Economics in One Lesson

🚀 The Book in 3 Sentences

This book is about prices and the fact that the economic machine should not be tampered with. It is a classic Austrian school of Economics type of book, and contains the usual arguments from that school. It uses 200 pages to conclude that you should not tamper with it.

🎨 Impressions

I liked it well enough that I am partially inclined to the school of Austrian economics, with some degree of moderation in relation to their more "enthusiastic" notions. But all in all, it is a good book. When you tamper with a system, it will behave unexpectedly. The central tenet of the book is that economics, like most things in this world, is non-linear, and we, therefore, cannot hope to understand it fully. And only a fool thinks in linearities.

I think people who would like a pure reminder of why interventions and political meddling in the economy are destructive should read it.

I am getting increasingly convinced that you need to understand chaos and non-linear theories to understand the world. It is such an important concept, and I don't know if there are any more critical drivers in the world today.

✍️ My Top Quotes

Economics is haunted by more fallacies than any other study known to man. This is no accident.
The bad economist sees only what immediately strikes the eye; the good economist also looks beyond.
Doesn’t the fellow who gets drunk know that he will wake up 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?
It confuses need with demand. The more war destroys, the more it impoverishes, and the greater is the postwar need. Indubitably. But need is not demand.
Everything we get, outside of the free gifts of nature, must in some way be paid for. The world is full of so-called economists who in turn are full of schemes for getting something for nothing.
There is a strange idea abroad, held by all monetary cranks, that credit is something a banker gives to a man. Credit, on the contrary, is something a man already has. He has it, perhaps, because he already has marketable assets of a greater cash value than the loan for which he is asking. Or he has it because his character and past record have earned it.
Thus private lenders (except the relatively small proportion that have got their funds through inheritance) are rigidly selected by a process of survival of the fittest. The government lenders, on the other hand, are either those who have passed civil service examinations, and know how to answer hypothetical questions hypothetically, or they are those who can give the most plausible reasons for making loans and the most plausible explanations of why it wasn’t their fault that the loans failed.
In Houston, Texas, master plumbers and the plumbing union agreed that piping prefabricated for installation would be installed by the union only if the thread were cut off one end of the pipe and new thread were cut at the job site.
Various locals of the painters’ union imposed restrictions on the use of spray-guns, restrictions in many cases designed merely to make work by requiring the slower process of applying paint with a brush.
A local of the teamsters’ union required that every truck entering the New York metropolitan area have a local driver in addition to the driver already employed.
The economic goal of any nation, as of any individual, is to get the greatest results with the least effort. The whole economic progress of mankind has consisted in getting more production with the same labor.
Hitler provided full employment with a huge armament program. The war provided full employment for every nation involved. The slave labor in Germany had full employment.
Wages and employment are discussed as if they had no relation to productivity and output
To save the coal industry Congress passed the Guffey Act, under which the owners of coal mines were not only permitted, but compelled, to conspire together not to sell below certain minimum prices fixed by the government. Though Congress had started out to fix “the” price of coal, the government soon found itself (because of different sizes, thousands of mines, and shipments to thousands of different destinations by rail, truck, ship and barge) fixing 350, separate prices for coal! One effect of this attempt to keep coal prices above the competitive market level was to accelerate the tendency toward the substitution by consumers of other sources of power or heat—such as oil, natural gas and hydro-electric energy.
But the central error, as we have hinted, comes from looking at only one industry, or even at several industries in turn, as if each of them existed in isolation. Each of them in fact exists in relation to all the others, and every important decision made in it is affected by and affects the decisions made in all the others.
Elementary illustrations like this are sometimes ridiculed as “Crusoe economics.” Unfortunately, they are ridiculed most by those who most need them, who fail to understand the particular principle illustrated even in this simple form, or who lose track of that principle completely when they come to examine the bewildering complications of a great modern economic society.
But wartime price-fixing, wise or not, is in almost all countries continued for at least long periods after the war is over, when the original excuse for starting it has disappeared.
“A power over a man’s subsistence amounts to a power over his will.”
For as Alexander Hamilton pointed out in the Federalist papers a century and a half ago, “A power over a man’s subsistence amounts to a power over his will.”
It was a common story from many European countries that people were able to get enough to stay alive only by patronizing the black market. In some countries the black market kept growing at the expense of the legally recognized fixed-price market until the former became, in effect, the market.
One of these is the idea that labor is being “underpaid” generally. This would be analogous to the notion that in a free market prices in general are chronically too low.
The belief that they do so rests on a series of delusions. One of these is the fallacy of post hoc ergo propter hoc, which sees the enormous rise in wages in the last half century, due principally to the growth of capital investment and to scientific and technological advance, and ascribes it to the unions because the unions were also growing during this period. But the error most responsible for the delusion is that of considering merely what a rise of wages brought about by union demands means in the short run for the particular workers who retain their jobs, while failing to trace the effects of this advance on employment, production and the living costs of all workers, including those who forced the increase.
One of the greatest dangers to production today comes from government price-fixing policies. Not only do these policies put one item after another out of production by leaving no incentive to make it, but their long-run effect is to prevent a balance of production in accordance with the actual demands of consumers.
What inflation really does is to change the relationships of prices and costs. The most important change it is designed to bring about is to raise commodity prices in relation to wage rates, and so to restore business profits, and encourage a resumption of output at the points where idle resources exist, by restoring a workable relationship between prices and costs of production.
Like every other tax, inflation acts to determine the individual and business policies we are all forced to follow. It discourages all prudence and thrift. It encourages squandering, gambling, reckless waste of all kinds. It often makes it more profitable to speculate than to produce. It tears apart the whole fabric of stable economic relationships. Its inexcusable injustices drive men toward desperate remedies. It plants the seeds of fascism and communism. It leads men to demand totalitarian controls. It ends invariably in bitter disillusion and collapse.
From time immemorial proverbial wisdom has taught the virtues of saving, and warned against the consequences of prodigality and waste. This proverbial wisdom has reflected the common ethical as well as the merely prudential judgments of mankind. But there have always been squanderers, and there have apparently always been theorists to rationalize their squandering.
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.
One can say of it what Santayana says of logic (and what could be equally well said of mathematics), that it “traces the radiation of truth,” so that “when one term of a logical system is known to describe a fact, the whole system attaching to that term becomes, as it were, incandescent.”
“What is prudence in the conduct of every private family,” said Adam Smith’s strong common sense in reply to the sophists of his time, “can scarce be folly in that of a great kingdom.”