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Economics in One Lesson

Summary, Analysis, and Evaluation of Economics in One
Lesson by Henry Hazlitt

Hazlitt is concerned that economics was being haunted by many
fallacies. He attributes them to people having vested interests.
Economics also makes the assumption that people will act out of
their own self-interest. He believes the difference in a good and
bad economist is whether they look at the long or short run
effects of a policy. He may be right, but there is still a lot of
heated debate and tension between various economic schools on
though where the focus should be directed.

Hazlitt places a premium on economists who look at the long run
or secondary effects, over people who only look at the short run,
or the direct effects. He shows that actions have consequences,
and that this “elementary truth” is often ignored by short run
economists. Most, if not all of the arguments in his book are based
off this main presupposition: “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”

Hazlitt views looking at both long and short run as both important,
but only looking at the short run as detrimental. To him, looking
only at the long run might be a vice, but also uncommon. The
“new” economists, as Hazlitt describes the short- run only group,
only looks at individual trees, and ignores the effects on the rest
of the forest.

Even though he wishes to spread his views on economics, he
identifies the reasons that he struggles to spread economic
literacy. The bad economists are generally better at spreading
their ideas due to using “half-truths,” as Hazlitt calls them. The
short-run, or “bad” (as he calls them) economists do not judge the
long-run ideas by their merit, but instead employ “intellectual
debility and laziness.” They employ “terms of abuse” such as

When prices are arbitrarily held below the market clearing price. and our textbook. and (quantity) supplied will decrease leading to a shortage of the good. which will beget more price control. production is discouraged. a chronic shortage will follow. which is contrary to the law of supply. These new firms owe their existence to the law. Holding down the prices short run ignores people interests as producers. as Hazlitt acknowledged. When the state sets a price ceiling. The law of supply states that as prices increase. . that as prices of rental homes increase. government has often used this as an excuse to intervene in the market even more. Not to mention. Hazlitt’s argument of why rent controls are detrimental to housing supply and quality. Sometimes it will get so bad that the black market will become the market. The rising prices will supposedly not increase quantity supplied. When a market is distorted as a secondary effect of a policy. it distorts the market. This will likely lead to another long run and unintended consequence. This is how the government will justify enacting a price control. According to Hazlitt. when the price of a good is held below the market level through a price control. meaning. As Hazlitt points out. quantity supplied increases. they will be less efficient than the formal market and produce lower quality goods. the increasing prices are usually blamed on “greedy” businessmen instead of the monetary policies of the people who hold the elected office. (quantity) demanded will increase. Some will argue that rent control is different than regular goods. With the profit incentive taken away. because they believe that the supply is not elastic.laissez faire or capitalist apologetics to try to discredit the argument. This eventually leads to a totalitarian economy. upward pressure on prices will effect substitute goods. When these new firms enter the informal market. people will be incentivized to make more and better housing and fix the shortage. Hazlitt also points out the errors and secondary effects of price fixing. and is binding.

Eventually. It will also govern other prices. The consumers will suffer the loss of that product. but since it has a different name. the area affected by the price ceiling will deteriorate into a slum. they will look for substitutes. and the renter. Likewise. people would economize and use space more efficiently. They will not find a job if they are not worth what the government deems fair. Instead of the low skilled workers getting or keeping a low paying job. when the price of labor increases. but Hazlitt points out three key points that are ignored when only the short run is acknowledged by policy makers. Moreover. and capitalism will be blamed. Hazlitt believes that the minimum wage law is harmful and its hard to predict the effects. and the longer it remains in effect. as bad as the wage was it still was a wage. the arguments for minimum wage laws are emotionally and politically biased. There is no incentive to have more people living in an apartment when the price is below the market rate. Hazlitt points out that there will likely be strained relationships between the landlord. people do not recognize that setting a price control on wages will have similar consequence to price controls on goods or services. As Hazlitt says. if prices were allowed to rise. The opposite is true when the price ceiling is in effect.There are also some long run consequences to rent control.” A wage is a price. . people who worked in that industry will not have a job . When the price ceiling is enacted. when consumers are faced with higher costs. the quality of the housing deteriorates over time as the incentive for people to improve the house is taken away due to reduced or nonexistent profits. but increasingly destructive the more serve it is. who is not receiving the profit he would on a free market. Hazlitt acknowledges that some people argue that it is better for a low wage not to exist. “rent control is not only increasingly futile. such as cashiers at fast food restaurants being replaced by a touchscreen computer. and lead to some long term effects. who is living in a house with deteriorating quality. According to Hazlitt. As the laws of economics tell us. they get unemployment. we see more automation.

but the best way to raise wages is through the increase in marginal labor productivity.Some of the long run effects of the short run policy of increasing the minimum wage show why Hazlitt puts much weight into the value of looking at the long run when deciding short run policy. Real wages come from production. . Hazlitt acknowledges that almost everyone would encourage people to be better off. The way to increase productivity is through increased education and capital accumulation.