Henry Hazlitt’s Lesson, Part II: The Broken Window

Henry Hazlitt’s Economics in One Lesson is a highly recommended work.  Read it.  It can change how you view economics, and change how you view the world.  Reading it straight through would probably only take three or four hours.  Less for many.

Part I (comprised of chapter 1) discusses the lesson: a good economist sees the totality of effects on all groups, while a bad economist has a narrower range: they only see some of the effects (perhaps one) on only a fraction of the groups affected.

Part II discusses all manner of applications of this lesson.  The first chapter in Part II discusses Frederic Bastiat’s timeless lesson of The Broken Window.

A baker’s window is broken by a no-good hoodlum.  Unfortunate.  Now the baker must buy a new window.

But wait!  Someone starts to think about the money going to the window.  That money will go to the glazier who will spend it on some needed improvement.  Maybe he will put the money towards a new employee, or towards a new paint job.  The money will spread around and reach many individuals.  And so the window breaking wasn’t so bad after all, was it?

This reasoning is flawed.  The implication is that breaking windows is good economically.  The more windows broken, the better off we are.

But destruction is the opposite of creation.  Where’s the logical problem in the argument?  The problem is that the baker would rather have spent the money he had to spend on a new window on some other item: a new suit, perhaps.  But because the window was broken, he is now compelled to lay aside the money he would have put towards the new suit, and instead replace the window.  We can trace the benefits that would have gone to the tailor or clothing store just as we could with the baker’s window.  In the former case, the world is richer by one suit.  In the latter, the world is richer by one baker’s window, but it is not really richer at all because the window is merely a replacement.

The trick is to see what is seen and what is unseen.  We can see the effects of destruction and rebuilding (for instance, after a world war).  We struggle to see what could have been: what wealth could have been generated, what jobs could have been created, what improvements could have been made, in the absence of destruction (i.e. war).  We see what is seen but miss the unseen, what could have been.

Thus, the lesson is that destruction is not good economically.  It always results in less efficient uses of capital than would otherwise exist.

This flies in the face, by the way, of Keynesian economic thought which dominates the history books nowadays, which indicates the government control of the economy and inflationary spending related to World War II brought the United States out of the Great Depression.  This is a most unfortunate statist myth.  But guided by the Keynesian statistics, methods, and thought processes, these are the dominant conclusions drawn, even today.  One can consider: what things would or could have been produced instead of guns, battleships, bullets, helmets, parachutes, tanks, airplanes, bombs, uniforms, etc.?  Or alternately, what could the money spent for rebuilding Europe after World War II have done were Europe not in need of rebuilding?

Thus, destruction is not economically constructive.

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Filed under Austrian Economics, Libertarian, politics, role of government

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