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April 11, 2005

Economics in One Lesson

Tyler Cowen tells us that Henry Hazlitt's Economics in One Lesson is now online.

It's an excellent book to read if one already knows a significant amount of economics. It's an excellent book because it brilliantly and coherently restates the Classical view. It is a limited book because at least half its pages hint that the works of John Maynard Keynes are an abomination without ever grappling with the Keynesian argument.

We all know that the market system is an amazing decentralized social planning and allocation mechanism if externalities are small, if returns to scale are in general diminishing, if we are happy with the distribution of wealth and the concommitant distribution of economic power it gives rise to, and if Say's Law holds--if supply does indeed create its own demand, and we don't have to worry about large-scale unemployment and deep depressions.

Hazlitt doesn't recognize any of these ifs. And that is what makes his book very dangerous indeed to a beginner in economics, because the ifs are, all of them, important qualifications and caveats. I gather that Tyler read it relatively early, and I am amazed that he has escaped with so little permanent neurological and ideological damage.

I find it astonishing that Haslitt doesn't recognize any of these ifs. I find it especially astonishing that he doesn't recognize the last of them. The 1930s were the era of the Great Depression--the time when Say's Law was most irrelevant. Hazlitt lived through them. Yet the Great Depression years seem to have had no impact on Hazlitt whatsoever.

There is one other big problem with Hazlitt--a problem that he shares with many of his successors on the Wall Street Journal op-ed page, on the Weekly Standard, and on the National Review. His quotes cannot be counted on to be in context. His summaries cannot be counted on to be honest.

For example, Hazlitt on Keynes in Economics in One Lesson:

p. 4: There are men regarded today as brilliant economists, who deprecate saving and recommend squandering on a national scale as the way of economic salvation; and when anyone points to what the consequences of these policies will be in the long run, they reply flippantly, as might the prodigal son of a warning father: "In the long run we are all dead." And such shallow wisecracks pass as devastating epigrams and the ripest wisdom.

What Keynes actually wrote in his Tract on Monetary Reform:

Now 'in the long run' this [way of summarizing the quantity theory of money] is probably true.... But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.

Misrepresentations like this do Hazlitt no credit at all.

Posted by DeLong at April 11, 2005 01:42 PM