The parable of the broken window was introduced by Frédéric Bastiat in his
1850 essay Ce qu'on voit et ce qu'on ne voit pas to illustrate why destruction,
and the money spent to recover from destruction, is not actually a net
benefit to society. The parable, also known as the broken window fallacy or
glazier's fallacy, seeks to show how opportunity costs, as well as the law of
unintended consequences, affect economic activity in ways that are "unseen" or
ignored. The parable
Bastiat's original parable of the broken window from Ce qu'on voit et ce qu'on ne
voit pas: Have you ever witnessed the anger of the
good shopkeeper, James Goodfellow, when his careless son has happened to break a
pane of glass? If you have been present at such a scene, you will most assuredly
bear witness to the fact that every one of the spectators, were there even
thirty of them, by common consent apparently, offered the unfortunate
owner this invariable consolation – "It is an ill wind that blows nobody good.
Everybody must live, and what would become of the glaziers if panes of glass
were never broken?" Now, this form of condolence contains an
entire theory, which it will be well to show up in this simple case, seeing that
it is precisely the same as that which, unhappily, regulates the greater part of
our economical institutions. Suppose it cost six francs to repair the
damage, and you say that the accident brings six francs to the glazier's trade
– that it encourages that trade to the amount of six francs – I grant it; I
have not a word to say against it; you reason justly. The glazier comes,
performs his task, receives his six francs, rubs his hands, and, in his
heart, blesses the careless child. All this is that which is seen.
But if, on the other hand, you come to the conclusion, as is too often the
case, that it is a good thing to break windows, that it causes money to
circulate, and that the encouragement of industry in general will be the result
of it, you will oblige me to call out, "Stop there! Your theory is confined to
that which is seen; it takes no account of that which is not seen."
It is not seen that as our shopkeeper has spent six francs upon one thing, he
cannot spend them upon another. It is not seen that if he had not had a window
to replace, he would, perhaps, have replaced his old shoes, or added another
book to his library. In short, he would have employed his six francs in some
way, which this accident has prevented. Differing interpretations
= Bastiat's argument= Austrian School theorists, and Bastiat
himself, apply the parable of the broken window in a different way. Suppose it
was discovered that the little boy was actually hired by the glazier, and paid
a franc for every window he broke. Suddenly the same act would be regarded
as theft: the glazier was breaking windows in order to force people to hire
his services. Yet the facts observed by the onlookers remain true: the glazier
benefits from the business at the expense of the baker, the tailor, and so
on. Bastiat argues that society endorses
activities that are morally equivalent to the glazier hiring a boy to break
windows for him: Whence we arrive at this unexpected
conclusion: "Society loses the value of things which are uselessly destroyed;"
and we must assent to a maxim which will make the hair of protectionists stand on
end – To break, to spoil, to waste, is not to encourage national labour; or,
more briefly, "destruction is not profit."
What will you say, Moniteur Industriel – what will you say, disciples of good M.
F. Chamans, who has calculated with so much precision how much trade would gain
by the burning of Paris, from the number of houses it would be necessary to
rebuild? Bastiat is not addressing production –
he is addressing the stock of wealth. In other words, Bastiat does not merely
look at the immediate but at the longer effects of breaking the window.
Moreover, Bastiat does not only take into account the consequences of
breaking the window for one group but for all groups, for society as a whole.
Austrian theorists cite this fallacy, saying it is a common element of popular
thinking. The 20th century American economist Henry Hazlitt devoted a
chapter to it in his book Economics in One Lesson.
= The opportunity cost of war= The argument can be made that war is a
benefactor, since historically it often has focused the use of resources and
triggered advances in technology and other areas while reducing unemployment.
The increased production and employment associated with war often causes some
people to claim that "war is good for the economy." However, this belief is
often given as an example of the broken window fallacy. The money spent on the
war effort, for example, is money that cannot be spent on food, clothing,
health care, or other industries. The stimulus felt in one sector of the
economy comes at a direct – but hidden – cost to other sectors.
Bastiat himself argued against the claim that hiring men to be soldiers was
inherently beneficial to the economy in the second chapter of That Which is
Seen, and That Which is Not Seen, "The Disbanding of Troops".
According to Hazlitt: "It is never an advantage to have one’s
plants destroyed by shells or bombs unless those plants have already become
valueless or acquired a negative value by depreciation and obsolescence. ...
Plants and equipment cannot be replaced by an individual unless he or it has
acquired or can acquire the savings, the capital accumulation, to make the
replacement. But war destroys accumulated capital. ... Complications
should not divert us from recognizing the basic truth that the wanton
destruction of anything of real value is always a net loss, a misfortune, or a
disaster, and whatever the offsetting considerations in a particular instance,
can never be, on net balance, a boon or a blessing."
Criticisms The interpretations assume that the
"window" has positive value and that replacing it is not a good investment.
In the broader scope, offsetting factors can reduce or even negate the cost of
destruction. For example, new technologies developed during a war and
forced modernization during postwar reconstruction can cause old
technologies to become valueless. Also, if two shopkeepers keep their "window"
beyond the point where it would maximize their profit, the shopkeeper whose
window is broken is forced to make a good investment – increasing his
comparative profit, or rather, reducing his comparative loss. Regardless, while
wanton destruction of real value may not be a net loss, it is of course still a
misfortune, not a blessing. Others argue that the broken window may not result in
reduction of spending by the victim, but rather, a reduction in excessive
savings. "The logic of limited resources only applies when the economy is using
most of those limited resources. If there are slack resources, we need
merely mobilize some of the slack resources." The reductio ad absurdum of
breaking 100 windows, then, only applies once underutilised resources have been
used, and the tailor is forced to divert resources from more productive means.
It has been argued that the parable, while intuitive, may not correspond to
actual evidence. For instance, some economists argue that natural disasters
can often result in improved growth in both the short and long term.
= Defenses= Bastiat and Austrian theorists argue a
subjective theory of value, which holds that the value of a product is
determined by its consumer or owner. Therefore, if the window had a negative
value, it is because the owner already wishes it broken. If the proverbial
window were old, and the newer proverbial window had a greater value,
then the net increase in value in the economy is the difference between the
value of the old and new window. Bastiat and Austrian economists also believe
that depreciation and other losses of the value of goods reduces the net value
in the economy by the amount of the reduction in value of the goods.
These theorists further argue that very concept of excess savings is meaningless
without the presumption of an authority which can define the proper amount of
savings. Money saved represents demand for money which is a commodity like
windows or suits. The result of spending saved money is to decrease the demand
for money relative to suits or glass and therefore contributes to general price
inflation. Such an authority would suggest that by controlling prices, that
the economy could be bettered. This concept when enforced by governments is
known as price controls and results in shortages when prices are artificially
reduced below market value. A shortage of savings results in a reduction of
capital investment as more resources are diverted from future needs to present
needs. The shop owner was saving so that he could grow his business, but an
outside authority has determined that his savings were 'excess' and that by
breaking his window the economy will be better off. Without free exchange there
would be no prices, and without prices there can be no economic calculation,
and without proper economic calculation there is no means to determine whether
or not a particular action will be 'profitable'. Therefore any authority
that suggests that there might be an 'excess of savings' presumes the ability
to make economic calculations without prices established by free exchange.
Ludwig von Mises argued that this was impossible.
See also Cobra effect
Creative destruction Disaster capitalism
Jevons paradox Rent-seeking
Spending multiplier Tax choice
Uneconomic growth References
= Bibliography= Bastiat, Frédéric. That Which Is Seen,
and That Which Is Not Seen [original French: Ce qu'on voit et ce qu'on ne
voit pas]. Translated by Patrick James Stirling. Wikisource.
Hazlitt, Henry. Economics in One Lesson. Harper & Brothers. LCCN 46005937.
Further reading Abrams, Burton A; Parsons, George R. "Is
CARS a Clunker?". The Economists' Voice 6. doi:10.2202/1553-3832.1638.
McGee, Robert W.. "Financial Bailouts and the philosophy of Frédéric Bastiat".
Aestimatio: 88–97. SSRN 2435748. Stringham, Edward P.; Snow, Nicholas A..
"The broken trailer fallacy: Seeing the unseen effects of government policies in
post-Katrina New Orleans". International Journal of Social Economics 35: 480–9.
doi:10.1108/03068290810886885. Carabini, Louis. "Bastiat's 'The Broken
Window': A Critique". Journal of Libertarian Studies 21: 151–5.
Mian, Atif R.; Sufi, Amir. "The Effects of Fiscal Stimulus: Evidence from the
2009 'Cash for Clunkers' Program". SSRN Electronic Journal.
doi:10.2139/ssrn.1670759. Caplan, Bryan; Stringham, Edward.
"Mises, bastiat, public opinion, and public choice". Review of Political
Economy 17: 79–105. doi:10.1080/0953825042000313825.
Stanfield, James. "The Broken University: What is Seen and What is Not
Seen in the Uk Higher Education Sector". Economic Affairs 30: 53–8.
doi:10.1111/j.1468-0270.2010.02022.x. External links
"Ce qu'on voit et ce qu'on ne voit pas" "That Which is Seen and That Which is
Not Seen"