Economics in One Lesson
The 50th Anniversary edition of Henry Hazlitt’s classic, Economics in One Lesson, paints a straightforward depiction of free-market capitalism which is easily accessible to even the most modest of economist. Hazlitt makes the argument that the responsibility of any economy is to create “Full Production” (p. 57) and an unencumbered free market creates the most economic utility. While Hazlitt admits there are exceptions to the unencumbered free market which are primarily based around security issues, he believes the best way to create the most production in the long run is to allow the economy to manage itself.
Hazlitt greatest opposition when arguing economics utility are Keynes and other governmental redistributive theorist. Weather the opposition believes in manipulation of product or monetary supply, Hazlitt always argues that this manipulation comes at the cost of “Full Production”. Hazelitt’s argument is that politicians who intervene in the free market economy always fall into one of two fallacies. The first fallacy is economist don’t usually review all interest when they pursue public policy, but just the interest that have the greatest lobby. The other fallacy is that most politicians misconstrue short term benefit with long term gain (P.3). Some might argue that these fallacies are not fallacies at all, but just the by-products of a functional democratic republic. If a politician expects to win re-election multiple times, that politician must do what is in the best short-term interest of his or her constituency. Hazlitt would argue any politician who pursues short-term interest in lieu of long-term gain is guilty of arrogance or incompetence.
The basis of Hazlitt’s argument is that a free market is a natural law with an infinite amount of movable parts. Hazlitt writes
“The private enterprise system, then, might be compared to thousands of machines, each regulated by its own quasi-automatic governor, yet with these machines and their governors all interconnected and influencing each other, so that they act in effect like one great machine.” (p. 90)
This means that any politician who interjects redistributive policies either believes he or she can comprehend the infinite amount of effects that can be produced by a redistributive policy or that politician arbitrarily picks redistributive policies without fully understanding the consequences of his or her actions. This either means that politicians who pursue policies of redistribution without acknowledging the gamble they are taking either believe they are omnipotent or are willing to take a uninformed gamble with the wealth of others. The libertarian fears the former much more than the latter.
Posted on April 7, 2011, in Economy and tagged Economics, Henry Hazlitt, Libertarianism. Bookmark the permalink. 2 Comments.
There is pretty simple way to look at these issues in my view. What is going to be more productive? A system that calibrates exchange through multiple decisions made daily by hundreds of millions of actors, who constantly are looking for value in return for their action? Or a system where power is inveighed in a small concentrated group of representatives, narrowly focused on a handful of issues, indirectly responsible for transactions, with limited line of sight, with the actors selected and recalibrated every 2, 4 or 6 years? In a constantly evolving and uncertain world, the individual wins hands down.
Freedom of economic decision making creates so much more value than centrally controlled decision making ever can.
That’s not to say there is no role for government or that the government should not secure through taxation resources that are needed to perform its limited functions. But when government strays from the necessary functions (traditionally policing/public safety, public education, transportation (road) systems, prevention of fraud, requiring disclosure for example) and/or creates perverse incentives that reward failure and discourage initiative, then government destroys value.
And how would you account for the BP Gulf spill with zero interruptions of production? Allow them to produce 100% from the spilled well?
How do you account for the negative externalities of commerce? Allow the rivers, bays and oceans to be polluted 100% for the sake of production?
Its best to keep lessons like this one one chapter, that way we don’t introduce anything of Pandora’s reality. Best to keep it tightly locked for the sake of freedom of production. Freedom of life be damned.