Chapter 1 - The Lesson

The book has three parts. Part 1, which is also the first chapter of the book presents the summary of economics in just one sentence. It's amazing how the whole of economics can be captured in a single statement:

"The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups" (p. 5).

Other lessons that can be gleaned from the first chapter include the following:

1. The nature of the study of economics

"Economics is haunted by more fallacies than any other study known to man" (p.3).

2. Reasons for the existence of numerous economic fallacies

• Due to the existence of selfish interests

• Due to "the persistent tendency of men to see only the immediate effects of a given policy, or its effects only on a special group, and to neglect to inquire what the long-run effects of that policy will be not only on that special group but on all groups" (p. 4).

3. The strategy in spreading economic fallacies

"It will hire the best buyable minds to devote their whole time to presenting its case. And it will finally either convince the general public that its case is sound, or so befuddle it that clear thinking on the subject becomes next to impossible" (p.3).

4. The distinction between bad and good economists

"The bad economist sees only what immediately strikes the eye; the good economist also looks beyond. The bad economist sees only the direct consequences of a proposed course; the good economist looks also at the longer and indirect consequences. The bad economists sees only what the effect of a given policy has been or will be on one particular group; the good economist inquires also what the effect of the policy will be on all groups" (p. 4).

5. The absence of common sense in public economics and the celebration of economic fallacies as wisdom

"Doesn't everybody  know, in his personal life, that there are all sorts of indulgences delightful at the moment but disastrous in the end? Doesn't every little boy know that if he eats enough candy he will get sick? 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?...do not the idler and the spendthrift know, even in the midst of their glorious fling, that they are heading for a future of debt and poverty?" (p.4).


"Yet when we enter the field of public economics, these elementary truths are ignored. There are men regarded today as brilliant economists, who deprecate saving and recommend squandering on a national scale as the way of economic salvation;...And such shallow wisecracks pass as devastating epigrams and the ripest wisdom" (pp.4-5).

6. The result of ignoring long-term consequences


"...we are already suffering the long-run consequences of the policies of the remote or recent past. Today is already the tomorrow which the bad economist yesterday urged us to ignore...But in every case those long-run consequences are contained in the policy as surely as the hen was in the egg, the flower in the seed" (p.5).

7. The most frequent economic fallacy


"The most frequent fallacy by far today, the fallacy that emerges again and again in nearly every conversation that touches on economic affairs, the error of a thousand political speeches, the central sophism of the 'new' economics, is to concentrate on the short-run effects of policies on special groups and to ignore or belittle the long-run effects on the community as a whole" (p.6).

8. The repetition of the error of 17th century mercantilism


"They are sometimes surprised to find themselves in accord with seventeenth-century mercantilism. They fall, in fact, into all the ancient errors...that the classical economists, we had hoped, had once for all got rid of" (p.7).

9. The reason for the popularity of bad economists


"The reason is that the demagogues and bad economists are presenting half-truths...But to consider all the chief effects of a proposed course on everybody often requires a long, complicated, and dull chain of reasoning. Most of the audience finds this chain of reasoning difficult to follow and soon becomes bored and inattentive" (p.7).

Personal Remark

Recapitulating the insights I gathered from the first chapter, I see several interrelated causes for the perpetuation of economic fallacies. They include the difficulty of understanding sound economics due to its tight reasoning, the influence of special interest groups, human inclination to see immediate results, the subtlety of professional economists to sell half-truths, the setting aside of common sense in public economics and the refusal to see the long-term effects of a particular economic policy. I expect to see a detailed content of all these causes as I continue digesting the book.