Contents
Economics in One Lesson
by Henry Hazlitt
Synopsized by William B. Lindley
Economics in One Lesson was published in 1946. A new edition,
with minor revisions of details, an added chapter on rent
control, and an overview of the intervening 30 years, came out in
1979. The book is an analysis of economic fallacies that are so
prevalent that they have almost become orthodoxy. It makes no
claim to originality with regard to any of the chief ideas that
it expounds. The author acknowledges his debt to the many great
minds of the past, and especially to Frederic Bastiat, Philip
Wicksteed and Ludwig von Mises. In working on the fallacies, he
does not name names or treat original works in detail, since he
seeks not to expose the special errors of particular writers, but
economic errors in their most frequent, widespread or influential
form.
THE LESSON: Economics has more fallacies than just about any
other discipline. There are two reasons for this: (1) Special
interests spawn or reuse plausible-sounding fallacies in pleading
their cause; (2) People tend to neglect long-term consequences in
the public domain, while giving proper weight to such in their
private affairs. The Lesson can be reduced to one sentence: 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. Four kinds of error can thus arise. The two
which are most common and most harmful are ignoring long-term and
indirect consequences of an action and ignoring its effect upon
the people as a whole. The other two are, of course, to neglect
the effects of an action in the short term and on a particular
group. Bad ideas of the sort to be examined in this book gain
acceptance because they are half-truths; if they were wholly
false, it would be easy to reject them.
The book continues with twenty-three applications of the basic
Lesson, demonstrations of the fallacious nature of certain
popular ideas.
1. The Broken Window. A vandal breaks the plate glass window at
the front of a bakery. The baker must replace the window, and
this provides the glazier with business and income. Ah, say
some, the crime has its bright side. No. The baker, say, had
in mind buying a new suit. There is thus a loss to the baker,
a gain to the glazier and a loss to the tailor: a net loss to
the community as a whole. People forget the tailor because
his part in the drama is never seen. This illustration was
first made by Frederic Bastiat.
2. The Blessings of Destruction. This fallacy is the broken
window fallacy writ large. It was especially popular after
World War II, with the economic resurgence of Germany and
Japan. Their new and more efficient plants were outperforming
our old ones. (a) Nobody would want to have his own property
destroyed either in war or in peace. The same holds for a
nation. (b) If the new plants were really a clear net
advantage, Americans could easily offset it by immediately
wrecking their old plants, junking all the old equipment. It
takes capital to do this. We supplied our former enemies with
the capital at a loss to our own investment, through both
taxation and currency debasement.
3. Public Works Mean Taxes. The fallacy that government
spending provides a net boost to the economy is part of an
intricate network of fallacies. We postpone the matter of
deficit spending and inflation, and assume here that the
public works spending will be covered, dollar for dollar, by
taxes. Suppose the government builds a bridge that is not
entirely justified by traffic needs. Two fallacies are at
work here: (1) The construction of the bridge creates jobs;
(2) With the bridge in place, the nation is richer. The taxes
collected for the bridge are money that would have been spent
privately, on consumption or investment, and this expenditure
would have created jobs. For each job the bridge creates, one
is destroyed in the private sector. We do not see the lost
jobs because they are not in one place, as the bridge jobs
are. The same for the enhanced national wealth. The bridge is
there, but the unbuilt homes, the unmade cars and clothes,
the ungrown and unsold foodstuffs, all that would have been
paid for by the money that instead went to taxes, are not.
Net gain: zero at best.
4. Taxes Discourage Production. When government takes from A to
give to B, its attention is focussed on B. It forgets about
A, especially about what goes through the mind of A. Why work
so hard when a good part of the earnings is taken away? Why
invest in something risky when you lose 100% of what you
lose, but get only 70% of what you gain? Capital accumulation
and production will decrease. Remember: B is a special
interest, and A is everybody.
5. Credit Diverts Production. Government loans, loan guarantees
and subsidies do not create credit; they divert it from the
more credit-worthy to the less credit-worthy. A subsidy is a
tax on a more successful business(A) to support a less
successful business(B). Again, B is a special interest, A is
everybody. The process is wasteful, since the loan or subsidy
is made not to maximize return on investment, but to achieve
some political goal.
6. The Curse of Machinery. One especially robust fallacy is
the belief that machines on net balance create unemployment.
Destroyed a thousand times, it has risen a thousand times out
of its own ashes as hardy and vigorous as ever. This time,
the government is not the sole coercive agent. The Luddite
rebellion in early 19th-century England is the prime example.
Labor unions have succeeded in restricting automation and
other labor-saving improvements in many cases. The half-truth
of the fallacy is evident here. Jobs are destroyed for
particular groups and in the short term. Overall, the wealth
created by using the labor-saving devices and practices
generates far more jobs than are lost directly. Arkwright
invented his cotton-spinning machinery in 1760. The use of it
was opposed on the ground that it threatened the livelihood
of the workers, and the opposition had to be put down by
force. 27 years later, there were over 40 times as many
people working in the industry. What happens when jobs are
destroyed by a new machine? The employer will use his savings
in one or more of three ways: (1) to expand his operations by
buying more machines; (2) to invest the extra profits in some
other industry; or (3) spend the extra profits on his own
consumption. The direct effect of this spending will be to
create as many jobs as were destroyed. The overall net effect
to the economy is to create wealth and even more jobs. We
must remember that the short-term local effect is to destroy
jobs. In some cases where this effect is major, special
relief measures might be taken, but blocking the progress
leads to stagnation and poverty. In this case, all four
points of the Lesson must be borne in mind.
7. Spread-the-Work Schemes. These practices spring from the
same fundamental fallacy as the fear of machines. This is the
belief that a more efficient way of doing a thing destroys
jobs, and a less efficient way of doing it creates them. Two
related examples: (1) Suppose we cut the work week from 40
hours to 30 while keeping the hourly wage the same. This will
open up some jobs, maybe (most unlikely) making total man-
hours and labor costs the same as before. There is no
increase in purchasing power or wealth. All that has happened
is that the previously fully employed have sacrificed to
benefit the previously unemployed. Inefficiencies will
probably make matters (net overall) worse than this. (2)
Suppose instead that we reduce the work week as above, but
raise the hourly wage to make the total weekly pay the same
as before. Seen: the newly hired; the previously employed
with some extra time on their hands. Unseen: the employer who
must now raise prices and/or cut profits; the employer's
stockholders who face a steep loss of the value of their
holdings; the employer's creditors, whose loans are suddenly
much more risky; the employer's customers, who now must pay
more and who therefore will buy less; the government, which
faces loss of revenue from the unseen listed above, with no
compensating gain from employee wages; and on and on. The
costs of production are sharply higher. The least profitable
companies will go out of business and the least productive
workers will lose their jobs. (Demand was already saturated
or we wouldn't be trying to cure an unemployment problem.)
Net result: a much greater unemployment than before. Dumb,
dumb, dumb. But such proposals have been seriously advanced
in the real world! We maximize the work to be done, and
therefore jobs, when we put prices, costs and wages in the
best relations with each other. What these relations are we
consider below in applications #14 and #21.
8. Disbanding Troops and Bureaucrats. Again we postpone the
discussion of deficit financing and assume here that
expenditures match revenues. Demobilization releases to the
taxpayers the money to provide private jobs. These will be
wealth-producing, unlike war. The same goes for surplus
government workers.
9. The Fetish of Full Employment. The economic goal of any
nation, as of any individual, is to get the greatest results
with the least effort. This is so elementary that one would
blush to state it if it were not being constantly forgotten
by those who coin and circulate the new slogans. Production
is the end, employment merely the means. Yet our legislators
do not present Full Production bills in Congress but Full
Employment bills. Everywhere the means is erected into the
end, and the end itself is forgotten. We can clarify our
thinking if we put our chief emphasis where it belongs — on
policies that will maximize production.
10. Who's "Protected" by Tariffs? Adam Smith said: "In every
country it always is and must be the interest of the great
body of the people to buy whatever they want of those who
sell it cheapest...The proposition is so very manifest that
it seems ridiculous to take any pains to prove it; nor could
it ever have been called in question, had not the interested
sophistry of merchants and manufacturers confounded the
common-sense of mankind." True in 1776, 1946, and 1992. The
central fallacy of protectionism is the negation of The
Lesson: to consider special beneficiaries and short-term
effects, and to neglect the general and long-term effects of
trade restrictions. Suppose Congress is thinking of cutting
or abolishing a tariff on sweaters. A sweater company shows
that it would thereby be put out of business and its workers
thrown out on the street. Congress relents. The company and
its employees continue with their contributions to the
American economy. What has been overlooked? Who has been
harmed? (1) The American consumer, who might have bought a
sweater at a lower price and had money left over to spend on
other things; (2) the companies that would have sold to that
consumer; (3) their workers; (4) the foreign sweater-makers;
(5) the American exporters from whom the foreign sweater-
makers or their compatriots would have bought goods and
services; (6) the governments that would lose revenues from
the general slowdown of business; and on and on. American
labor, capital and land are deflected from what they can do
more efficiently to what they do less efficiently. Thus
productivity is reduced, and also real wages. They may rise
in the protected industry, but they fall for the overall
economy.
11. The Drive for Exports. Exceeded only by the pathological
dread of imports that affects all nations is a pathological
yearning for exports. Logically nothing could be more
inconsistent. In the long run imports and exports must equal
each other. When we decide to increase our exports, we are in
effect deciding also to increase our imports. A typical
example of muddleheadedness is the belief that the government
should make huge loans to foreign countries for the sake of
increasing our exports, regardless of whether or not these
loans are likely to be repaid. Bad loans made at home, in
private commerce, are just that: bad. If this truth is so
simple at home, why do apparently intelligent people get
confused about it when applied to foreign nations? The reason
is that the transaction must then be traced mentally through
a few more stages. One group may indeed make gains — while
the rest of us take the losses. Here we have simply one more
example of the error of looking only at the immediate effect
of a policy on some special group, and of not having the
patience or intelligence to trace the long-run effects of the
policy on everyone.
12. "Parity" Prices. Special interests can think of the most
ingenious reasons why they should be the objects of special
solicitude. Some of their schemes are so wild that
disinterested writers do not trouble to expose them.
Practicing Goebbels' technique of the Big Lie, the special
interests forge ahead until they've fooled enough Congressmen
(and constituents). When at last disinterested writers
recognize that the danger of a scheme's enactment is real,
they are usually too late. This general history will do as a
history of the idea of "parity" prices for agricultural
products. If there had been any sincerity or logic in the
idea, it would have been extended to industry and other areas
as well. A little investigation shows that this would result
in absurdly high prices for cars, metals, etc. The refusal to
universalize the parity principle is not the only evidence
that it is not a public-spirited economic plan but merely a
device for subsidizing a special interest. When prices go
above parity, nobody talks about forcing them down or turning
the windfall over to the Treasury. It is a rule that works
only one way. Back to the Lesson. Seen: the farmers and those
who sell to them. Unseen: all other producers, the consumers
of food and other farm products, and all who are indirectly
harmed by the harm done to the prosperity of these. But
shouldn't we make up to the farmer the harm done him by
tariff-caused higher prices of industrial goods? Back again
to the Lesson. This joint system of tariffs and parity prices
means merely that Farmer A and Industrialist B both profit at
the expense of Forgotten Man C.
13. Saving the X Industry. Our aim here is to trace a few of the
chief results that must necessarily follow from efforts to
save an industry. We are not concerned with noneconomic
arguments for intervention. We are concerned only with a
single argument: that if X is allowed to shrink in size or
perish through the forces of free competition (always called
by spokesmen for X laissez-faire, anarchic, cutthroat, dog-
eat-dog, law-of-the-jungle competition) it will pull down the
general economy with it, and that if it is artificially kept
alive it will help everybody else. Note that tariffs and
parity prices, considered above, are special cases of this.
There are two ways in general of "saving X." One is to
restrict entry into an allegedly overcrowded field, and the
other is to subsidize. The former is unnecessary: if there is
not enough business to support all the firms in the industry,
the free market will cull the industry back to good health.
If the former is enacted anyway, it will divert capital away
from its most productive use (which is in the allegedly sick
industry!), thereby lowering the general productivity and
standard of living. The other means, a subsidy, is nothing
more than a transfer of wealth or income to the X industry.
The great advantage of a subsidy, indeed, from the standpoint
of the public, is that it makes this fact so clear. That's
why we more commonly see the intellectual obfuscation of
tariffs, price-fixing, forced monopolies, and the like. We
could have tried to save the horse-and-buggy industry. We
didn't. The arguments are the same.
14. How the Price System Works. The notion that profits are bad
is both widespread and contemptible, but we need to see why
profits are both necessary and good. From the examples of
Robinson Crusoe and the Swiss Family Robinson, with the
requirement and their courageous and successful effort to
make a living from scratch, we see that while all tasks are
necessary, one can expand (fulfill need more completely) only
at the expense of other tasks. This is obvious in simple
cases and still valid when things get complicated. The price
system is a supply-demand feedback loop. The cost of a
product doesn't determine the price directly. It does so
indirectly through profit signals. Profit is the means of
communication in a complex market economy. Everything is
produced at the expense of forgoing something else. The price
system maximizes consumer satisfaction, something far too
complex to do by fiat. More on profits in #21 below.
15. "Stabilizing Commodities." Government efforts to "stabilize"
commodity prices, notably farm products, are a con game. The
true aim is to hold prices above market level, but this is
never admitted. History shows that the free market is an
effective stabilizer of prices. Commodity futures speculators
help even out the market. Claims that farmers are victims of
low prices are false — except for storage costs, which can be
borne by the farmers themselves or by speculators, a choice
made by the market. Speculators through overoptimism actually
subsidize farmers a little, a pattern found also in the gold
and oil markets and, of course, in conventional gambling. In
these cases, when government intervenes, it always does so to
raise prices, and always causes overproduction and, down the
line, lower prices and/or big losses to taxpayers.
"Stabilizing" guarantees future instability.
16. We have just considered the case where the government tries
to hold prices above market level. Now let's see what happens
when it tries to hold them below market level. This is common
in wartime, when some items suddenly become scarce. (A second
factor, to be treated later, is that government, faced with
suddenly higher necessary spending, prints money to cover it,
thus producing upward pressure on all prices.) Holding a
price below market level has two consequences: demand goes
up, reducing supply; supply is further reduced because the
low price discourages production. These two consequences both
lead to shortages. When these become obvious, government then
tries to "fix" the problem with rationing, cost-control,
subsidies, and universal price-fixing. These pile up
distortion upon distortion. With honest, ruthless
enforcement, the end result is a command economy,
totalitarian throughout. History shows in most cases that,
instead, black markets develop — people turn into criminals
to keep things going. Respect for law goes down; corruption
and inefficiencies thrive.
17. What Rent Control Does. As rent control is a form of
government price-fixing, it does all of the things noted just
above, plus a few more. Rent control is supposed to be a
temporary measure, enacted because of a housing shortage and
the short-term inelasticity of housing supply. (Even this
latter is not true. Higher rents would encourage people to be
frugal in their use of space, accommodating more people in a
time of housing shortage; rent controls provide no such
incentive.) Rent control usually, because of political
pressure, turns out to be permanent. The worse it gets, the
harder it is to undo. A gross injustice to landlords. Result:
housing goes unrepaired because the landlord has no money to
repair it; slums spread and fester; whole areas are
abandoned: the owners just walk away. Government then steps
in with "public" housing, putting the taxpayers where the
landlords were. A true witch's brew. Again, the Lesson. Rent
control seems to help some people for a while, but actually
harms many over a long period of time.
18. Minimum Wage Laws. Wages are prices. Too bad a separate word
was coined for them, for minimum wage laws are like the
commodity price-fixing described above, with the same result.
If an employer is forced to pay someone more than he is
worth, that someone will lose his job. It is argued that the
employer need only raise prices. The free market makes this
impossible. Customers will find other sources, and demand
will drop. There is no escape from the conclusion that the
minimum wage will increase unemployment.
It also makes life difficult for the unemployment
compensation bureaucrats. If the payment is below the lost
wage, the former worker, the former customers and the
taxpayers are all poorer. If it is at the minimum, we offer
many men just as much for not working as for working. In any
case, the actual wage of those in the low-wage bracket, the
true incentive to work, is the difference between the nominal
wage and the unemployment pay; this can be quite small.
Workfare is just government make-work, necessarily
inefficient and of questionable utility. While the author
doesn't favor it, it probably would be less harmful all
around if the government in the first place frankly
subsidized the wages of submarginal workers at the work they
were already doing. (Negative income tax proposals take this
approach.) The best way to raise wages is to raise
productivity.
19. Do Unions Really Raise Wages? The belief that labor unions
can substantially raise real wages over the long run and for
the whole working population is one of the great delusions of
the present age. Wages are basically determined by labor
productivity. Unions have a legitimate function. In the case
of large companies, the competition of workers for jobs, and
of employers for workers, does not work perfectly. Collective
bargaining, including peaceful strikes, can result in a
market wage, and unions can increase productivity by
promoting worker health and safety. However, unions have gone
well beyond this, using force and coercion to bring about
above-market wages, taxpayer-subsidized unemployment, and a
general weakening of the economy. It is said that union
workers get their high wages at the expense of their
employers. Wrong. It is at the expense of other workers.
20. "Enough to Buy Back the Product." A Marx-based argument put
forth by labor unions is that wages must be high enough to
"buy back the product", or a depression will ensue. Whatever
the current wage is, it seems to be never enough to do that.
The idea is shown to be odd when we ask whether the makers of
mink coats should be paid far more than the makers of cheap
dresses. In fact, the argument has been advanced by auto
workers, among the highest paid blue-collar workers in the
country. They certainly aren't arguing to reduce the
differential! What is forgotten is that A's income is B's
cost. An above-market wage will lead to a higher price or a
lower profit that will make others less able to "buy back the
product." Above-market wages are self-defeating in another
way, already mentioned. Two independent studies, one of
theory, the other of historical fact, show that each 1% rise
of wages above market causes more than 3% increase in
unemployment. Back to the Lesson. The national product is
neither created nor bought by manufacturing labor alone. It
is bought by everyone. The best wage rates for labor are not
the highest wage rates, but the wage rates that permit full
production, full employment and the largest sustained
payrolls. We must run the economy for everybody.
21. The Function of Profits. The indignation shown by many people
today at the mention of the very word profits indicates how
little understanding there is of the vital function that
profits play in our economy. Profits actually do not bulk
large in our total economy. In good times and bad alike,
corporate profits after taxes have averaged less than 6
percent of the national income. Proper accounting for
inflation would reduce this number. Also, non-corporate
profits, e.g., a barbershop, are probably lower. The role of
profits as a means of communication in a free-market economy
was mentioned in #14 above. If there is no profit in making
an article, it is a sign that the labor and capital devoted
to its production are misdirected. Thus profits serve to
guide and channel the factors of production so as to
apportion the relative output of thousands of different
commodities in accordance with demand. As noted above, no
bureaucrat, however brilliant, can solve this problem on his
own. The other function of profits is to put constant and
unremitting pressure on the head of every competitive
business to introduce further economies and efficiencies, no
matter to what stage these may already have been brought. In
good times he does this to increase profits; in normal times,
to keep ahead of his competitors; in bad times, just to
survive. Profits, in short, not only tell us which goods it
is most economical to make, but which are the most economical
ways to make them. History shows that they are the best way
of doing this.
22. The Mirage of Inflation. The reader has been warned from time
to time that a certain result would necessarily follow from a
certain policy "provided there is no inflation." The pros and
cons of debasing the currency have thus been postponed — to
now. First, we might ask why inflation has been constantly
resorted to, why it has had an immemorial popular appeal, and
why its siren music has tempted one nation after another down
the path to economic disaster. (a) Money is confused with
wealth. Real wealth, of course, consists in what is produced
and consumed. Yet the verbal ambiguity that confuses money
with wealth is so powerful that people fall into the trap
again and again. (b) A second group, less naive, would have
our government print just enough extra money to fill an
alleged "deficiency" or "gap." This group ranges from the
cruder apostles of "social credit" to a variety of more
sophisticated economists with fancy equations containing
obscure errors. (c) Those who know that printing money will
debase the currency but who are content with that for a
variety of reasons: they wish to favor debtors over
creditors, or exporters over importers, or they want to
"start industry going again." Now let's see what inflation
really does. The government prints some money to meet some
expense it is unwilling to tax for. The direct recipients of
that money will benefit most from the inflation; their
suppliers and vendors will benefit next; and people outside
that loop will lose out. If the inflation lasts for a while
and then stops, the economy will be much the same as before
except for some distortion away from the balance of a free
market, but some will have gained and some will have lost
during the transition. If inflation continues indefinitely,
the value of the currency will eventually fall to zero, with
hyperinflation the final step, as shown by history. The
unequal distribution of gains and losses from an inflation
policy shows that a pure quantity theory of money
(monetarism) is off the mark. The value of money is what
people think it is and their best guess as to what it will
be. So inflation turns out to be merely one more example of
our central Lesson. It is a form of taxation. It is perhaps
the worst possible form, which usually bears hardest on those
least able to pay. It is, in fact, a flat capital levy,
without exemptions. Inflation is a kind of tax that is out of
control of the tax authorities. It discourages all prudence
and thrift. It encourages squandering, gambling, reckless
waste of all kinds. It ends invariably in bitter disillusion
and collapse.
23. The Assault on Saving. The saving policy that is in the best
interests of the individual is also in the best interests of
the nation. Bastiat, with his example of two brothers, the
spendthrift and the saver, who begin equal but do not end up
that way, is the best way of seeing this. The spendthrift
spends until he is worthless. His spending contributes to the
national economy, at least to the luxury goods and services
industries. The saver's expenditures and savings also
contribute to the national economy; the savings go directly
into building the capital base, and the saver's net worth
continues to increase, so that the process can go on
indefinitely. "Saving" is thus only another form of spending.
Moreover, money spent on capital formation does the national
economy more long-term good than that spent on consumption.
Fallacies abound on saving, fallacies spread by those who
want to redirect the funds saved. For one, saving for
hoarding is confused with saving for investment. Hoarding,
which can indeed harm the economy, is actually a tiny part of
the economy as a whole, and tends to increase in troubled
times as a response to the perceived trouble, not as a cause
of it. To blame "excessive saving" for a business decline
would be like blaming a fall in the price of apples not on a
bumper crop but on the people who refuse to pay more for
apples. Another fallacy is to blame the saver for unsettling
the economy by disappointing producers' expectations. This is
silly. A certain amount of saving is taken into account in
making estimates of future demands. Sudden changes in savings
rate might unsettle the economy and thereby do harm, but all
sudden changes in either direction of any economic parameter
have this effect. Yet another fallacy is to suppose that
investment opportunities are limited. Savings and investment
are brought into equilibrium with each other in the same way
as other kinds of supply and demand: in this case through the
interest rate, which serves as the price — indeed, is the
price of money put to work as capital. Government
intervention to lower interest rates is just the kind of
intervention described in #16 above, with the same bad
effects, plus the effects of the consequent inflation as
described in #22. Lowering interest rates to increase the
demand for capital have the natural effect (considered
"perverse" by the planners) of lowering its supply; moreover,
as the capital markets adjust to the presence of inflation,
the result is sharply higher interest rates, especially long-
term rates. There is no limit to the demand for capital.
Capital is used, if for no other purpose, to reduce the cost
of production and thereby raise profits. Reluctance to invest
capital comes from an assessment of high risk, most commonly
made as a result of uncertainties brought about by
fluctuations in the kind and degree of government
intervention.
The twenty-three applications of the Lesson have been sketched
out. It is time to restate the Lesson in the light of these.
Economics, as we have now seen again and again, is a science of
recognizing secondary consequences. It is also a science of
seeing general consequences. It is the science of tracing the
effects of some proposed or existing policy not only on some
special interest in the short run, but on the general interest in
the long run. Some additional sublessons have shown up: economics
is a science of recognizing inevitable implications. The
deductive side of economics is no less important than the
factual. People miss this: in proposing to increase credit,
exports, or wage rates, they forget that they are proposing to
increase debt, imports or costs of production. This is not to say
that the coin is necessarily bad: it merely means that we must
look at both sides of it. And this is seldom done. Another
sublesson is that the wise course usually matches that arrived at
by unsophisticated common sense. Yet another is that we have
rediscovered William Graham Sumner's Forgotten Man. "A" notes
that X suffers; he gets together with B to pass a law to help X —
at the expense of C. C is the Forgotten Man. Ironically, the
Forgotten Man phrase was revived during the Depression, but
misapplied to X! A fourth sublesson is that the division of labor
in a complex economy is the source of the conflicts of interest
that lead to the fallacies we have discussed. When one is not
producing his entire livelihood on his own, as Robinson Crusoe
did, but exchanging his one good or service for many others, his
conflict of interest is: "I want there to be a scarcity of what I
produce, but I want an overall abundance for me to enjoy." A free
market prevents this conflict from emerging into reality, but
monopolies, especially with government (read compulsory)
assistance can make such conflicts indeed real. Another aspect to
the division of labor is that, in a free market, not everybody's
prosperity advances at an equal rate. Most advances cause short-
term, local harm that is noticed. But the solution is never to
reduce supplies arbitrarily, to prevent further inventions or
discoveries, or to support people for continuing to perform a
service that has lost its value. We could instead try to see
whether some of the gains from a specialized progress cannot be
used to help the victims find a productive role elsewhere. To see
the problem as a whole, and not in fragments: that is the goal of
economic science.
The Lesson After Thirty Years. The first edition of this book
appeared in 1946. The author looks back in 1978, 32 years later.
How much of the Lesson expounded above has been learned in this
period? If we are referring to the politicians — to all those
responsible for formulating and imposing government policies —
practically none of it has been learned. The outstanding example
is inflation. Imposed for its own sake and as an inevitable
result of most of the other interventionist policies, it is the
universal symbol of government intervention. If we go through the
chapters of this book one by one, we find practically no form of
government intervention deprecated in the first edition that is
not still being pursued, usually with increased obstinacy. In
brief, the main problem we face today is not economic, but
political. When Alexander the Great visited the philosopher
Diogenes and asked whether he could do anything for him, Diogenes
is said to have replied: "Yes, stand a little less between me and
the sun." Ayn Rand's hero, John Galt, asked the same question,
gave the same answer more bluntly (as was her style). He replied:
"Get the hell out of my way!"
The outlook is dark, but it is not entirely without hope. More
and more people are becoming aware that government has nothing to
give them without first taking it away from somebody else — or
from themselves. Defenders of free enterprise are becoming more
outspoken and more articulate. There is a real promise that
public policy may be reversed before the damage from existing
measures and trends has become irreparable.
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