Economics in One Lesson by Henry Hazlitt provides essential information about microeconomics that non-economics professionals need to know. The author provides examples of major economic misconceptions, public misinterpretations, and public policy failures. Mostly, the author talks about economic policies and their consequences. Hence, the basic rule of economics “consists in looking not merely at the immediate but at the longer effects of any act or policy” (Hazlitt 1952, 5). Even though the book was first published in 1946, it has not lost its relevance, and the topics laid out can be considered in the context of broader theories of microeconomics.
One of the main themes of Hazlitt’s book is supply and demand. Hazlitt (1952) notes that it is essential to distinguish between consumer needs and demand. According to the author, “effective economic demand requires not merely need but corresponding purchasing power” (Hazlitt 1952, 13). This statement correlates with the concept of the demand curve, which shows the ratio of the number of goods consumers are willing to buy and their prices. Moreover, what Hazlitt calls “purchasing power” can be called the income level of consumers because the more income they have, the more goods they can buy.
On the other hand, the supply curve “shows the quantity of a good that producers are willing to sell at a given price” (Pindyck and Rubinfeld 2018, 44). Although the concepts of supply and demand characterize the market from different angles, they are inseparably linked. High demand for some goods increases supply, which, in turn, increases the demand among producers for goods from other manufacturers.
The optimal market option for both the consumer and the producer is the one that maintains economic equilibrium. It may be a balance between the number of goods and the number of consumers willing to buy a product (Pindyck and Rubinfeld 2018). In this case, avoiding losses for both parties will be possible by preventing surplus and shortage situations. Achieving equilibrium in a free market is due to the market mechanism. According to Hazlitt (1952), the free market is quite democratic since the consumer influences the pricing and quantity of goods and manufacturers. He notes that other demand and government price controls are often less effective. In such cases, errors in economic policy, such as unreasonable pricing and resource allocation, are almost inevitable.
Discussing the prices set by the state, Hazlitt raises the issue of tariffs on imported goods. Tariffs are the main reason foreign goods are more expensive. However, imported goods often have specific characteristics that better suit the consumer’s needs. Therefore, consumers pay more for imported goods, reducing their ability to buy local goods (Hazlitt 1952). A decrease in demand for local goods indirectly affects the country’s overall economy by reducing wages and the number of jobs. However, Pindyck and Rubinfeld (2018) note that quotas and tariffs are, on the contrary, needed to provide the domestic industry with “higher profits than it would under free trade” (351). The absence of imports would lead to higher prices for domestic goods, negatively impacting consumer behavior and demand.
During inflation, the government tries to set the price below the average by controlling the market and pricing. Hazlitt (1952) believes that this leads to an economic imbalance. As the price decreases, the demand for the product increases. However, due to declining profitability, manufacturers are reducing supply. It leads to a shortage of goods and the exit of companies from the market. Furthermore, above-average price increases, such as subsidies, are considered by Hazlitt (1952) to be disadvantageous. Initially, contributions imply that “the sellers’ price exceeds the buyers’ price” (Pindyck and Rubinfeld 2018, 359). However, the subsidies are paid out of taxes, and the consumer pays more for the goods.
Thus, the topics discussed in the book Economics in One Lesson are relevant today. An example is a need to maintain a balance between demand and supply curves, as well as the mechanisms of the free market and the need for its control by the state. Government control, like quotas and tariffs, is necessary to maintain the efficiency and profitability of the domestic market. However, when establishing economic policy, it is required to consider all possible consequences in advance.
References
Hazlitt, Henry. 1952. Economics in One Lesson. New York: Harper & Brothers.
Pindyck, Robert S., and Daniel L. Rubinfeld. 2018. Microeconomics. Pearson.