
Economics in One Lesson - falava
http://steshaw.org/economics-in-one-lesson/
======
dagw
Here's my review from last time this book was mentioned on HN:

Economics in One Lesson is a horrible book for people with no background in
economics. Within economics there are several schools of thought, and this
book is little more than an outright attack by a proponent of one (fairly
niche) school on another (far more prominent) school. Despite its title it
isn't an textbook, but a manifesto, and as such Hazlitt's goal isn't to
educate you, but to convert you. Hazlitt sets out to do this with great skill,
employing every rhetoric tool at his disposal.

And I'll admit he's really good at it as well. He presents theories as gospel
truth, making no mention of any caveats or qualifiers that you'd find in a
more serious work. There is a complete lack of any sort of critical analysis
of the ideas present, or any notion that they may be anything other than
universal truths. He greatly misrepresents the ideas of his opponents and
loves to use quotes out of context. He makes great use of leading rhetorical
questions to lead the reader to make incorrect conclusions, without having to
stick out his own neck and make the incorrect statement himself.

So in my opinion the real problem with this book is that it is so convincingly
written that a naive and uncritical reading of it will lead the reader to come
away with the belief that economics is really simple and that all economic
problems have trivial solutions, as spelled out in this book.

That being said, the ideas present in this book aren't completely without
merit, it's just that the few actually useful and interesting nuggets are
buried in far too much polemic brow beating.

~~~
smokeyj
Criticizing Hazlett of being too rhetorical, while typing a wall of text
without a single objective refutation to one claim is hypocritical at the
least. It sounds like you don't want to stick your own neck out and make an
incorrect statement.

~~~
dbfclark
The real problem Hazlett ignores is the existence of market failures in the
actual world. The labor market in particular is rife with failures, in areas
from search costs to market power, to the point where many labor economists
model the labor market as a monopsony, i.e. a single-buyer market, which is
one of the classic situations where government intervention to raise prices
can increase total surplus. There's a whole discipline of labor economics that
deals with the fact that the labor market is imperfect in excitingly complex
ways.

In general a real market is imperfect in any case where firms make profit
above their cost of capital -- i.e. most of it -- since perfect competition is
supposed to drive profits to zero everywhere. The employees of a firm making
profits certainly can be paid more without imperiling production, since the
profits could simply be reduced.

Almost throughout, Hazlett makes exactly this (very common, for those with a
political axe to grind) fallacy, supposing implicitly everywhere that no
company is profitable despite the fact that we are manifestly not living in
that world.

~~~
yummyfajitas
_In general a real market is imperfect in any case where firms make profit
above their cost of capital -- i.e. most of it -- since perfect competition is
supposed to drive profits to zero everywhere._

This is simply false. You are confusing _profit_ with _economic profit_ \-
they aren't the same thing. Profit is revenue in excess of costs, while
economic profit is risk-adjusted profit in excess of other investment
opportunities.

I.e., in a noncompetitive market, your best investment is to seek out
companies with high economic profit and invest in them. In a competitive one,
your best investment is a diversified portfolio indexed to the broader
economy.

Incidentally, monopsony models of the labor market have pretty terrible
predictive power. They are loved by PhD holding activists since they justify
many feel-good policies, but they don't work very well outside of certain
narrow fields (e.g., PhD chemists).

------
msluyter
I read a lot of economics and policy blogs (Marginal Revolution, Felix Salmon,
Brad DeLong, etc...) and have come to the conclusion that the _macro_ side of
economics is still so in its infancy that it's can barely be called
scientific. What you see is that various ideologies adopt their particular
model (Keynsian, Austrian, etc...) and from there, the general lack of
empiricism (never possible to run an experiment without confounding variables)
plus confirmation bias (all deviations from your model can be explained by
special circumstances) fuels a never ending debate.

So I try to remain skeptical of (seemingly polemical) works such as this one.

~~~
Locke1689
The most objectionable and frustrating aspect of Austrian economics, to me, is
the almost complete abandonment of formal mathematical models in their
analyses.

To be clear, I am an empiricist and believe that the study of systems can only
come about through careful experimentation, modeling, and formal mathematics.
Mathematics, in my opinion, is the only objective measure by which we can
analyse systems and trends.

I would concede that many of the macroeconomic models and experimentation in
mainstream economics are weak and misused. However, I think any mainstream
economist would agree with you and say that they are working hard to deal with
the explosion of mathematical complexity in these kinds of analyses. They
don't present their results as gospel, but they do formally state the models,
meaning that they also formally state the assumptions being made.

Austrian economics, meanwhile, seems whole unscientific. Almost all Austrian
economic systems eschew formal mathematics in favor of cute rhetorical
devices. This book is a perfect example -- where are the mathematical models
and formal reasoning? Formalism is good. Formalism is how we know what we are
actually discussing and what we are trying to deduce. An example of how
formalism is essential is Turing's PhD thesis. Without getting into details,
Turing was trying to find the answer to a certain intuitive mathematical
relation. What Turing found, however, was that there was no answer -- the
statement itself could not be well-defined in a formal sense, meaning that it
was not a good question.

This small example simply represents the large class of problems which can't
be analyzed without formal breakdowns, simply because what seems interesting
in rhetoric may be wholly untrue in a strict sense.

Rothbard, especially, seems guilty of my criticism. In a number of works he
stated that he believed that historical analysis and modeling could never
apply to economics and that all of economics could be explained by _a priori_
relations. The troubling thing is that Rothbard should have known from physics
and chemistry (and now somewhat formalized by statements about Turing machines
and automata) that there can be underlying principles in mathematical systems
and that can still be absolutely useless in analyzing the results of those
systems. The three body problem, for instance, operates on very simple
principles, but those principles are of almost no use in predicting the
results of such a system.

So, in conclusion, I'm not saying that Austrian economics has no useful ideas,
but what I _am_ saying is that an underlying philosophy of many of Austrian
economics' most celebrated evangelists is directly in conflict with my own. I
don't believe that the right way to do economic or systems analysis is through
rhetorical flourish or logical argument. These things are convincing on
Internet boards but are not scientific and not well-defined. We should be
trying to bring more science and formalism to economics, not less.

~~~
ataggart
Austrians do not "eschew" mathematics nor empiricism, rather they reject the
claim that what is commonly called empirical evidence actually _is_ , and
admit to the limits of empiricism in social sciences. Aping the physical
sciences in some form of cargo-cult formalism is not only wrong, but leads to
flawed conclusions.

Austrians assert that the only way to empirically know a person's preferences
is through observing their choices. There is no objective meaning to graphs
that rely on the assumption that people have these scales of numbers in their
heads that say, "An apple is five utils, a banana is ten." The only meaning
comes from decisions - either you prefer the apple to the banana, or you
prefer the banana to the apple.

Austrians further assert that any macroeconomic model must be a result of (or
at least 100% consistent with) valid microeconomic principles. A macroeconomic
model which concludes something that is not explainable in terms of human
decisions is necessarily wrong.

~~~
Locke1689
_rather they reject the claim that what is commonly called empirical evidence
actually is, and admit to the limits of empiricism in social sciences. Aping
the physical sciences in some form of cargo-cult formalism is not only wrong,
but leads to flawed conclusions._

Empirical evidence is exactly what it says it is and mathematics is exactly
what it says it is. That's what makes them facts and mathematics. What you
_argue_ using those facts is completely different.

 _Austrians assert that the only way to empirically know a person's
preferences is through observing their choices._

No they don't. Because then they could collect data on these choices, produce
a model, and formally define it mathematically. This is the fundamental truth
of falsifiable systems.

 _There is no objective meaning to graphs that rely on the assumption that
people have these scales of numbers in their heads that say, "An apple is five
utils, a banana is ten." The only meaning comes from decisions - either you
prefer the apple to the banana, or you prefer the banana to the apple._

There are more systems of mathematics than ones based on continuous
distributions. Consider the following definition:

forall people, exists pref : (fruit, fruit) -> {-1, 1} st. forall a,b in fruit
=> pref(a,b)

This is math. This formally encodes your statement. This is the kind of thing
that Austrian economics should define and use. The fact that they don't is why
I don't take them seriously.

 _Austrians further assert that any macroeconomic model must be a result of
(or at least 100% consistent with) valid microeconomic principles. A
macroeconomic model which concludes something that is not explainable in terms
of human decisions is necessarily wrong._

So? I can both know that all quantum particles obey the Schrödinger wave
function in all atomic structures and be completely unable to derive the
properties of Si just from the wave construction of protons, electrons, and
neutrons. Just because we know microeconomic models doesn't make them useful
in a macroeconomic context.

------
bcl
This is an excellent book, and is also available as a pdf from here -
<http://www.fee.org/pdf/books/Economics_in_one_lesson.pdf>

I could swear there is a free kindle version someplace, but I can't find the
source at the moment. ETA: I was thinking of one of his other books "Thinking
as a Science" which is available from archive.org -
<http://www.archive.org/details/thinkingasascie00hazlgoog>

~~~
shrikant
In MOBI and EPUB formats for the Kindle and Sony e-readers:
[http://dl.dropbox.com/u/15497688/Hazlitt%2C%20Henry%20-%20Ec...](http://dl.dropbox.com/u/15497688/Hazlitt%2C%20Henry%20-%20Economics%20in%20One%20Lesson.zip)

~~~
marcamillion
How did you do this?

I have something (<http://boxerbiography.blogspot.com/>) I want to convert to
either Mobi or just a single page. I was thinking of writing a ruby script to
do it, but if there is an easier way, would love to know.

Thanks.

~~~
shrikant
TBH, I had this one lying around from a torrent I obtained someplace a while
back.

In general though, Calibre can handle conversion between various formats
(<http://calibre-ebook.com/>) - I use it to convert the odd HTML ebook to MOBI
for my Kindle with reasonably good results.

------
Symmetry
Worth reading, but I had a couple of quibbles.

First marginal tax rates tend to have less of an effect on how hard people
work than you might naively suppose when working from a simple economic model.
People are committed to lifestyles they want to maintain, and categories of
jobs often demand a certain minimum commitment, meaning people can't just
reduce their hours for less pay. A much strong effect is in people deciding
whether to spend time perusing more education or enter the workforce
immediately, since the extra years would be taxed mostly at low rates, whereas
the higher income from more education all comes at the top marginal rate.

Also, I'd point out that a mimimum wage law has less overhead than forming a
union, and so when the economy is at full employment it might be a genuinely
good idea - though still probably worse than, say, a negative income tax. In
our current circumstances, though, it really is about transferring money from
the really badly off to the sort of badly off (though the really badly off are
less likely to vote...).

------
srveit
I found "Wealth of Nations" by Adam Smith to be an excellent book. He explains
things very well. You can tell he has done extensive analyses to back up his
conclusions. Free on Gutenberg (<http://www.gutenberg.org/ebooks/3300>). I
actually listened to the recording on librivox.org (read by Stephen Escalera):

[http://librivox.org/the-wealth-of-nations-book-1-by-adam-
smi...](http://librivox.org/the-wealth-of-nations-book-1-by-adam-smith/)
<http://librivox.org/the-wealth-of-nations-book-2-and-3/>
[http://librivox.org/the-wealth-of-nations-book-4-by-adam-
smi...](http://librivox.org/the-wealth-of-nations-book-4-by-adam-smith/)
[http://librivox.org/the-wealth-of-nations-book-5-by-adam-
smi...](http://librivox.org/the-wealth-of-nations-book-5-by-adam-smith/)

~~~
hugh3
While the Wealth of Nations was a great book for its time, I suspect that the
time it takes to read it would be better spent reading four shorter economics
books.

I do recommend P. J. O'Rourke's book _On The Wealth Of Nations_ , though,
which summarises and discusses the whole thing in a hundred pages.

------
grandalf
This is an interesting book, but I think it's inferior to Friedman's
Capitalism and Freedom when it comes to illustrating the core concepts
underlying a free market viewpoint.

~~~
jes
Can you give an example to substantiate your claim?

~~~
grandalf
Friedman's approach is more scientific. He asks a lot of "Why?" questions to
begin his discussion of various issues. His approach always has the strong
feel of being scientific and falsifiable, and most importantly data driven.

Economics in One Lesson is also a good read, but to me it comes across as a
bit more dogmatic... the examples are a bit less falsifiable, etc. In general,
it's not the sort of book that is likely to be quite as convincing to a
skeptic as Friedman's.

C&F (unlike some of Friedman's other books) is very welcoming to those with
different ideas, and focuses on the goal of the discipline of economics and
does not get caught up in political issues. I found the opposite tone in "Free
to Choose", for example.

------
pohl
Economics is a subject I regrettably evaded throughout school. Now I find it
interesting, but I'm curious about how much of its edifice is built upon the
dubious notion of a "rational actor". That is: how much of economics would
remain if that assumption were swept away?

~~~
mixmax
This is a huge problem in macroeconomics - and for many years the profession
has just sort of looked the other way because they haven't had other good
models. This is beginning to change with the advance of subfields such as
behavioral economics where psychology is incorporated into the models.

The field was advanced tremendously by people like Daniel Kahneman who won the
Nobel prize in economics in 2002. The field of economics is being transformed,
but as with all big changes it takes time.

Kahnemans nobel prize lecture is worth watching if you want some insights into
how people are irrational in predictable ways:
[http://www.nobelprize.org/nobel_prizes/economics/laureates/2...](http://www.nobelprize.org/nobel_prizes/economics/laureates/2002/kahneman-
lecture.html)

~~~
Wilduck
While the assumption of rational actors is a problem in Macroeconomics, I
wouldn't go so far as to sat that it's a huge problem. Almost certainly the
larger problems of Macroeconomics are problems of endogeneity. Problems
associated with assuming rational actors are relegated to the definition of
Macroeconomic models. Very little work in economics is done by defining
models, but rather by analyzing data in the context of these models.

Problems of endogeneity [1] occur for many different reasons, but are present
(to some extent) in nearly every empirical macroeconomic study. They arise
whenever there is a circular dependency among the parameters you're trying to
measure (economic growth is dependent on education is dependent on economic
growth). While we do have statistical tools to help control for endogeneity
biases, like instrumental variable regressions [2], we often don't have enough
data points (we can only measure economic growth accurately for 100 some
countries for 60 some years).

All of this wouldn't be a problem if Macroeconomists could run controlled
experiments, but this isn't really possible for fairly obvious reasons (Good
luck convincing a country or three that they need to change how they run their
country to validate some economic model).

So sure, Macroeconomic models may be somewhat invalid because of assumptions
of rational actors, but I'd argue that Macroeconomists have looked the other
way, not because there wasn't anything better (as you've said, behavioral
economics is making a lot of advances) but because there were larger issues
that need to be addressed.

The Microeconomists and game theorists can work out the rational actor
problems.

[1] <http://en.wikipedia.org/wiki/Endogeneity_(economics)>

[2] <http://en.wikipedia.org/wiki/Instrumental_variable>

------
nickik
For those of you how are intressted in austrian economics. The Mises Institute
has lots of free stuff (books, audiobooks ....) online.

<http://media.mises.org/mp3/audiobooks/> www.mises.org

------
dpatru
Economics in One Lesson taught me "see" economics the way an painter sees a
landscape or a programmer sees a program. The painter and programmer see their
subjects with more understanding than the layman.

Intuitively, it seems obvious that interference with people's free economic
choices hurts the economy. Hazlitt helped me see why. The secret is to imagine
what the economy would be like without interference. What the interference
displaces.

After laying out the basic approach in the first chapter, Hazlitt spends the
rest of the book applying the principle to the various ways politicians tend
to interfere with economic freedom. He explains clearly, in basic English
anyone can understand, what each kind of interference changes what would
otherwise have happened.

So for example, Hazlitt starts with the broken window fallacy: that the
ruffian who breaks a shopkeeper's front window is really a public benefactor
because he gives employment to the glazier. Hazlitt explains that while the
glazier is benefited by the broken window, the overall economy is not,
because, had the window not been broken, then shopkeeper would have, not just
his window, but a new suit that he would have purchased but for having to pay
for the window. In short: When the window is broken, the shopkeeper ends up
with a new window and glazier ends up with some money. Had the window not been
broken, the shopkeeper still has his window but also has a new suit, and the
tailor has some money.

The broken window fallacy is still in use today by economists and politicians
who can sometimes be heard explaining that war, natural disasters, and other
calamities are good for the economy.

Hazlitt goes on from there to address the minimum wage, price controls, rent
control, government subsidies to various industries, etc. For each, Hazlitt
helped me see beyond the visible "winner", that such policies are designed to
help, to the unseen "losers": the workers who aren't employed and the projects
and industries that fail to develop as a result.

As a result of reading the book, I find it much easier to explain why certain
government programs are harmful.

------
conductrics
Economics in one word: Scarcity. The rest, is as they say, commentary.

------
algorithms
Well I'd argue that it is the same with good vs. bad doctors. The bad ones
just try to fix your symptoms while the good ones try to fix the underlying
problems. The bad ones can also be driven by selfish greed. If they "heal"
their patients, they don't need them as often and therefore they loose
potential money.

------
dxbydt
I must have read this book a hundred times, no kidding. It is a great book, or
rather, a great piece of writing. That said, it has nothing to do with
economics. It should really be titled 'Hazlitt in One Lesson.' This man, armed
with his rhetoric ammunition, is an absolute genius, and fells the members of
his community with brutal, ruthless precision. The book goes on the offensive
from the get go. From then on, its just hack, chop, thrust, pierce...quite
amazing actually. Each time I read it, I feel like I've witnessed a battle of
gladiators and in the end Hazlitt holds the lone sword thrust deeply into
Keynes' heart.

There have been and will be multitudes who will take on Keynes. Studying at
UChicago exposed me to the Lucas critique (
<http://en.wikipedia.org/wiki/Lucas_critique> ), in which Professor and Nobel
laurate Robert Lucas uses the "econometric models aren't policy-invariant"
device to bludgeon Keynesian thought. But then, that stuff is fairly deep,
mathematical, and ergo, boring. You'd have to know what econometrics is, and
what's policy invariant, and how changing the policy midstream will cause the
parameters of your underlying econometric model to alter and so on....not
exactly the sort of thing that'll charge you up. Hayek's critique of Keynesian
thought is again fairly deep and requires thought.

What works for Hazlitt is the general dumbness and idiocy of the reader. The
average reader of Hazlitt assumes that a nation is just like his house scaled
by a magnitude of a billion, so if he as a householder is able to live within
his means and balance his budget, the nation must also do the same, otherwise
the economic policies of the nation are bogus and the economists are
incompetent frauds. This is the same sort of reader who consumes pop-science.
The same reader who thinks multivariable calculus is just high school
arithmetic scaled by a million, and that graduate students working on real
algebra in their 20s are really solving quadratic equations of the ax^2+bx+c
type he solved in his teens, just with bigger numbers! You can't reason with
such people. Or maybe you can, but I can't. So whenever I meet people who are
taken with Hazlitt, I first check if they like Hazlitt as a sarcastic comic
book or whether they actually believe everything they've read. If its the
latter, I slowly back away and run for the hills.

One of the threads above says Hazlitt isn't out to educate you, rather he's
out to convert you. I think it is neither. Hazlitt is pure comedy gold. He is
out to entertain you, but he is so subtle and underplayed most readers
interpret his antics literally and walk around chanting "The Broken Window
Fallacy" as if it is some mathematical theorem. To actually think "the most
important lesson about economics is: One must consider not just what is seen,
but also unseen." is incredibly naive, plain silly and quite stupid, to be
blunt. If that is all what economics was about, why, we'd all get our
doctorates in econ and our Nobel too for that matter.

"One must consider not just what is seen, but also unseen" is just as
vacuously empty as "good begets good" or "haste makes waste" or other catchy
platitudes. You can spin these things to mean just about whatever you want. To
say that's the most important lesson econ has to offer...Ha!

~~~
dpatru
Wow! You're very smart. You know multivariate calculus (which is much more
complicated than solving quadratic equations) and the Lucas critique. You went
to Chicago.

You're much smarter than the average reader of Hazlitt, who is dumb and
idiotic, so much beneath you that you can't reason with them, so you prefer to
slowly back away and run for the hills.

Hazlitt is an absolute genius but at the same time incredibly naive, plain
silly, and quite stupid, to be blunt. His main lesson is also vacuously empty.
You read his book a hundred times.

Thanks for the helpful post. I'm convinced. There's no need to get into
specifics as to where specifically Hazlitt went awry.

------
ajuc
The problem with considering long term effects and indirect consequences is -
it's hard, and often there's no way to know for sure what the consequences
will be.

If we have 2 opposite effects going on, and one school of economics says this
one will be more powerful, and the other says the other one will be more
powerful, and there's no way to know who is right, then how can we expect
people to consider these effects, if people don't know what the efects will
be.

Short term effects are mostly obvious. Long term effects are harder to
predict, and people suck at estimating probabilities. So it's easier to ignore
the long term effects altogether.

------
snitko
One important thing I got from this book is that we should judge economic
policies not for the intentions they mean, but for the incentives they create.

I read a few (not too much, probably) books on economy both from the left and
the right wing economists. An especially interesting turned out to be this
one: [http://www.amazon.com/Basic-Economics-4th-Ed-
Economy/dp/0465...](http://www.amazon.com/Basic-Economics-4th-Ed-
Economy/dp/0465022529/) (lots of interesting facts in it, valuable even if you
disagree with the point of view). I don't have any strong opinion about which
side comes closer to the truth, but so far free market economists seemed to
have much better arguments and be more convincing.

The reason many people disagree with certain economic policies and favor
others are usually quite obvious: it's less riskier than dealing with the
unfavorable policy. Human nature is to try to resist radical changes, such as
looking for a better job or taking risks of starting your own company or, in
general, investing time or money in your own welfare. Thus, the poor would
prefer to stay where they are and let the government do the job of taking them
out of poverty slowly, by asking rich to pay more taxes, because it is less
riskier than acting on their lives themselves. The rich don't want to be
moving their assets elsewhere or invest in enterprises outside their usual
boundaries, because it is riskier than actually lobbying for the tax breaks.
The real question is not who is currently oppressed or "made" poor, but rather
what the intended policies, be it tax breaks for the rich or their
abolishment, do to help those oppressed.

My guess is that government getting more tax money will not necessarily put
them to work effectively, because by definition government is less effective
than businesses. It has no incentives to be so. One might say, that it's still
better than rich holding all the money to themselves creating no jobs at all.
Maybe, and maybe not. Would the society really benefit if the government took
the money from the rich and waste them on creating artificial jobs the country
doesn't really need, or, would it be better if the rich kept the money to
themselves up until the time they could see the opportunity to spend it
effectively, creating the jobs that the economy as a whole really needs?

------
10101001
econ in one lesson comprising 6 slides:

1\. people are animals and are part of the animal kingdom.

2\. animals have basic resource needs.

3\. e.g. people need food, water, shelter, safety and the company of other
people.

4\. the struggle to meet those basic needs in the face of competition from
other animals, e.g. other people, is called economics. this is the "one true
economics". it is not simply an idea in the mind of man. it is a physical
reality observed throughout the animal world.

5\. once people's basic resource needs have been met, they attempt to
"explain" the one true economics, often in more complex terms, despite the
absolute clarity of the one true economics. this is also called "economics"
and is subdivided into many different ideas and ways of thinking.

6\. if people's resource needs are not met as in slide 5., they cannot reach
the thinking referred to in slide 5. they will only ever know and understand
the one true economics.

------
rufibarbatus
(Full disclosure: Economics and Pol.Sci. major here.)

One Daniel Hausman, introducing Cambridge's _Philosophy of Economics_ [1]
anthology edited by him:

    
    
      > > Premises assumed without evidence, or in spite of it;
      > > and conclusions drawn from them so logically, that
      > > they must necessarily be erroneous.
      > > – Thomas Love Peacock, Crochet Castle
      > 
      > Ever since its eighteenth-century inception, the science 
      > of economics has been methodologically controversial. Even 
      > during the ﬁrst half of the nineteenth century, when 
      > economics enjoyed great prestige, there were skeptics like 
      > Peacock. For economics is a peculiar science. Many of its 
      > premises are platitudes such as "Individuals can rank 
      > alternatives" or "Individuals choose what they most 
      > prefer." Other premises are simpliﬁcations such as 
      > "Commodities are inﬁnitely divisible," or "Individuals 
      > have perfect information." On such platitudes and 
      > simpliﬁcations, such "premises assumed without evidence, 
      > or in spite of it," economists have erected a 
      > mathematically sophistical theoretical ediﬁce, whose 
      > conclusions, although certainly not "necessarily 
      > erroneous," are nevertheless often off the mark. Yet 
      > businesses, unions, and governments employ thousands of 
      > economists and rely on them to estimate the consequences 
      > of policies. Is economics a science or isn’t it?
    

A theory in human sciences will be as persuasive as its postulates are
verisimilar. Many schools of economics have encoded such verisimilar
postulates into hosts of mathematical formulas and derivations which only add
to the overall appearance of soundness.

To guard yourself against accidentally lending these postulates too much
credit, I think the best technique has been described by an economist [2]:

    
    
      > So in answer to the current question I am proposing that 
      > we now change the usage of the word Aether, using the old 
      > spelling, since there is no need for a term that refers to 
      > something that does not exist. Instead, I suggest we use 
      > that term to describe the role of any free parameter used 
      > in a similar way: that is, Aether is the thing that makes 
      > my theory work. [...]
      >
      > Aether variables are extremely common in my own field of 
      > economics. Utility is the thing you must be maximizing in 
      > order to render your choice rational.
      > 
      > Both risk and risk aversion are concepts that were once 
      > well defined, but are now in danger of becoming 
      > Aetherized. Stocks that earn surprisingly high returns are 
      > labeled as risky, because in the theory, excess returns 
      > must be accompanied by higher risk. If, inconveniently, 
      > the traditional measures of risk such as variance or 
      > covariance with the market are not high, then the 
      > Aetherists tell us there must be some other risk; we just 
      > don't know what it is.
    

That book has some rhetorical elegance, and it certainly hides away is Aether,
but if you look at it closely (and really, the chapters aren't so long that
you'd be wasting time to read a couple), and try to substitute Aether for
whatever hasn't been argued for or scientifically established (and that is _a
fine exercise in reading_ ), you'll see there are a lot of holes in the
reasoning which you may or may not be willing to invest your beliefs into.

[1] isbn:0521709849

[2] [http://edge.org/responses/what-scientific-concept-would-
impr...](http://edge.org/responses/what-scientific-concept-would-improve-
everybodys-cognitive-toolkit#descshort_1689)

~~~
dpatru
Of course we should all read critically. We already know that. Is there
anything in particular that you think Hazlitt got wrong?

~~~
rufibarbatus
From his Minimum Wage chapter [1]:

    
    
      > It is unfortunate for clarity of economic thinking that 
      > the price of labor’s services should have received an 
      > entirely different name from other prices. This has 
      > prevented most people from recognizing that the same 
      > principles govern both.
    

If a given theory treats wages as merely prices, and ascribe them no role in
the theoretical model other than that of a price of labour, then it's
perfectly reasonable to protest or at least question their getting a special
name.

But he gets everything wrong in his second sentence. There's a word for wages
as opposed to prices because of how language evolved: put simply, we
intuitively perceived wages as something different from prices and felt the
need to give them a name of their own. This has nothing to do with science.

So in fact, when we're confronted with a theory where two concepts turn out to
be the same thing, that can mean one of two things:

\- IF the theory is sound, and grounded on enough evidence as to demonstrate
that our intuitive perception was wrong all along, THEN indeed wages are no
more and no less than prices. That would be an "aha" moment worth a prize or
something.

\- ELSE, if the theory isn't sound enough, or doesn't have enough evidence as
to defend the notion that wages are merely prices, THEN we're forced to
conclude that the theory is merely construing that, and opt-into that belief
at our own discretion.

So far we see no theory, so his argument that the two names have "prevented
most people from recognizing that the same principles govern both" wages and
prices has no meaning whatsoever. And where is his theory? Nowhere to be seen,
he's using some commonsense assumptions about prices [2], but he doesn't
establish anything scientific enough to defend the ambitious notion that wages
are no more and no less than prices. In fact, whenever he applies those vague
notions he has of prices to wages, he's begging the question that this
gratuitous cross-application of concepts is sound.

Now, since the whole chapter is based on an assumption which the author fails
to defend and the application of that assumption to a number of discrete case
studies which don't paint the whole picture of what happens once a minimum
wage is established (betraying also the much defensible premise of the entire
book that we should look at all the consequences of policies to all groups of
people through all time)... then I can only assume that the whole chapter is
scientifically worthless, and whatever resonates with me in it has to do with
my ideologies and not with evidence or soundness of reason.

[1] <http://steshaw.org/economics-in-one-lesson/chap19p1.html>

[2] Which might as well not hold against evidence on their own, come to think
of it.

EDITED for clarity (as this is a long comment), added a new thought as
footnote #2.

~~~
dpatru
I think that the words price, wage, rate, cost, expense, income, sales,
purchases, etc may all denote the same thing from different perspectives.

Price is used when are interested mainly in the amount especially with respect
to other things. So if a programming firm contracts with a client to do work,
the contract may talk in terms of the generic _price_. But the individual
programmers doing the work think in terms of _wages._ And those wages may be a
_cost_ or _expense_ to the firm's owners, who also think in terms of _rates_ ,
_income_ , and _sales_ while the client considers the programming as a
_purchase_.

The term _price_ in particular emphasizes the fact that there are options as
to how to spend money. For example, a auto company can hire workers directly,
in which case it pays wages. Or it can outsource, paying another company a
_rate_ for the labor, or it can just buy the finished parts. It makes sense to
compare the different options as prices.

Certainly wages are considered as prices when it comes to automation
decisions. What is price of wages and associated expense versus the price of
the robot?

This (treating wages as prices) seems like such a basic concept that the
burden is on the person who wants to treat wages as different from prices to
explain why wages are or should be different.

------
zzzeek
its like the dianetics of economics

------
jbooth
Business in one lesson:

Anyone who claims to have all the answers wrapped up in one neat lesson,
probably doesn't.

------
mkramlich
read like an attack piece and/or propaganda. i saw lots of glaring flaws in
his economic philosophy/understanding. i sense a recent trend on HN where
we're getting more Fox News style low-brow econo-propaganda. I hope it ends.

