hazlitt published his most famous book, Economics in One Lesson. It is a succinct distillation of key economic principles that often go unnoticed. The book is organized as a compendium of “economic fallacies.” By their refutation, Hazlitt draws out key features of economics for those with no prior education.

Economics, like any discipline, has numerous fallacies which worm their way into broader culture. Unfortunately, it suffers internally and externally from obstacles that prevent easy correction of these errors. Internally, economics is an abstract discipline devoted to intangible movements in the market, broad changes in buying and selling habits, and at times wearisome statistics regarding debt and taxation. When the field of economics is brought to bear on public policy, however, it is often warped and muted by the selfish interests of specific groups.

Moreover, it seems that when it comes to economics and economic policy, people become shortsighted regarding the consequences of their decisions. When writing economic policy, both the short-term and the long-term consequences must be taken seriously. Today is yesterday’s tomorrow, and continual in-the-moment decision making will only deepen the problems of nearsighted economics. Conversely, classical economists often overemphasize the long-term consequences of such policies, such that they ignore the immediate needs requiring policy decisions. Steady attention must be given to all the discernible effects of economic policy, both for the present and the future.

Amidst all of these pitfalls and roadblocks, economists have a hard time bringing the truths of their work into the consciousness of the public through written policies. Taking from everything prior, the bedrock lesson to be learned at the start of economic inquiry can be summarized as follows: “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.”

All governments subsist on some degree of taxation, voluntarily undertaken by the citizenry it represents. Government can neither carry out its necessary functions nor provide its required services without the financial support of the people. Certain plans undertaken by the government in recent history have been in support of relieving poverty, decreasing unemployment, or building housing and other “public works” projects. Given that there is no additional source of money available to the government, increased government spending necessitates higher taxation.

These projects are assumed to be net positive for the public. Of course we want the reduction of poverty, the fair employment of citizens, and proper housing for the homeless. These plans provide immediate assistance and tangible resolution to these issues. New houses will be quite visible, as will be the workers building them. Clearly that’s a blow against unemployment and homelessness to say the least. Alongside this assumption is another, that the government can achieve such ends and complete such projects better than any private industry can. Thus, the belief goes, transferring money out of the private sphere and into the public sphere is just a matter of switching accounts and letting the government do what it does best.

In reality, the economy is broader than the metaphor of an account book. Raising taxes has an impact on the individual, and affects consumption insofar as it affects the individuals who consume products. Consumption is tied to demand, which is famously linked to supply, and thus there are forces that operate behind the explicit dollar amounts that are taxed into government expenditures. Though the housing projects may go through, what is unseen is the effect this has on the people who would inhabit them.

As someone’s income decreases because of higher taxation, their expenditures must decrease as well. New business ventures likewise are less likely to be undertaken, as are new investments, due to the simple fact that the money required for such expenses is diminished. As money is moved to housing, it must be moved from other industries. Private business as a whole, for buyers, sellers and manufacturers alike will be diminished. These diminishing incomes may be negligible to some in light of the immediate effect of more housing, but the long-term implications of these decisions are often unseen. Moreover, the explicit economic status of those taxed as well as their perspective on their own economic capabilities are significant elements of the newly diminished market.

It is often assumed, due to a heavy helping of science fiction and a casual glance at the Industrial Revolution, that our increasing reliance on machinery is dangerous. Automation seems to be a unique and enduring threat to the modern world. We think of new machines brought into a factory for the sake of efficiency, and the unfortunate layoffs which follow. Technological advancements in production are lumped together with vague criticisms of human greed and capitalism, as well as a concern for the poor.

Contrary to this belief is the clear fact that beyond the immediate layoffs that can occur from technological advancements, more employment is available to the general public. Again, we must remember to look at both immediate and long-term consequences of economic actions. In truth, this aversion to automation is inconsistent with our simultaneous commitment to progress and the development of our technical knowledge. If making machines for the sake of greater workplace efficiency is wrong, then one also has to challenge the human instinct to economize in general. Everyone tries to optimize, improve, and increase his productivity. Reducing one’s efforts, for the sake of a better or more stable reward, is a preference not only of business owners but private individuals as well. We find better and simpler ways of solving problems and handling tasks to increase our success.

Efficiency, considered on its own, is not necessarily a bad trait in a business. In fact, we value it in those businesses with which we buy and sell our resources. Efficiency became and continues to become a problem when businesses sacrifice other important goods and values for the sake of the bottom line. One need only think of the poor factory conditions that even children were once subjected to in order to grasp this point. It seems that on the subject of automation, the efficiency of machines is vilified for the sake of the immediate consequence of unemployment. Thus, a wider lens is needed in examining this issue.

Consider a clothing business that purchases a machine that is doubly efficient in producing its product. Presumably, the owner of the company could then let go of half his employees, since the machine has “taken their work.” If this singular aspect was the only effect of the employer’s action, then there would be sufficient cause for concern. Yet, machines do not pop out of thin air. The presence of this newly purchased machine necessitates a machine company, composed of other employees, who made the machine. Moreover, it also suggests a number of other firms or divisions within the same firm, which manufacture the parts, maintain the equipment, and advertise the products to thrifty buyers like the clothing shop owner. There are likely numerous other business examples, but they need not be detailed to make the point. On the whole, the introduction of machines is a net positive for employment. Though machines displace some workers immediately, they create even more jobs for the community at large, as well as greater, though indeed different, opportunities for the newly displaced employees.

By now, it should be clear that the economy is deeply interconnected, and that any economic decision or policy has numerous ripple effects that are unseen. Amongst the millions of decisions made by consumers, producers, and sellers, the question emerges, how do economies actually function? Furthermore, how should economic policy be written in light of the economy’s dynamism?

Economists who study and defend the free market have articulated a concept called “the price system.” As a product’s supply and demand shift up and down in relation to it being bought or sold, its price will similarly shift up and down. This constantly changing price reflects the needs and wants of buyers who purchase the good and sellers who seek a profit from it. When demand for a good is high, the price for it will rise as well, which will trigger an increase in supply. Once something is supplied to buyers sufficiently, its demand will diminish, and its price will decline as well. The interrelationship between price, supply, and demand is an essential mechanism that arises naturally in a free market.

An important characteristic of this mechanism is its efficiency. It is the most adequate tool for reflecting the people’s economic interests as consumers and sellers seeking their own wealth and resources. Moreover, it ensures that labor is used efficiently to provide what is needed and desired in a country. Those who seek their own wealth incidentally must seek to provide goods for others, and vice versa. The constant adaptation of the price system to the interrelations of the economy does lead to the diminishment of certain industries, depending on their demand. Some businesses succeed, while some fail. Examined on its own, a business ceasing operations seems to reflect a failure in the economy. Yet if the economy is reflecting the desires and needs of a people, then the failure of a business likely reflects its failure to adapt sufficiently to the market. Considered in a wider scope and over the long run, every failed business gives its resources, in labor and capital, to other businesses as they grow. “Everything is produced at the expense of foregoing something else.” Rather than focusing on the immediate loss, defunct businesses are efficiently reutilized in other areas of the market.

Minimum wage laws are widely accepted in contemporary culture. When we see companies or entire industries that seek to pay their employees low rates to maximize overall profits, it is hard not to feel outraged for oneself or others who work full-time and financially never rise above subsistence. Evaluating these situations on their own, disconnected from the rest of the economy, leads many people to cry out for remedy. Moreover, minimum wage laws have direct, immediate results that make them seem like an attractive solution. 

As always, both the long-term and general consequences of policy must check these initial assumptions. First, it is important to recognize that functionally, a wage is a price —the price set by an employer for an employee’s labor. Taking a job is a voluntary act. Ideally, before taking a job, one will evaluate the industries he or she wants to work in, and make a choice in their best interests. One should also evaluate the wages, demands and locations of various jobs before deciding which to take. Such factors are usually reflected in the wages offered for a specific position. Oftentimes one hears of someone taking a job with better pay that is otherwise challenging, or taking a lower paying job that is more local or is “better work.”

When the labor costs of a business increase due to higher wages, this inevitably impacts either production or prices, or both. The business may offer better wages, but only insofar as its productivity and/or its prices must rise. It is also clear that every employee is also, once off the clock, a consumer. Now, when they turn around to purchase goods, they will find that those goods have raised prices in proportion to the higher labor expenses businesses face because of the wage law. Any greater wealth accrued through these laws is negated by the rising cost of goods the worker must pay. In sum, the people these laws are meant to benefit do not see their economic status rise. 

This is not to say there are no valid ways of raising wages, but merely that the most common approach taken by the government is not the right one. Artificially changing wage rates through mandates completely bypasses the free market forces which both create and alter wages in the first place. Proper economic policy must be made with a clear awareness of the elements in play, both tangible and intangible. From this awareness should follow decisions that ensure, not hinder, the forces of the market.

In the wake of the Great Depression and WWII spending, considerable debate ensued amongst economists and statesmen alike about how to best rehabilitate the economy. The dominant view that emerged for the rest of the 20th century was put forth by John Maynard Keynes. Keynes argued that an expansion in government spending would galvanize the economy, stimulating wealth and prosperity. This vision of expansive spending was juxtaposed against the austerity and fearfulness of the Great Depression and WWII. In particular, a line of criticism began to emerge against saving.

Twentieth century economics painted saving not as prudent, rational behavior, but as selfish and economically unhelpful. Images of miserly old men hiding their wealth under their floorboards where it gathered layers of dust became associated with this sense of the term. This however, is a proper image of hoarding, not saving. Barring eccentric figures who actually hoard, most people who save put their money into the economy by storing it in a bank. Doing so has a very different effect than hoarding money does. Banks can make a profit on the capital entrusted to them, which has a clear benefit to the economy.

In reality, all saving is done for the sake of better, more appropriate expenditures at some future moment. A rainy day fund is made under the expectation of future rainy days. When recessions hit and people fear the value of their resources plummeting, they will be reluctant to continue acting as if nothing has changed. Rather than viewing saving as a cause of economic downturn, it is clear that consumers practice self-restraint because they see changes that signal a recession. If a large enough sample of the population is reluctant to spend their wealth out of consideration for their own safety and well being, it is hard to imagine that state expenditure to normalize the market will simply generate prosperity.

At bottom, individual consumers implicitly have a greater attentiveness to their personal market conditions. Governmental decision making often loses sight of the fact that the economy is organic. Pulling on the levers of spending, taxation, and other government mechanisms are oversimplified solutions which will and have fallen short of the desired goals. Rather than constrict the market with massive sweeping regulations, the work of the government in the economy should be smaller and restrained. Like the individual’s economic decisions, the government should be one part of the massive social organism that is our economy.