Economy in One Lesson - Henry Hazlitt

My Rating - 9/10

I was interested in having some basic idea about economics. So, looked up in Quora on how to start. This book was suggested by Quora users. Did not waste much time, and got my hands dirty.

When I wrote my review of Atlas Shrugged, I might have been pretty easy on the book. But this one made me realize that every incident described by Ayn Rand is not a piece of the author's imagination, but a fact taken from reality. And trust me, that is a scary thought!

There are different factions and schools of economic thoughts. Hazlitt subscribes to the Austrian school of thoughts. It propounds that while making economic policies, one should not just look at the immediate effect of that policy on a special group of people, but should think out its long term effect on the whole community. And Hazlitt goes on to show how government intervention on free market upsets the whole economy in the long run - be it taxes, or price control, or import duties. He does not bring in a lot of data and statistics, true, but proves his views on the basis of pure logic. And it somehow seems right to me, because it agrees with common sense. The more you try to restrict free market, the less it produces. Destruction, such as war, cannot boost economy, that has to be a misconception. Otherwise people would just go into a war whenever the economy falls. Price control tends to make the commodity less available. These are results of common sense. However, there must be circumstances where such taxes, price controls, etc. have to be exerted. For example, taxes are required to provide the basic ammunities of life - health, fire safety, police, etc., as well as to maintain a strong defence system in the country.

I got some valuable lessons from this book. First, money is not the ultimate measure of wealth. You will have more money if there is an inflation - but the value of money will have dropped. In other words, you can buy less, even though you have more money. So, having a lot of money should not be anyone's economic goal, but to have enough money to buy what they want seems like a sounder goal.

Secondly, market behaves the most suitably to both the producer and the consumer when left to find its own equilibrium. Prices are determined by demand and supply, and nothing else (this idea has been corroborated by a lecture I had seen on economics by Prof. Kenneth Train from U C Berkeley). When prices are tried to be controlled, this equilibrium gets upset and causes an economic loss for the country. Nothing else is possible.

Taxes are necessary, only when the services provided by that tax is more important that what the taxpayer would have bought using the money given in tax. In other words, the need for the service provided needs to be more than the taxpayer's personal wants. Otherwise, the value provided by the service is less and hence it results in a loss for the community.

Jobs cannot be created by the government. When the government uses the tax to create jobs, it essentially takes away someone else's job in the form of the tax.

There are a lot more lessons to learn from this book. It is written for the common mass - no need of prior knowledge of any economic theory is needed. One can follow the book very easily. The language is like that of a fireside conversation. The logic is simplistic, but sound.

This book is a must-read for every person, since it gives a fair idea about handling money and economy - something that is intrinsically ours to make our lives better.