Abstract
This essay analyzes Hazlitt’s Economics in One Lesson and centers on two themes. First, Hazlitt’s “One lesson” provides a thorough application of counterfactual analysis as developed by Hülsmann (2003, 57-102) to various economic matters. In relating the factual to its counterfactual alternatives, Hazlitt points to those effects of an event that are not seen since they remain unrealized. He applies these principles particularly to government policies, highlighting the opportunity costs of interventionism and government spending. Second, Hazlitt deals with the misconceptions of the “Keynesian Revolution” which heavily influence modern macroeconomics. He points out that these are mostly rehashed fallacies that have already been debunked by the Classical economists. Thereby, Hazlitt highlights the common opposition of Classical and Austrian economics towards the Keynesian Revolution.
Introduction
Henry Hazlitt is a key figure in Austrian economics. While some of the Austrian economists, such as Hayek, already left Austria in the early 1930s, it was essentially due to the “Anschluss” to Nazi-Germany in 1938 that the Austrian School ceased to exist in Austria. After Mises fled the Nazis from Geneva to the US in 1940, Hazlitt played a crucial role in establishing Mises in the US and spreading his ideas to a broad audience, laying the foundations for the Austrian Revival in the 1970s.
Hazlitt was an economic journalist, staunchly defending free-market principles. In his columns for various different newspapers, most notably the New York Times and Newsweek, he criticized the then fashionable ideas of interventionism such as the New Deal or the system of Bretton Woods, which often got him into conflicts with his employers (Tucker 1999, 167-179).
After Hazlitt had written an enthusiastic review of Mises classic Socialism, there was already a brief correspondence between the two when Mises was still in Geneva. As Margit von Mises (1976, 63-64, 90, 103-106) emphasizes, Hazlitt became one of the key figures in Mises’s life after he arrived in New York. Hazlitt, well aware of the tough situation Mises was in in his first years in the US, played a crucial role in getting Mises established in the new environment. Apart from the close personal relationship they formed, Hazlitt connected Mises to American libertarians, supported Mises in receiving funding, and helped with publishing Mises work, most notably Human Action.
Hazlitt was equally important in spreading Mises’s ideas. Throughout his countless publications, Hazlitt made Mises’s insights accessible to a popular audience. In 1946, Hazlitt (2015) published his most influential book, Economics in One Lesson. Selling over a million copies, it is one of the most popular books on economics ever written. Hazlitt’s “One Lesson” is a resolute defence of an unhampered free market in all its dimensions. He dismantles all the various forms of interventionism, such as government spending and taxation, protectionism, price controls, minimum wages or inflationism. Most importantly, he did so in a way easily accessible to a popular audience leading to the book’s great success. As Sennholz (1993, 3) puts it, Hazlitt “wrote as the common people speak, but thought as wise men do.”
While Hazlitt deals with a great variety of issues, the following essay centers on two general themes. First, Hazlitt’s Economics in One Lesson illustrates the role of the counterfactual in economics. While the theory of counterfactual analysis has only been developed much later, most notably by Hülsmann (2003, 57-102), Hazlitt consistently applied it throughout most parts of the book. Stressing that a good economist must also look at the unseen effect, while a bad economist only looks at those effects, which are seen, Hazlitt relates the visible parts of human action, the factual, to its counterfactual alternatives, that have not been realized. Of course, credit must also be given to Frederic Bastiat’s (2007, 1-48), “That which is seen and that which is not seen,” which developed a very similar approach, serving as an inspiration for Hazlitt.
Second, Hazlitt’s lesson highlights the continuities between the Classical and Austrian economists, whereas the Keynesian revolution led to a departure of modern macroeconomics from the teachings of the Classicals. While Austrian economics can be regarded as a continuation of Classical Economics, Keynes explicitly attacked and aimed at overthrowing them (Israel/Hülsmann 2019, 536-542). Hazlitt himself is undoubtedly an Austrian, heavily influenced by Mises who actually refereed his “One lesson” as Hazlitt (2015, 16) states in his preface. Yet, most Classical economists had a similar understanding of the issues Hazlitt deals with, while Keynes and his followers understood many of them very differently and are thus subject to Hazlitt’s criticism. Therefore, Economics in One Lesson illustrates the common opposition of Classical and Austrian economics towards the Keynesian revolution.
Counterfactual Analysis
Hülsmann (2003, 57-102) points out that a large subset of economic laws are counterfactual in their nature, that is, they are dealing with the relationship of how people actually act and how they could have acted instead. Therefore, human action consists of actions that are realized and such that are unrealized and counterfactual analysis is concerned with comparing the observed choices of human beings with alternative choices that remain unseen.
Thus, the bulk of economic laws explain relationships within choice and although the unrealized choices are not existent they still are in a fundamental relationship with the visible parts of human action. For instance, we can say that one considers the action one pursues more important than alternative, unrealized actions. According to Hülsmann (2003, 71) economic science is about “relating the seen and the unseen of a choice to one another” and explaining “what really exists by comparing it to what could have existed instead.”
Therefore, economic laws are not concerned with relationships between the visible outcomes of human action. They are not dealing with how changes in one observable variable lead to changes in another (Hülsmann 2003, 64-69). This is due to the fact that, contrary to the natural sciences, there are no constant relationships between magnitudes in human action. For instance, if one measures the elasticity of demand for a good at a particular time and place he has not established any economic law but rather a unique historical fact (Mises 1998, 55-56). If there are no constancies, however, that is, relations that can be generalized beyond the individual case, we cannot speak of “economic laws” (Hülsmann 2003, 58-60).
Mises (1998, 55) points to the quantity theory of money, in its crudest form, as one of the first cases where economists had tried to establish such a constant relationship. It states that an increase in the money supply must lead to a proportionate increase in money prices. Importantly, even a weaker statement, such as an increase in the money supply must be followed by an increase in money prices cannot be made (Israel/Hülsmann 2019, 547). After all, there are cases of an increasing money supply and stable or decreasing prices. For example, an increase in the money supply could be offset by an increase in the demand for money. It is worth noting, however, that in such a case the effects of the changes in the supply of and the demand for money do not cancel out, rather they are added up (Mises 1998, 414).
Instead an increase in the money supply is the cause of a counterfactual relationship between the realized money prices on the market and those money prices that would have been established had it not been for the increasing money supply (Hülsmann 2003, 86). An increase in the money supply means that the money stock of some individuals increase. As Mises (2009, 139) puts it, “they have a relative superfluity of money and a relative shortage of other economic goods. The immediate consequence […] is that the marginal utility […] of the monetary unit diminishes.” Therefore, they spend more money than they otherwise would have spent, increasing the money balance of others, who again spend more than they would have giving rise to increases in most money prices (Hülsmann 2003, 92). Thus, the above statement on the relation between the money supply and money prices ought to be reformulated to “an increase in the money supply leads to prices being higher than they would have been otherwise1” (Israel/Hülsmann 2019, 547).
It is also worth pointing out that counterfactual analysis does not depend on the behavior of other factors not explicitly considered. It does not matter how they change throughout time and how they influence human action (Hülsmann 2003, 74-75). For instance, increasing the money supply leads to higher prices than otherwise, regardless of how the demand for money or the supply of goods changes.
Therefore, stating “than otherwise” is much broader than the traditional ceteris paribus, as it does not make the assumption of other factors remaining constant (Hülsmann 2003, 74). It should be noted, however, that Stringham and Gonzales (2009, 9) consider the ceteris paribus clause to be more accurate, while Machaj (2012, 443-455) and similarly Long (2006, 13) approve of stating laws in counterfactual terms but argue that they must be reconciled with a softer ceteris paribus concept. Hülsmann (2003, 77) and Bauwens (2017, 366-372) state that no such additional qualification is needed.1 Most of the arguments deal with the special case of other factors being endogenous to the one that is analyzed, rather than the general principle outlined here. Thus, they are beyond the scope of this essay.
The great French proto-Austrian Frederic Bastiat can probably be considered to be the first to consistently apply counterfactual analysis in his famous essay, “That which is seen and that which is not seen” (Hülsmann 2001, 65-67). Bastiat (2007, 1) famously argues that a bad economist only takes the seen effects of an act into account, whereas a good economist also considers those effects that are not immediately visible. While Bastiat (2007, 1-48) contrasts what is seen with what is not seen, that is, relating the factual to the counterfactual, throughout the whole essay, the most famous part is the first chapter where he introduces the general principle through a tale of a broken window, which became known as the “Broken Window Fallacy.”
The story Bastiat (2007, 2-4) tells is about a shopkeeper, whose son breaks a pane of glass. This will lead people to state that while the broken glass is a shame for the shopkeeper, it is good for the economy as it generates additional income for the glazier. This is the seen effect. The shopkeeper, however, now has less money to spend. If it wasn’t for the broken window, he would have spent that money on something else, perhaps on a new pair of shoes, generating income for the shoemaker. This is what is not seen, the counterfactual alternative to the boy smashing the glass. Moreover, if the shopkeeper’s window is broken, after spending the money on the glazier he ends up with a window again. Had it not been broken, however, the shopkeeper would have ended up with the window and a new pair of shoes.
“That which is seen and that which is not seen” was undoubtedly the single biggest influence on Hazlitt’s Economics in One Lesson. After all, Hazlitt (2015, 14) himself states in his preface that his “One Lesson” might be considered to be a modernization, extension, and generalization of Bastiat’s approach. Therefore, Hazlitt (2015, 27-28) also introduces the general principle of contrasting the visible effects of an act with those that remain invisible through the broken window fallacy. He then, just as Bastiat, moves on to apply this “lesson” to several other cases.
It should perhaps be noted, however, that neither Bastiat (2007, 1-2) nor Hazlitt (2015, 19-23) explicitly qualify their analysis as counterfactual. Rather than factual and counterfactual, they refer to the distinctions they talk about as short-run versus long-run or as effects on particular groups versus effects on all groups. Nevertheless, throughout large parts of their work, they are indeed concerned with explaining the factual in terms of the counterfactual (Hülsmann 2001, 65-67).
Hazlitt (2015, 29-35) then expands the broken window fallacy to destruction on a larger scale, such as through a war. Here again people might argue that the necessity and the demand to rebuild after a war stimulates some industries such as the construction industry which again is true to the extent that the construction industry would generate an additional income they would not have otherwise. Yet again, demand has merely shifted. Had it not been for the destruction, people could have spent their money on other things generating income in the respective industries. Therefore, factors of production are shifted towards reconstruction and hence they are not employed in other sectors producing additional goods as they would have without the destruction. Thus, again due to the destruction, society ends up with fewer goods than it would have otherwise.
Hülsmann (2003, 88-89) hints at the great practical importance of counterfactual comparisons with regard to policy issues. Large parts of Hazlitt’s “lesson” are concerned with such matters. A simple example of a counterfactual economic law on policies that Hazlitt (2015, 44-47) deals with regards taxation. Businesses and individuals will invest less if taxes are increased than they would have otherwise.
Other cases Hazlitt brings up regard government spending and its opportunity costs. A popular idea is to create employment through public works. While Hazlitt (2015, 36- 43) argues that some public works might be justified on the basis of their utility, public works are often seen as a means to create jobs. For instance, the government might build a new road and thereby create hundreds of new jobs. Therefore, the visible effect is that hundreds of workers are employed there and thus, they benefit from the government program. However, the government must have taxed people in order to pay for the road. These people now have less money to spend on other goods. Therefore, jobs in these sectors will be destroyed or they will not be created. Thus, public works indeed create more jobs for some workers but also reduce jobs for workers in other sectors compared to a situation without the government programs.
Moreover, the visible effect of public works is that something new is created, in this case a road. Indeed, that road would not be there without the government building it. What is often missed, however, is that the factors of production could have been employed for other products, which consumers actually demand. The creation of these other products is the counterfactual alternative that is not seen (Hazlitt 2015, 39-43).
Similar arguments apply to the case of bureaucrats. Here, Hazlitt (2015, 79-82) adds that people often argue that they should not be fired because that would also reduce their purchasing power. Therefore, the industries whose products the bureaucrats demand would suffer. Yet again, what is not seen is that if taxpayers would not be forced to pay the bureaucrats their purchasing power would be higher, creating new employment opportunities in other sectors. Moreover, if the bureaucrats would be employed in the private sector they would create products consumers demand, thus there would be more goods available to society.
Classical & Austrian Economics vs. the “New Economics”
Carl Menger’s “Grundsätze der Volkswirthschaftslehre” (1871) is undoubtedly the foundational work of the Austrian School of Economics. Yet, in a broader sense, Austrian economics can be seen as a continuation of the works of the classical economists (Israel/Hülsmann 2019, 536-539). These continuities were, among others, pointed out by Peter Boettke in his concept of “Mainline Economics” (Boettke/Haeffele-Balch/Storr 2016, 1-9).
Menger himself appreciated the Classical economists, their emphasis on the universality of economic law, and their understanding of market mechanisms established through the laws of supply and demand. It was their underlying theory of value that he considered to be unsatisfying which he aimed to rebuild, thereby founding the Austrian school (Salerno 1999, 76-82).
Modern mainstream economics, however, can be conceptualized as “new economics” as it has substantially departed from some fundamental understandings of the Classical economists. First, positivism has become the dominant method in modern economics. Second, the Keynesian revolution, which explicitly attacked Classical economics, has been enormously influential for modern macroeconomics (Israel/Hülsmann 2019, 541-542).
Hazlitt’s “One lesson” illustrates this very well. Hazlitt (2015, 13-23), himself an Austrian, defends the Classical economist’s insights against Keynes’s “New Economics,” describing the latter as often merely rehashing old fallacies that had already been refuted by the Classicals. He then goes on dismantling these fallacies case by case throughout the book. Hazlitt (2007) later discussed Keynesianism in more detail in his most important theoretical contribution The Failure of the New Economics, which Rothbard (2007, xvi) refers to as the “most thorough exercise in economic demolition since Böhm-Bawerk” and his refutation of Marx.
Hazlitt is mainly concerned with refuting Keynes, and since his “One lesson” aims at a popular audience, he does not really deal with methodological matters. Yet, his basic intuition still is illuminating. It has already been pointed out that Hazlitt makes extensive use of counterfactual analysis, relating what is seen to what remains unseen. More broadly speaking, however, in his “One lesson” Hazlitt elaborates on general economic principles utilizing some practical examples for illustration. In his preface, Hazlitt (2015, 15-16) states that he does not make a lot of use of statistics, as these might change quickly, while the general principles don’t. Equipped with the knowledge of the book the reader will then be able to apply these general principles to the particular circumstances in a certain economic environment.
This seems to be very much in line with the traditional method of economics. While praxeology, the logic of human action, is the distinct method of Austrian economics, neither Mises nor his Austrian predecessors invented deductive reasoning as the proper method in economic science. Instead, up until the early 20th century, most economists implicitly used deductive logic in their theorizing and Mises was systematizing the method the Classical economists always had used implicitly (Hoppe 1995, 10-13).
This is, of course, in contrast with the nowadays prevailing positivism, empiricism, or pan-physicalism, as Hülsmann (2003, 64-66) puts it, which implements the method of the natural sciences into the social sciences. That is, hypothesizing about (quantitative) relationships between observable and measurable variables and testing them empirically. In his famous essay, “The Methodology of Positive Economics,” Milton Friedman (1953, 7) states that the “ultimate goal of a positive science is the development of a ‘theory’ or ‘hypothesis’ that yields […] predictions about phenomena not yet observed.” Friedman (1953, 14-15) takes this further and argues that assumptions are often “wildly inaccurate.” They do not need to be realistic, but merely yield sufficiently accurate predictions. “Only factual evidence can show whether [hypotheses are] […] tentatively accepted as valid or rejected.” Therefore, the “only relevant test of the validity of a hypothesis is comparison of its prediction with experience” (Friedman 1953, 8-9).
First, it should be noted that Friedman’s “wildly inaccurate” assumptions omit what Austrians consider to be the driving forces of the market or even explicitly specify their absence. For instance, in the model of perfect competition the role of entrepreneurship is omitted, while the possibility of entrepreneurial error is explicitly absent (Long 2006, 3-5, 9-10).
Second, and for the purpose of this essay more importantly, no economic laws can be discovered through positivism. As has already been pointed out, Mises (1998, 55-56) argues that there are no constant relations in human action, as not only valuations differ among different individuals but they also differ for one actor in different circumstances. Therefore, the very nature of human choices is that they cannot be explained exclusively by any other observable variables. Choice is always, to some extent, self-determined (Hülsmann 2003, 61-64). Hoppe (1983, 11-18) points to an actor’s ability to learn, emphasizing that there can be no constant parameters explaining one’s choices. One’s ability to learn is a priori true since it is a contradiction to learn that one is unable to learn. Moreover, what one will learn in the future is necessarily unpredictable since one would already need to know what he would learn in the future, thus he could not learn it. Therefore, there cannot be constant, predictable factors that exclusively determine human action.
It should be noted briefly that for the same reasons people’s choices cannot be predicted, although they “reveal” their preferences. Samuelson (1938, 61-71; 1948, 243-251)2 introduced the concept of “revealed preferences,” stating that preferences are revealed through choices. Based on numerous observations one could then map out an individual’s preference scale. At first glance, this might seem similar to the Austrian concept of demonstrated preferences. But again, although Samuelson (1938, 65; 1948, 243) states that he only assumes consistency, what he does assume is constancy, that is, preferences do not change over time. The Austrian concept of demonstrated preferences, on the other hand, similarly states that one demonstrates one’s preferences through choices. That is, if one action is taken rather than another the first action is preferred at that time. There is, however, for the reasons outlined above, no constancy in these preferences (Rothbard 1956, 224-230).
Perhaps the best-known part of Keynes’s criticism of Classical economics is his alleged refutation of Say’s Law, which is often characterized by the phrase “supply creates its own demand.” In turn, in his “One lesson,” Hazlitt (2015, 29-35) uses Say’s law, in its original form rather than Keynes’s caricature, to refute the Keynesian doctrines, though Hazlitt does not explicitly refer to it as “Say’s law.” Mises (1974, 64-65) points out that, similarly, Say’s Law had not been designed as an integral part of the Classical’s economic framework, but rather as an exposure of fallacious ideas, such as money being too scarce or the fear of a general glut.
First, Hazlitt (2015, 30-31) notes that effective demand does not merely require a need but also the corresponding purchasing power. After all, the need in Africa is much higher than in Europe or North America, yet effective demand in Africa is much lower due to the lack of purchasing power. Moreover, purchasing power is not determined by money, as it is only the medium of exchange.3 Thus, just printing more money will not increase the purchasing power but merely lead to prices being higher than otherwise.
Therefore, what essentially enables demand is production. Hazlitt (2015, 33) states that supply and demand are merely the other sides of the same coin. Producers supply their goods on the market in order to be able to buy something else. Thus, their supply essentially is the demand for another good. For instance, the farmer’s supply of wheat constitutes his demand for a car or other goods.
Although simplified, Hazlitt gives a fairly accurate account of the law as stated by Say (1971, 132-140) himself. Through stating his “law of markets,” Say (1971, 132-139) highlights a few important points. First, increasing production, rather than demand itself, increases the standard of living, as it enables us to demand more goods. Moreover, a higher production in one industry enables them to increase their demand, thereby opening new markets for other industries. Second, a lack of demand is not due to money being scarce. As Say puts it (1971, 134), demand is not limited because “money is scarce, but because other products are so.”
Third, and perhaps most importantly, there can be no such thing as an economy-wide overproduction or general glut, that is, production in general is too great compared to consumption and thus, products cannot be sold. There can, however, be a relative over- and underproduction in specific industries. Say (1971, 135) also points to the solution, that is, the market mechanism of profit and loss which will direct resources from those industries suffering from relative overproduction to those where relatively too little is produced. Therefore, Say (1971, 139) concludes, “the encouragement of mere consumption is no benefit.”
Keynes (2017, 31-37), however, states Say’s law simply as “supply creates its own demand” and then interprets it in terms of aggregate supply and aggregate demand. Since Keynes, many textbooks have adopted “supply creates its own demand” as characterization of Say’s Law (Samuelson/Nordhaus 2017, 999). Yet, it is, at best, grossly misleading. As Hutt (1974, 3) notes, “the supply of plums does not create the demand for plums,” instead, “the supply of plums constitutes demand for whatever the supplier is destined to acquire in exchange for the plums.”
Keynes (2017, 34-37) then moves on to interpret Say’s Law as his aggregate demand and his aggregate demand function being identical, implying that, therefore, markets are always in equilibrium. Of course, Say first, never talked about Keynes’s aggregates, and second, as pointed out above, actually refers to relative overproduction of particular goods rather than always assuming equilibrium. To, Say, the solution then lies in adapting to changing relative prices, a mechanism entirely concealed by Keynes’s aggregates. Characteristically, Keynes (2017, 31) cites a simplistic statement by Mill (1909, 556), where supply and demand are just doubled, as a representation of Say’s Law. He omits the immediately following sentences by Mill where he points to markets adjusting through relative prices.
Supplying a good is to demand another good. But what if the other good is money? It might be the case that people sell goods in order to increase their cash balance. This is perhaps the only point that Say did not grasp (Rothbard 2006, 32). Say (1971, 118) does not elaborate a lot on “hoarding” and merely states that it deprives the owner of the gratification of consumption or the profits of investment. He overlooks that the mere holding of money does provide a service to its owner and that increasing one’s cash balance might be a rational decision, depending on the marginal utility of money (Rothbard, 2009, 261-268). Yet, the solution to the stated problem fits nicely into Say’s framework. Just as with overproduction of a particular good, relative prices with regard to money change. The higher demand for money leads to lower money prices and higher real cash balances, allowing the market to clear (Rothbard 2006, 32).
The heart of Hazlitt’s (2015, 27-28) “One lesson,” the Broken Window Fallacy, or more generally, the myth of destruction being a blessing, is essentially the first rejection of the Keynesian focus on aggregate spending from which all others follow. Indeed, Keynes (2017, 116-117) states that at least sometimes destruction, such as through earthquakes or wars can be beneficial to the economy. Therefore, Rothbard (2006, 445) refers to the Broken Window Fallacy as stated by Bastiat (2007, 2-4) as refuting Keynesianism almost a century before its birth.
Some of Hazlitt’s following criticisms of Keynesian fallacies have already been highlighted in the previous section. For instance, Keynes (2017, 117) famously comes up with the idea of filling old bottles with banknotes and burying them in an old coal mine which then should be filled with trash. Private companies could then excavate them and there would be no more unemployment. The workers employed there would then spend their new income, thereby increasing the real income in a country.
This is, of course, the idea of increasing government spending merely to create new jobs, rather than caring about the usefulness of the output, taken to the limit. In that sense, Keynes’s clarity might be appreciated. Such ideas are therefore precisely what Hazlitt (2015, 36-43, 79-82) refutes in his chapters on public works and bureaucrats as outlined above. Similarly, Samuelson (1943, 27-53) was famously worried about decreasing government spending after World War II. Perhaps most importantly, all the soldiers will be laid off and therefore unemployed. Again, Hazlitt (2015, 79-80) deals precisely with the issue of soldiers being laid off after a war, perhaps in response to Samuelson, perhaps just to restate an example from Bastiat (2007, 5-7). Hazlitt outlines the same principle already discussed. If the government spends less on troops, taxpayers have more money to spend on other products, thereby increasing employment in these sectors.
Again, it should be emphasized that the Classical economists already had a fairly good understanding of these issues. For instance, Say (1971, 136-137), in discussing his law of markets, points out that no demand originates from non-producers or anyone who lives upon the production of others, including the government and its employees. They merely put themselves in the position of the producer whose income they appropriated.
Keynes’s misconceptions are based upon his idea of persistent involuntary unemployment in equilibrium. Involuntary unemployment, according to Keynes (2017, 28) exists if an increase in prices relative to wages would lead to lower unemployment. That is essentially a reduction in real wages. Yet, workers could bring such a result about by offering to work for lower nominal wages.4 But then, this kind of unemployment is not involuntary (Hazlitt 2007, 30). Therefore, as Mises (1998, 596) states: “Unemployment in the unhampered market is always voluntary.”
Conclusion
Henry Hazlitt was one of the greatest communicators of free-market ideas ever. His Economics in One Lesson brought Austrian economics to a broad audience it would never have reached otherwise and it is as relevant today as it was in 1946. Hazlitt’s “lesson” highlights the importance of looking at the counterfactual of various events, most importantly of government policies. It emphasizes the opportunity cost of government spending and other interventions. Moreover, the “lesson” dismantles the fallacies of the “Keynesian Revolution” which largely were already debunked by the Classical economists. As Keynes and his followers heavily influenced modern macroeconomics, Hazlitt’s bestseller is very much applicable to current economic discourse.
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Tucker, Jeffrey (1999): Henry Hazlitt: The People’s Austrian. In: Holcombe, Randall (Ed.): 15 Great Austrian Economists. Auburn: Ludwig von Mises Institute, pp. 167-180
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It should be noted that this law is what Hülsmann (2003, 72-79) calls a “case-probable counterfactual law,” rather than an exact one. In some cases it might be that the additional money does not change the relative positions of money units and other goods on an actor’s value scale.
- 2
Samuelson saw his “revealed preferences” approach mainly as a better theoretical framework for consumer’s behavior, rather than as a means for empirical testing. Still, he hints at his approach being “more directly based upon those elements which must be taken as data by economic science” (Samuelson 1938, 71).
- 3
Here, for the sake of simplification, Hazlitt (2015, 30-34) essentially refers to money as a veil, just as the Classicals did. He does however note that considering money to be neutral was one of the shortcomings of Classical theory. Hazlitt (2015, 197-211) elaborates on money not being neutral in a later chapter.
- 4
Throughout the first sections of the second chapter of his General Theory, Keynes (2017, 20-28) unconvincingly gives some reasons why that would not be possible.
