Lesson of Economics
Hazlitt (1894 – 1993)
Economics is haunted by more fallacies than any other study known to
man. This is no accident.
The inherent difficulties of the subject would be great enough in any
case, but they are multiplied a thousandfold by a factor that is
insignificant in, say, physics, mathematics or medicine – the special
pleading of selfish interests. While
every group has certain economic interests identical with those of all
groups, every group has also, as we shall see, interests antagonistic to
those of all other groups. While
certain public policies would in the long run benefit everybody, other
policies would benefit one group only at the expense of all other groups.
The group that would benefit by such policies, having such a direct
interest in them, will argue for them plausibly and persistently.
It will hire the best buyable minds to devote their whole time to
presenting its case. And it
will finally either convince the general public that its case is sound, or
so befuddle it that clear thinking on the subject becomes next to
In addition to these endless pleadings of self-interest, there is a
second main factor that spawns new economic fallacies every day. This is the
persistent tendency of men to see only the immediate effects of a given
policy, or its effects only on a special group, and to neglect to inquire on
what the long-run effects of that policy will be not only on that special
group but on all groups. It is
the fallacy of overlooking secondary consequences.
In this lies the whole difference between good economics and bad.
The bad economist sees only what immediately strikes the eye; the
good economist also looks beyond. The
bad economist sees only the direct consequences of a proposed course; the
good economist looks also at the longer and indirect consequences.
The bad economist sees only what the effect of a given policy has
been or will be on one particular group; the good economist inquires also
what the effect of the policy will be on all groups.
The distinction may seem obvious.
The precaution of looking for all the consequences of a given policy
to everyone may seem elementary. Doesn’t
everybody know, in his personal life, that there are all sorts of
indulgences delightful at the moment but disastrous in the end?
Doesn’t every little boy know that if he eats enough candy he will
get sick? Doesn’t the fellow
who gets drunk know that he will wake up the next morning with a ghastly
stomach and a horrible head? Doesn’t
the dipsomaniac know that he is ruining his liver and shortening his life?
Doesn’t the Don Juan know that he is letting himself in for every
sort of risk, from blackmail to disease?
Finally, to bring it to the economic though still personal realm, do
not the idler and the spendthrift know, even in the midst of their glorious
fling, that they are heading for a future of debt and poverty?
Yet when we enter the field of public economics, these elementary
truths are ignored. 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
But the tragedy is that, on the contrary, we are already suffering
the long-run consequences of the policies of the remote or recent past.
Today is already the tomorrow which the bad economist yesterday urged
us to ignore. The long-run
consequences of some economic policies may become evident in a few months.
Others may not become evident for several years.
Still others may not become evident for decades.
But in every case those long-run consequences are contained in the
policy as surely as the hen was in the egg, the flower in the seed.
From this aspect, therefore, the whole of economics can be reduced to
a single lesson, and that lesson can be reduced to a single 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.
Ninety percent of the
economic fallacies that are working such dreadful harm in the world today
are the result of ignoring this lesson.
Those fallacies all stem from one of two central fallacies, or both:
that of looking only at the immediate consequences of an act or proposal,
and that of looking at the consequences only for a particular group to the
neglect of other groups.
It is true, of course, that the opposite error is possible. In considering a policy we ought not to concentrate only on
its long-run results to the community as a whole.
This is the error often made by the classical economists. It resulted
in a certain callousness toward the fate of groups that were immediately
hurt by policies or developments which proved to be beneficial on net
balance and in the long run.
But comparatively few people today make this error; and those few
consist mainly of professional economists.
The most frequent fallacy by far today, the fallacy that emerges
again and again in nearly every conversation that touches on economic
affairs, the error of a thousand political speeches, the central sophism of
the “new” economics [Hazlitt is referring to Keynesian economics], is to
concentrate on the short-run effects of policies on special groups and to
ignore or belittle the long-run effects on the community as a whole.
The “new” economists flatter themselves that this is a great,
almost a revolutionary advance over the methods of the “classical,” or
“orthodox,” economists, because the former take into consideration
short-run effects which the latter often ignored.
But in themselves ignoring or slighting the long-run effects, they
are making the far more serious error.
They overlook the woods in their precise and minute examination of
particular trees. Their methods
and conclusions are often profoundly reactionary.
They are sometimes surprised to find themselves in accord with
seventeenth-century mercantilism. They fall, in fact, into all the ancient
errors (or would, if they were not so inconsistent) that the classical
economists, we had hoped, had once and for all got rid of.
It is often sadly remarked that the bad economists present their
errors to the public better than the good economists present their truths. It is often complained that demagogues can be more plausible
in putting forward economic nonsense from the platform than the honest men
who try to show what is wrong with it.
But the basic reason for this ought not to be mysterious. The reason is that the demagogues and bad economist are
presenting half-truths. They
are speaking only of the immediate effect of a proposed policy or its effect
upon a single group. As far as
they go they may often be right. In
these cases the answer consists in showing that the proposed policy would
also have longer and less desirable effects, or that it could benefit one
group only at the expense of all other groups.
The answer consists in supplementing and correcting the half-truth
with the other half. But
to consider all the chief effects of a proposed course on everybody often
requires a long, complicated, and dull chain of reasoning. Most of the
audience finds this chain of reasoning difficult to follow and soon becomes
bored and inattentive. The bad
economists rationalize this intellectual debility and laziness by assuring
the audience that it need not even attempt to follow the reasoning or judge
it on its merits because it is only “classicism” or “laissez faire”
or “capitalist apologetics” or whatever other term of abuse may happen
to strike them as effective.
We have stated the nature of the lesson, and of the fallacies that
stand in its way, in abstract terms. But
the lesson will not be driven home, and the fallacies will continue to go
unrecognized, unless both are illustrated by examples. Through these
examples we can move from the most elementary problems in economics to the
most complex and difficult. Through them we can learn to detect and avoid first the
crudest and most palpable fallacies and finally some of the most
sophisticated and elusive. To that task we shall now proceed.
Lesson Applied: The Broken Window Fallacy
Let us begin with the simplest illustration possible: let us,
emulating Frederic Bastiat, choose a broken pane of glass.
A young hoodlum, say, heaves a brick through the window of a
baker’s shop. The shopkeeper
runs out furious, but the boy is gone.
A crowd gathers, and begins to stare with quiet satisfaction at the
gaping hole in the window and the shattered glass over the bread and pies.
After a while the crowd feels the need for philosophic reflection.
And several of its members are almost certain to remind each other or
the baker that, after all, the misfortune has its bright side.
It will make business for some glazier.
As they begin to think of this they elaborate upon it.
How much does a new plate glass window cost? Two hundred and fifty dollars?
That will be quite a sum. After all, if windows were never broken,
what would happen to the glass business?
Then, of course, the thing is endless.
The glazier will have $250 more to spend with other merchants, and
these in turn will have $250 more to spend with still other merchants, and
so ad infinitum. The smashed
window will go on providing money and employment in ever-widening circles.
The logical conclusion from all this would be, if the crowd drew it,
that the little hoodlum who threw the brick, far from being a public menace,
was a public benefactor.
Now let us take another look. The crowd is at least right in its
first conclusion. This little act of vandalism will in the first instance
mean more business for some glazier. The
glazier will be no more unhappy to learn of the incident than an undertaker
to learn of a death. But the
shopkeeper will be out $250 that he was planning to spend for a new suit.
Because he has had to replace a window, he will have to go without
the suit (or some equivalent need or luxury).
Instead of having a window and $250 he now has merely a window.
Or, as he was planning to buy the suit that very afternoon, instead
of having both a window and a suit he must be content with the window and no
suit. If we think of him as a
part of the community, the community has lost a new suit that might
otherwise have come into being, and is just that much poorer.
The glazier’s gain of business, in short, is merely the tailor’s
loss of business. No new
“employment’ has been added. The people in the crowd were thinking only
of two parties to the transaction, the baker and the glazier. They had
forgotten the potential third party involved, the tailor. They forgot him
precisely because he will not now enter the scene. They will see the new
window in the next day or two. They will never see the extra suit, precisely
because it will never be made. They see only what is immediately visible to
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