Economics in One Lesson – A Book Review

In Book Reviews by James0 Comments

What do you know about economics? Did you take a course in college? If you’re like me and the majority of people who did not major in economics chances are you know very little about the subject – in stated terms that is. And even if you did study economics in college chances are you were taught from the Keynesian school of economics which is riddled with fallacies. The bigger question is why should you care about economics? And the answer is because economics is unavoidable. Economics in essence is human action. To understand economics is to understand people and yourself in a sense. Whenever you make a decision in life if you’re thoughtful you do a cost benefit analysis – that’s economics. Economics affects your life in significant ways, unless you’re living off the grid and bartering with chipmunks, and even then you’re dealing with the foundational principles of economics. You’re also probably out of your mind because chipmunks are unable to understand the concept of bartering, but that’s okay, economics is not about rationality, it’s about human action. I’ve decided to add an economics section to this blog because if you’re going to be a farmer or business owner you need to have a firm understanding of economics. If everyone who voted understood economics we’d live in a much different world. I suppose that’s why some people don’t vote – they understand economics and can see it’s a delusion to think that voting results in them having participated in any significantly positive way. No offense to any voters reading this, but voting doesn’t do much but shake the power structure up a bit. If the elected president is Democrat then taxes will be collected and redistributed to Democratic voting groups – usually to people benefiting from social programs like welfare. If the elected president is Republican taxes will be collected and redistributed to Republican voting groups – often time security and defense get more funding. Fundamentally politicians are robbing Peter to pay Paul and they are rewarded with elite status and political power, while Peter and Paul are left with a growing animosity towards one another. After deciding to add this section It wasn’t hard to choose the first book to review. Henry Hazlitt’s Economics in One Lesson is the perfect introduction into the art of economics. The book can be read in one setting and be easily understood. The first chapter is the lesson, and it’s condensed into one sentence that captures the essence of economics:  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.” The remainder of the book demonstrates the lesson through 22 different real world scenarios, and while doing so exposes the common economic fallacies put forward by Keynesian economists. If you read this book and understand it, then look at the state of the world you’ll quickly make the connections and recognize the devastating effects that poor economic understanding and polices have.

What’s in the Book?

Part One: The Lesson – (9 pages in total)
Part Two: The Lesson Applied
  The Broken Window
  The Blessings of Destruction
  Public Works Means Taxes
  Taxes Discourage Production
  Credit Diverts Production
  The Curse of Machinery
  Spread the Work Schemes
  Disbanding Troop and Bureaucrats
  The Fetish of Full Employment
  Who’s Protected by Tariffs?
  The Drive for Exports
 “Parity” Prices
  Saving the X Industry
  How the Price System Works
 “Stabilizing” Commodities
  Government Price-Fixing
  Minimum Wage Laws
  Do Unions Really Raise Wages?
 “Enough to Buy Back the Product”
  The Function of Profits
  The Mirage of Inflation
  The Assault on Savings
Part 3: The Lesson Restated


Broken Window Fallacy

This fallacy goes along the lines that if something is destroyed, say a window, it’s a benefit to the economy because the window glazier will be paid $50 to replace the broken window, then he’ll take the $50 and put it back into the economy in various ways. He will spend $10 at the bakery, $20 at the butcher, etc. The fallacy views destruction as a plus to the economy. But what it doesn’t take into account is that the shopkeeper whose window was broken had to spend his $50 dollars to replace his broken window (a negative) instead of spending it on the new suit (a positive) he was going to buy from the tailor. Instead of having $50 and a window, or a window and a new suit, his $50 is gone and he just has a window as before. He’s worse off than before the window was broken. The glazier is better off, but in the economy as a whole no new employment has been created – it’s an immediate wash, and long-term negative. If the window had not been broken the shopkeeper could have spent his $50 on a new suit and the tailor could have then expanded his shop with the shopkeeper’s $50 and taken on the service of the window glazier and another window could have come into being along with the suit adding to the economy instead of merely replacing something that had already existed. The art of economics is looking for the unseen as well as the seen. Government loves to use the broken window fallacy to justify policies, and it’s one of the big reasons it is trillions of dollars in debt. This fallacy is often used when discussing “benefits” of war and war reconstruction. Many people still believe that World War II brought the U.S.A out of the depression as if the people of the time would not have been able to produce anything other than tanks and bombs if given the opportunity. Economists who take this stance fundamentally confuse need for demand and exclude all that could have been created if the economy wasn’t rebuilding destroyed buildings and houses. Again, it’s only looking at the apparent and the immediate, and ignoring the unseen and long-term.

Public Works Mean Taxes

One of the biggest disconnects people have comes into view when taxes and government spending are examined. The first things to understand is government has no money. They can only acquire money by two means: taxes and money creation. The government does not produce or sell anything. When a public works project has been announced if truthfully stated the president would say: “I’ve decided to take money by threat of force from the productive people of the country and give it to the less productive people of the country so that they can feel like they’re productive. Of course this will make me look like I’ve created jobs, which will get me more votes from unproductive groups, but in reality it’s negative on the economy as a whole because it takes incentive away from productive people and rewards less productive people for not being productive. Getting rewarded for not being productive creates a vicious cycle where these groups of people become permanent dependents, but it’s good for the political class, my buddies and I, because those folks will then vote for us, and since humans are not equal in ability there will always be a natural hierarchy for us to exploit. In addition, if we can not collect enough taxes to fund our works program we will go to the federal bank and create more money. The result of creating more money is inflation, or a devaluing of the currency, which in essence is another kind of tax, but we’re not concerned about long-term consequences, this is an election year, and frankly we need the votes to stay in power. Most of all remember you are living in a democracy, and it’s you who makes the country what it is, so don’t blame me if you don’t like it, blame yourself. I know government has a monopoly on force and fundamentally taxation is theft, but it’s what you wanted and there’s no better option. Don’t forget to exercise your freedom and vote. God bless.” Ah, only if there was such honesty… This is the mentality of government officials and because most people don’t have a fundamental understanding of economics and money they fall into the trap of believing that they are living in the best system possible despite the aspects they don’t like.

Final Thoughts of a Wannabe Farmer

To fully understand the present we must first understand the past. As I mentioned in the opening of this post the average person is not schooled in economics and this has had a catastrophic effect on the world. A quick glance at how many people are in the world and how many people (about half) have access to a bank account illustrates just one of the devastating effects of widespread economic illiteracy. In addition those who have been schooled have likely been schooled in Keynesian economics, and so we have a culture of unschooled people and people carrying dangerous economic fallacies in their minds believing them as valid and pushing for and supporting legislation that is defended with Keynesian economic principles. It’s a recipe for disaster. In brief, taken from the website here is some background on the development of economics as a discipline:

“The story of the Austrian School begins in the fifteenth century, when the followers of St. Thomas Aquinas, writing and teaching at the University of Salamanca in Spain, sought to explain the full range of human action and social organization.These Late Scholastics observed the existence of economic law, inexorable forces of cause and effect that operate very much as other natural laws. Over the course of several generations, they discovered and explained the laws of supply and demand, the cause of inflation, the operation of foreign exchange rates, and the subjective nature of economic value—all reasons Joseph Schumpeter celebrated them as the first real economists. The Late Scholastics were advocates of property rights and the freedom to contract and trade. They celebrated the contribution of business to society, while doggedly opposing taxes, price controls, and regulations that inhibited enterprise. As moral theologians, they urged governments to obey ethical strictures against theft and murder. And they lived up to Ludwig von Mises’s rule: the first job of an economist is to tell governments what they cannot do.”
A full summary of the history can be read Here

It’s not surprising why government officials were not fond of Austrian economics and have tried their best to ignore and discredit it. Despite their effort the school is currently experiencing its greatest interest world-wide, likely due to the consistent and accurate track record of predictions for Keynesian based policies. People rightly ask for solutions and alternatives when the flaws of the system they have come to accept as the best are pointed out. Austrian Economics, the foundation of all economic thought, is that solution. Take a couple of hours and read Economics in One Lesson and see for yourself how easy it is to miss the fallacies embedded into government economics and it will change your world view, and if you consistently follow it to its end, it will also change your political philosophy – unless you’re already there of course. Change and paradigm shifts are scary, part of that is biological because keeping on good terms with the tribe once meant life or death, now it could mean social death depending on who you surround yourself with, but if you want the world to be a better place you’re going to have to get used to being uncomfortable. Close examination of your belief systems is not easy, but if you make it to the other side there are few things sweeter.

Get the book Economics in One Lesson for free HERE

This video is a great and fun introduction / rap song that talks about the differences between Austrian and Keynesian Economics


This Video is Very Telling of Keynes – the Father of Keynesian economics (the economic school of thought used by government and taught in Universities) 

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