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Hazlitt's Economics In One Lesson



Economics In One Lesson
The Shortest and Surest Way
to Understand Basic Economics

by Henry Hazlitt

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Economics in One Lesson

Originally published in 1946, Henry Hazlitt's classic set the standard for learning basic economics. Its lessons continue to illuminate today's economic crises and concerns. Hazlitt discusses the fallacy of "stimulus" spending, the harm of politicians promoting risky housing loans, and the problems with various political interventions from protective tariffs to minimum wage laws.

This reading works well for three meetings. Suggested review questions follow. (Note: These questions were written for the revised 1979 edition.)

Review Questions for Hazlitt I: Through Page 70


1. What is Hazlitt's purpose in writing this book? 2. What is Hazlitt's view of novelty in economic theory?

3. What does Hazlitt's view say about the relationship between academics and popular culture?

4. In his preface, Hazlitt discusses his use of statistics. Likewise, in Chapter VII, he writes [page 54], "Statistics and history are useless in economics unless accompanied by a basic deductive understanding of the facts." What is Hazlitt's basic view of the use and status of statistics?

Chapter I: The Lesson

5. Why is economics especially beset by fallacies?

6. What does Hazlitt mean by the "special pleading of selfish interests," and what is the result of such pleading?

7. Is it true that "certain public policies would in the long run benefit everybody?"

8. What is Hazlitt's "One Lesson?"

9. Is Hazlitt's "One Lesson" really adequate for understanding the essence of economics?

10. What are modern examples of "brilliant economists, who deprecate saving and recommend squandering on an national scale as the way of economic salvation?"

11. Hazlitt warns against the error "of looking at the consequences only for a particular group to the neglect of other groups." Is it possible to justly "balance" the interests of groups?

12. Hazlitt also warns against "a certain callousness toward the fate of groups that were immediately hurt by policies." What does this suggest in terms of transitioning from political controls to free markets?

13. While demagogues get by with snappy "half-truths," good economics "often requires a long, complicated, and dull chain of reasoning." Does this ultimately imply a pessimistic view? Is there a solution to the problem?

Chapter II: The Broken Window

14. What are some modern examples of the "broken window" fallacy at work?

15. What is the problem of the seen and the unseen? (See also Chapter V.)

Chapter III: The Blessings of Destruction

16. Is there such a thing as "accumulated" or "pent-up" demand?

17. What is the difference, in economic terms, between need and demand?

18. What is the "money illusion" or the "monetary veil," and how does this relate to wage levels?

19. What does Hazlitt mean when he says that supply equals demand?

20. What is the "optimal rate of replacement" of capital goods mean?

Chapter IV: Public Works Mean Taxes

21. Where does political spending come from?

22. What public works projects does Hazlitt consider "essential?" (See also Chapter IX.) Without entering a long debate over the matter, what are the other basic schools of thought on this issue?

Chapter V: Taxes Discourage Production

23. What is the effect of taxes on incentives?

Credit Diverts Production

24. What is credit?

25. What is the result of politically favoring one party with credit?

26. Hazlitt criticizes the view that some credit risks are "too great for private industry." Is his criticism always warranted?

27. Hazlitt uses the example of "government-guaranteed home mortgages." How do his comments line up with recent events?

28. Hazlitt leaves open the possibility of government loans "under certain emergency circumstances." Is he right about this, and, if so, what are those circumstances?

Chapter VII: The Curse of Machinery

29. What are some of the major examples Hazlitt uses of machinery displacing certain workers?

30. Is "industrial overproduction" a real problem?

31. Is there an upper limit to the number of jobs available?

32. What is the long-term impact of technological advances on employment? On standard of living?

Chapter VIII: Spread-The-Work Schemes

33. What are some examples of make-work schemes from Hazlitt and modern policy?

34. Is there any context in which make-work is appropriate?

Chapter IX: Disbanding Troops and Bureaucrats

35. What is the cost of providing employment to soldiers and bureaucrats?

Review Questions for Hazlitt II: Pages 71-139

Chapter X: The Fetish of Full Employment

1. Hazlitt writes (page 71), "The whole economic progress of mankind has consisted of getting more production with the same labor." Name some more recent examples.

2. What is the proper relationship between employment and production (page 71)?

3. Hazlitt discusses the erroneous "assumption that there is only a fixed amount of work to be done" (page 72). What are some modern examples of this fallacy?

4. In what context is reducing employment a good thing (page 73)?

Chapter XI: Who's "Protected" By Tariffs?

5. What are some modern examples of tariffs? (Hint.)

6. What is comparative advantage?

7. What are the effects of eliminating a protective tariff (pages 76-82)?

Chapter XII: The Drive for Exports

8. What does Hazlitt mean when he writes, "In the long run imports and exports must equal each other" (page 85)?

9. Advanced bonus question: How would Hazlitt's analysis apply in the context of an international gold standard rather than national fiat currencies?

10. Should politicians "stimulate" foreign exports via subsidies?

Chapter XIII: "Parity" Prices

11. What are "parity prices?"

12. Why is it economically nonsensical and harmful to forcibly set prices at "parity?"

Chapter XIV: Saving the X Industry

13. What are the ways that politicians attempt to save Industry X (pages 98-100)?

Chapter XV: How the Price System Works

14. What does "production for use" mean (page 103)?

15. Describe "the problem of alternative applications of labor and capital" (pages 104-105)?

16. What is supply?

17. What id demand?

18. How does the price system address the problem of alternative uses of time and labor (pages 105-107)?

19. What is the relationship between price and the cost of production (page 106)?

20. What is the consequence of forcibly reducing the scarcity of some good (pages 107-109)?

Chapter XVI: "Stabilizing" Commodities

21. Aside from direct price controls, how have politicians tried to "stabilize" prices (pages 111-113)?

22. Are speculators economically damaging or productive (pages 111-112)?

23. What are the effects of forcibly "stabilizing" prices on speculators? On short and long term prices? On production? (Pages 112-115.)

Chapter XVII: Government Price-Fixing

24. What are the economic consequences of forcing prices below market levels (pages 119-120)?

25. What are the social consequences of price controls and rationing (pages 123-124)?

26. What are the real causes of price increases? What are the appropriate responses? (Pages 124-126.)

Chapter XVIII: What Rent Control Does

27. What are the effects of rent control?

Chapter XIX: Minimum Wage Laws

28. What determines the maximum wage an employer will pay to an employee (page 135)?

29. What are the consequences of subsidizing unemployment (page 137)?

30. What are the real causes of rising real wages (page 139)?

Review Questions for Hazlitt III: Page 140 to the end

Chapter XX: Do Unions Really Raise Wages?

1. What is the source of the delusion that "labor unions can substantially raise real wages over the long run for the whole working population?" (Page 140)

2. Why do employers choose to pay workers more? (Pages 140-141)

3. What legitimate function does Hazlitt see unions serving? (Pages 140-141, 149)

4. What is the mark of a legitimate versus an illegitimate strike? (Pages 142-143)

5. How does forcibly increasing union wages hurt other workers and consumers? (Page 143-146)

6. What is the impact of unemployment welfare? (Pages 145-146)

7. What are the long-range impacts on investment of forced wage hikes? (Pages 147-148)

8. Besides forcing up wages, what other harmful controls have unions advocated? (Page 150)

Chapter XXI: "Enough to Buy Back the Product"

9. What is the "buy back the product" doctrine? (Page 153)

10. What is wrong with that doctrine? (Pages 154-155, 158)

11. What are equilibrium wages and prices? What are the consequences of forcing wages or prices up or down? (Page 158)

Chapter XXII: The Function of Profits

12. A business can make profits or losses. What is the consequence of forcibly limiting profits? (Pages 160-161)

13. What are the long-term effects of high profits in a particular industry? How do profit and loss function in a free economy? (Page 161)

14. How are profits typically achieved? (Pages 162-163)

Chapter XXIII: The Mirage of Inflation

15. What is the difference between wealth and money? (Pages 164-165)

16. What are the various justifications people give for inflationary policy? (Page 165-166, 171)

17. What is the basic process by which the money supply is inflated? (Pages 167-169)

18. What does inflation do to the "structure of production?" (Page 170)

19. In what sense can inflation counteract problems of above-market wage rates? (Page 172)

20. Why is inflation so popular among many government officials? (Pages 172-174)

21. What is the worst-case outcome of inflation? (Page 176)

Chapter XXIV: The Assault on Saving

22. What is the difference between consumer goods and capital goods, and how is savings related? (Pages 177-179)

23. What is the difference between saving and withholding spending? What causes each? (Pages 180-181)

24. What harmonizes savings and investment on a free market? (Pages 184-185)

25. What is the result of keeping interest rates artificially low? (Pages 185-187)

Chapter XXV: The Lesson Restated

26. Who is the Forgotten Man? (Pages 194-195)

27. How is the division of labor related to "the insane doctrine of wealth through scarcity?" (Pages 195-199)

Chapter XXVI: The Lesson After Thirty Years?

28. Has the lesson been learned? Will it be learned? (See especially pages 204, 208-209.)

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