Economics in One Lesson, by Henry Hazlitt, New Rochelle, N.Y.: Arlington House, 1979, new edition, 218 pp., $8.95.
There are two ways of getting goods. One is to produce them, submitting them for exchange for other goods. The other is to take them away from the producer. The study of economics should, properly considered, concentrate on the first way. But the refinements of the art of theft have become so complicated in the age of the transfer payment that economics itself has become submerged. The trick has been to confuse confiscation with charity, giving robbery the gloss of ethics. Once the money set in motion by a transfer payment has passed through its third or fourth hand it has been thoroughly laundered—and all pretense that there can be a "science" of economics is lost.
Still, one does the best that one can. Thirty-four years ago Henry Hazlitt, in his Economics in One Lesson, said the art of economics (he called it an art, not a science) consists in looking not merely at the immediate but at the longer effects of a policy. To bring home his point Hazlitt fell back on Bastiat and the fable of the broken window pane. The immediate result of a hoodlum's act of vandalism would be a profit for the glazier. The money coming to the glass business would go round and round, and where it might stop nobody could predict. But meanwhile the shopkeeper would be forced to forgo the new suit he had meant to buy. The glazier's gain would be the tailor's loss.
What the glazier receives as the result of a broken window is really a transfer payment of the tailor's cash. Government does not rely on destruction to set a transfer payment in motion, whether by taxes or inflation, but the end result is the same. In the case of the glazier, replacement (the glass pane) is substituted for new production (the tailer's suit). The government, of course, replaces nothing, but no new production comes from its act of confiscation. Say's Law (that production creates its own purchasing power) goes on working, but the man who gets the existing goods is not the man who brought them into being.
Economics in One Lesson was—and is—designed as a primer. The new edition brings its statistical references up to date and adds a rueful chapter, "The Lesson after Thirty Years." The irony is that, cogent as the original book was, Mr. Hazlitt is still reduced to looking for hope in the future. But his time has not been wasted. His thinking has had a permeative effect; and when the ultimate inflationary crisis comes, it will be his disciples that pick up the pieces, as the disciples of Ludwig von Mises and the Austrian school did in West Germany in 1948.
Meanwhile, in tracing the secondary effects of all the substitutes for Bastiat's brick-heaver who have dominated our economic policies since 1933, Hazlitt's book remains the best on the market. It gets behind the monetary veil of inflation to show that buying power is wiped out to the same extent that productive power is wiped out. If you take from one man to give to another, you discourage production. Say's Law, a truism, teaches us that supply is demand. In its creation, supply releases the money in the form of outlays for raw materials, wages, dividends, and interest that enable people to clear the market. Government intervention, which acts as a damper on impulse to produce, is an engine of universal impoverishment because it leaves less in the market to be cleared.
Mr. Hazlitt has, in a sense, brought William Graham Sumner's "The Forgotten Man" up to date. Sumner, writing at a time when government intervention consisted largely of staking people to build railroads from nowhere to nowhere, reduced the art of politics to a conspiracy of A and B to see what C could be made to do for D. The forgotten C was a minority in Sumner's time; now he is in the majority, even though he can't see his position himself. The young couple trying to save for a house suffers because A and B want tax money for public housing that soon becomes a slum. The TVA may look like a miracle in Tennessee, but the Northeast, in paying for it, fails to build its own power plants. Hazlitt, in brief and telling chapters, gives us a run-down of how the forgotten C is shorn by spread-the-work schemes, the attempt to maintain "parity" in agriculture, the bail-out of failing industries, the establishment of rent controls, the efforts to legislate full employment, the slow-down of investment in labor-saving machinery, and the sluicing of enormous sums of money to bureaucrats who may toil but never do manage to spin.
It's all as cogent now as it was in the 1940s. Hazlitt has had his effect in educating a whole generation of libertarians who are now, as he says, becoming more outspoken and more articulate. But will we have to wait another 30 years for the Hazlitt ideas to have consequences? The unfunded liabilities of our Social Security system are, so Hazlitt estimates, more than $4 trillion. How are we ever going to get out of that box?
John Chamberlain is the author of The Enterprising Americans.
This article originally appeared in print under the headline "Well-taught".