Broken windows at the former pumping station in Trowse, Norfolk. Bastiat’s famous parable illustrates the problems raised when Governments try to boost the economy with taxpayer-funded works. There is undoubtedly a boost to some specific industry or location; but elsewhere across the country there will be corresponding shortfalls in other sectors, for the simple reason that money spent on X can no longer be spent on Y. Unless the project is key to the economic life of the whole country a favoured band of contractors and local businesses will profit at the expense of everyone else.
Part 1 of 2
HAVE you ever witnessed the anger of the good shopkeeper, James B., when his careless son happened to break a square of glass? 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.
Précis
French economist Frédéric Bastiat is credited with giving the first exposition of the ‘broken window fallacy’. Imagine a shopkeeper who finds one his windows broken. He spends six francs on a replacement, which is good news for some local glazier; and is it not also good news, many people (even high up in government) will ask, for the local economy? (62 / 60 words)
Part Two
A sign marking the Rue Frédéric Bastiat in the 8ème Arondissement, Paris. Frédéric Bastiat (1801-1850), a French gentleman of independent means, was inspired to study economics by Richard Cobden’s campaign in England for The Repeal of the Corn Laws. Relying on the insights of Scottish economist Adam Smith (1723-1790), Bastiat wrote a series of essays on free market economics which made complex ideas easy to grasp; his Parable of the Broken Window and his Petition of the Candlemakers (demanding that State protect them from the sun’s unfair competition) are perhaps the best known examples. Bastiat himself inspired two of the twentieth century’s greatest defenders of economic and social liberty, F. J. Hayek (1899-1992) and Milton Friedman (1912-2006).
BUT if 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.
The window being broken, the glazier’s trade is encouraged to the amount of six francs: this is that which is seen. If the window had not been broken, the shoemaker’s trade (or some other) would have been encouraged to the amount of six francs: this is that which is not seen.
James B. himself spends six francs, and has neither more nor less than he had before, the enjoyment of a window.
Précis
No, Bastiat replied, broken windows are not an opportunity gained, but an opportunity lost. While the glazier has done well, the shopkeeper will now not be able to use his six francs to boost the profits of any other local tradesman; and as for the shopkeeper himself, he is down six francs and has gained nothing at all. (58 / 60 words)
