Paul Samuelson’s Hazlittian Origins

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Henry Hazlitt’s influence is easily seen in Austrian and other free-market circles. Reminiscent of the saying “It usually begins with Ayn Rand,” Hazlitt’s Economics in One Lesson is usually one of the first economics books free-market economists pick up and truly absorb. But Hazlitt’s influence is even greater than this. His newspaper columns for the New York Times and Newsweek brought sound economic logic to many of the day’s issues in his lengthy career as a journalist.

Even more impressive, though, is his influence on the economic profession. As Peter Boettke notes in a new working paper he will present at this year’s History of Political Economy conference, “The Economist as Public Intellectual,” Hazlitt’s work was read and taken seriously by the economics profession through most of his career. Even as a journalist he was able to get his many books on economics reviewed in distinguished journals such as the American Economic Review, Journal of Political Economy, and Ethics. And while they may not have always agreed with him, reviewers treated his ideas in a serious and respectful way.

Hazlitt’s articles also found their way into college classrooms. One interesting example comes from a September 15, 1966, letter to Hazlitt from economist Paul Samuelson (hat tip: Peter Boettke and Liya Palagashvili). In the letter Samuelson notes that an article by Hazlitt (he forgets exactly which one) was assigned in his early undergraduate studies at the University of Chicago and that article convinced him to go into economics. Samuelson of course went on to become one of the most influential Keynesian economists, which makes this a surprising origin indeed. And as a prominent critic of Keynesian ideas, Hazlitt must have wondered exactly where Samuelson went wrong.

We Want to do Nothing You Say?

Recently New York University economist and FEE summer seminar faculty, Claudia Williamson, gave a talk to the George Mason University Economics Society, cosponsored with the Future Freedom Foundation, on “The Trouble with Aid.” Williamson’s answer was simple, “We give it.” Of course she went on to give a lengthy and empirically supported explanation for why foreign aid fails and should not be given. Still, in the Q&A the question naturally came up: “What should we do then?”

To most this question is reasonable, but it really shouldn’t be. Williamson’s talk centered on a means-end framework, which showed that foreign aid not only has not achieved its stated ends but may also have actually caused more harm than good. We can also see empirically that countries which have institutions that promote market interactions tend to be much wealthier than less market-oriented countries. (Thus breaking the so-called vicious circle of poverty is a matter of getting the institutions right.) Sadly, however, this is all too often interpreted as, “So we should do nothing?” Or to put it as Leonard E. Read’s put in Cliché of Socialism Number 31, “If the government doesn’t relieve distress, who will?”

The market solution is not a do-nothing approach. It replaces a failed centrally planned approach (governments giving aid to developing countries) with a decentralized array of plans of many individuals. Rather than doing the same thing over and over again and expecting a different result (Einstein’s definition of insanity, by the way), we need to abandon the idea that aid is the only solution.

By eliminating aid and allowing any individual to attempt to help in his or her own way, we allow entrepreneurial individuals the chance to create real change. As Read put it, “There is no way to determine in advance who that pioneer might be?” But by allowing for more plans rather than the narrow, let-government-do-it approach, we increase the likelihood of success. This is what economist William Easterly refers to as seekers versus planners. The planners big push for aid projects has failed for well over 50 years. Maybe it is time we eliminated aid and allowed the seekers the chance to provide the relief we are all searching for.

Did Henry Hazlitt Have a Crystal Ball?

When the recent global financial crisis hit, few people, even amongst economists, saw it coming — except among Austrian economists, many of whom for years warned of the impending burst of the housing bubble. This didn’t happen only in recent years. Henry Hazlitt saw inflation affecting the housing market as far back as at least 1946 in his classic, Economics in One Lesson, and again in a July 24, 1950, Newsweek article titled “The Inflation in Housing.”

So was Hazlitt some sort of oracle? Of course he wasn’t. The explanation should be far more obvious than it is. Austrian economics provides a theory that correlates to reality quite well. When the government turns those darn printing presses on and expands the money supply, that new money must enter the economy somehow. And where it does enter the economy, entrepreneurs see an expansion of loanable funds and are able to start new long-term investment projects. The problem, however, is that these projects do not actually reflect demand, and so resources are being allocated to the wrong place. Once this is figured out, the bust occurs as the market scrambles to reallocate the resources to where consumers most want them, which takes time. Government creates the problem in other ways, such as passing laws forcing banks to loan to individuals with weak or bad credit histories.

So rather than Hazlitt and other Austrians divination, the sad reality is the government policy is predictable. Armed with Austrian economics, Hazlitt understood this well.

For the copy of the original document click here.

Obama’s “Accommodation” on Contraception

President Obama tells us that through his “accommodation” on the contraception controversy he’s avoided “choos[ing] between individual liberty and basic fairness for all Americans.” How so? By ordering insurance companies to give away birth control pills.

Honesty Is Not the Best Political Policy

An honest statist would just say: “Let’s have the government levy a tax on men to pay for women’s birth control.” The transfer program wouldn’t be buried in the employer-based insurance system. It would be open for all to see — which is why it’s not done that way.

Pondering the Imponderable about Contraception

If Woman A pays for Woman B’s birth control and Woman B pays for Woman A’s birth control, does each get free birth control?

Yesterday’s and Today’s Attacks on Government Censorship

Recently many popular websites went black to fight the proposed SOPA and PIPA bills. Fighting censorship, however, is nothing new. Today’s document is a short story in Newsweek from August 5, 1948, that tells of the role Newsweek book editor Karl Schriftgiesser played in H. L. Mencken’s 1926 arrest for selling a banned issue of his magazine, The American Mercury. From the late nineteenth until the mid-twentieth century written works, movies, and plays could be censored in Boston for containing “objectionable” content. Unlike the recent Internet blackout, Mencken’s and Schriftgiesser’s protest had little effect on the censorship policies.

There are of course differences in between the proposed Internet bills and the “banned-in-Boston” law. In Boston officials were legislating morality, while the stated purpose of SOPA and PIPA is geared toward protection of intellectual property. There are, however, two major similarities. Both attempt to stop the free flow of ideas. Subjectively we are better off if we can read the works and information that we want, but a few individuals want to erect barriers to people’s access. Which leads to the second similarity: the use of the State to impose such censorship.

The free flow of ideas has played a large part in our prosperity. Government censorship inhibits our ability to reap the rewards from the information age. Even if you find certain content questionable or believe ideas are intellectual property (though I find it hard to call something with no scarcity “property”), we should question the use of the State to stop the flow of these ideas. It might just be a Pandora’s box that could unleash more trouble than even the defenders of copyright wish.

Download the Newsweek story of H. L. Mencken’s censorship protest here.

The Naughty Mr. Hazlitt

In digging through the archives at the Foundation for Economic Education, one comes across a variety of correspondences, from the friendly to the boring and from the hostile to the downright amusing. Today’s document is a correspondence between Henry Hazlitt and a Major L.L.B. Angas. Hazlitt and Angas disagreed about the merit and viability of the gold standard, and in a letter dated August 9, 1962, Major Angas apparently gives up on converting Hazlitt on how wrong the gold standard is. He even said of Hazlitt, “You are very naughty.”

Hazlitt’s response on August 17, 1962, was polite and humorous, as he calls hearing from Major Angas pleasant, “especially when … accompanied by such kind personal words.” This was a common strategy by those associated with FEE. They always took the high ground and were nice to even the most hostile (and even to those who were completely wrong). This was part of the strategy to spread liberty. As Herbert Spencer once said, “It takes varied reiterations to force alien concepts upon reluctant minds.” And if we are going to get others to hear varied reiterations of our ideas, we must keep the dialogue open. That’s what Hazlitt was doing.

Download the Hazlitt-Angas August 1962 correspondence here.

Contra-IP

My article “Patent Nonsense,” which makes the libertarian case against “intellectual property,” was published and posted by The American Conservative magazine. Read it here.

We’re the Economy They Want to Manage

In his State of the Union speech President Obama said:

Tonight, I want to . . . lay out a blueprint for an economy that’s built to last. . . .

Considering that an economy (a free one, that is) is just people engaging in exchanges for mutual benefit, it defies blueprinting, which sounds ominously like central planning. The last thing an economy needs is an architect, especially one with the legal power to use aggressive force.