Henry Hazlitt and the unseen

One of my Christmas presents was Henry Hazlitt’s very excellent Economics in One Lesson.  The essential point of this work is the importance of understanding the broader consequences of economic decisions, and not just the immediate effects.

For instance, certain spread-the-work policies do give jobs to more people, but without an actual increase in production no one has gained anything in terms of real wealth.  Certain union policies regarding division of labor also create the same appearance.  Union rules might make it necessary to hire two men to perform a job that could be efficiently completed by one.  Yes, someone got a job out of it, but the customer spent more money than he needed to, which has a negative impact on his limited resources to benefit the economy in other ways.  It is true that these kinds of policies can benefit certain individuals, but only at the expense of society as a whole.

These wider-reaching deleterious effects are what might be called the “unseen” effects of these policies.  They are not invisible, mind you, but rather go unnoticed for whatever reason.

Perhaps the tendency for these kinds of things to go unseen explains the frequent false accusation that free market economics, and in particular Austrian economics, is atomistic.  In truth, though, it seems as though the aforementioned make-work projects are the actual atomistic approaches, for they take account only of the most obvious effects of a given situation without realizing the broader consequences which are involved.  They look at the benefit to one particular man or group and not at the consequences for the entire economy.   That sounds pretty atomistic to me.

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One Response

  1. I am almost finished reading this and will be writing a rebuttal pretty soon.

    He depends pretty heavily on Say’s law, which you can see fell apart since 1970.

    http://bit.ly/sOOfKq

    You can see that between 1947 and about 1968, Say’s law worked pretty well, as the people in society that became more efficient at producing things (efficiency per hour, not efficiency per pay) were rewarded for that increased efficiency by also being able to consume more. We are now producing about 50% more per hour than we were in 1970, but we can actually only consume slightly less. If Say’s law had been as robust recently as it had been in the post WWII era, then the typical person making $50k per year would be making $75k per year.

    Unfortunately when you determine that you are in a period in which Say’s law is not applicable, that means that most of the book is inapplicable because he leans on that pretty heavily.

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