Of candle makers and broken windows

If you have been reading stuff over a long period of time, and suddenly recollect, one day, a particular word or phrase or parable, in the pre-internet era, it was very difficult to know where the hell you read it – even if you owned the bloody book or magazine. But the internet is a wonderful place. And it led me to the source of something I had read once about a “broken window” – a wonderful lesson in economics. Let me quote the parable first, before going to its source-

Have you ever witnessed the anger of the good shopkeeper, James B., when his careless son happened to break a square 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.

Let us take a view of industry in general, as affected by this circumstance. 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.

And if that which is not seen is taken into consideration, because it is a negative fact, as well as that which is seen, because it is a positive fact, it will be understood that neither industry in general, nor the sum total of national labour, is affected, whether windows are broken or not.

Now let us consider James B. himself. In the former supposition, that of the window being broken, he spends six francs, and has neither more nor less than he had before, the enjoyment of a window.

In the second, where we suppose the window not to have been broken, he would have spent six francs on shoes, and would have had at the same time the enjoyment of a pair of shoes and of a window.

Now, as James B. forms a part of society, we must come to the conclusion, that, taking it altogether, and making an estimate of its enjoyments and its labours, it has lost the value of the broken window.

When 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, Monsieur 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?

I am sorry to disturb these ingenious calculations, as far as their spirit has been introduced into our legislation; but I beg him to begin them again, by taking into the account that which is not seen, and placing it alongside of that which is seen. The reader must take care to remember that there are not two persons only, but three concerned in the little scene which I have submitted to his attention. One of them, James B., represents the consumer, reduced, by an act of destruction, to one enjoyment instead of two. Another under the title of the glazier, shows us the producer, whose trade is encouraged by the accident. The third is the shoemaker (or some other tradesman), whose labour suffers proportionably by the same cause. It is this third person who is always kept in the shade, and who, personating that which is not seen, is a necessary element of the problem. It is he who shows us how absurd it is to think we see a profit in an act of destruction. It is he who will soon teach us that it is not less absurd to see a profit in a restriction, which is, after all, nothing else than a partial destruction. Therefore, if you will only go to the root of all the arguments which are adduced in its favour, all you will find will be the paraphrase of this vulgar saying – What would become of the glaziers, if nobody ever broke windows?

The man who produced this gem was the 19th century French economist Frederic Bastiat. And the parable of “The Broken Window” is from his 1850 book That Which is Seen, and That Which is Not Seen. Similar challenges to blind and often asinine economic arguments are available in his book Economic Sophisms(pdf), particularly the case of the candle makers of France demanding in a (fictional) petition that the light from the Sun be blocked so that their business would increase. The Frederic Bastiat Prize for Journalism – TOI/ ET columnist Sauvik Chakraverti, and Amit Varma of India Uncut are two Indians who have won it previously, and Swaminathan Anklesaria Aiyar has been nominated for it this year – is named after this brilliant man.

Sauvik Chakraverti uses the “broken window” fallacy in a Times of India article – Broken Window Effect (pdf) – showing us why inverters, generators, water storage tanks etc – items that are so popular in India are “broken windows” (Swami had a similar article a few years back; I will leave it for another day). But I first read about it in a book I purchased from a roadside second-hand book seller ten years ago, and I didn’t know its name till I had a brainwave while going through the online book collection at mises.org. The book is “Economics in One Lesson” and the author is Henry Hazlitt. The Mises Institute had an online version of the book on its website, but had to remove it due to some copyright issues. So, you can get it from the Foundation For Economic Education’s Freedom Library (many books available there in html as well as pdf format. So scroll down to find it) or here. This is what Hazlitt says in the first chapter-

Economics is haunted by more fallacies than any other study known to man. This is no accident. The inherent difficulties of the subject would be great enough in any case, but they are multiplied a thousandfold by a factor that is insignificant in, say, physics, mathematics or medicine-the special pleading of selfish interests. While every group has certain economic interests identical with those of all groups, every group has also, as we shall see, interests antagonistic to those of all other groups. While certain public policies would in the long run benefit everybody, other policies would benefit one group only at the expense of all other groups. The group that would benefit by such policies, having such a direct interest in them, will argue for them plausibly and persistently. 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.

He refers, as did Bastiat, to the dark art of lobbying. Bastiat says in his introduction to Economic Sophisms (First Series)

My design in this little volume is to refute some of the arguments that are urged against the Freedom of Trade.
I do not propose to engage in a contest with the protectionists; but rather to instill a principle into the minds of those who hesitate because they sincerely doubt.
I am not one of those who say that Protection is founded on men’s interests. I am of the opinion rather that it is founded on errors, or, if you will, upon incomplete truths. Too many people fear liberty to permit us to conclude that their apprehensions are not sincerely felt.

He gives people the benefit of the doubt. But I do not, for I am a cynic.

As for the worldwide clamor for protectionism funded by various special interests, is Barack Obama listening? Or is Kamal Nath?

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Comments

  • Pramod Biligiri  On September 13, 2008 at 1:19 am

    Is the Mises Institute awesome or what? Just today I was astonished to see the staggering no. of works available for free download.

  • aristotlethegeek  On September 13, 2008 at 5:33 am

    A great site. And they are putting their money where their mouth is, as far as their stand on IPR is concerned (if I am not mistaken) – digital copies are not scarce resources. Well, those who want to support the site, or like the feel of paper can always buy the books. Not me though, not yet. Maybe sometime in the future.

  • Pramod Biligiri  On September 22, 2008 at 9:23 pm

    Hm, yeah. Off late I have been doing some thinking on my own regarding IPR and patents, and I am not so sure they are compatible with capitalism anymore – esp. the part about using State resources to enforce them. I haven’t yet read the Mises Univ people’s take on this but it’s heartening to see the free texts online.

    Does this thing have email notification?

  • Aristotle The Geek  On September 22, 2008 at 10:52 pm

    I am more irritated by the practice of enforcement than by the concept of IP itself. Content owners want a carte blanche to snoop on peoples’ internet traffic and computers, ban time and place shifting of consumption of content, and ban any new technology purely on the grounds that it is prone to misuse – their tirade against torrents, for example. And the problem is they are succeeding. The day is not far away when they try to forcibly implant chips into peoples’ brains to prevent them from remembering anything they saw heard or read.

    Well, I have been working on a defense of IP myself, and here are a few titles that might be helpful-
    1. Stephan Kinsella – Against Intellectual Property (the official Austrian view, according to me).
    2. Murray Rothbard – Man, Economy and State [with Power and Market] (pdf)

    The Austrian attack on IP is a scarcity based one – so IP is non-existent because anything that can be duplicated infinitely without cost has no value. Rothbard however tries to bring back patents through free market contracts, something that Kinsella says does not work.

    And you cannot talk IP without considering the Objectivist viewpoint which is available in Ayn Rand’s Capitalism – The Unknown Ideal (the chapter on Patents and Copyrights. A summary from the Ayn Rand Lexicon). Hers is a natural rights based defense. And all our present IP laws are based on utilitarianism. There are a couple of articles by Kinsella on the Mises website where he critiques the Objectivist position, particularly one taken by Mossoff.

    Email notification for what – Mises.org or my wordpress blog? For blog updates, I rely on wordpress’ blog surfer and sometimes on Google Reader.

  • pramodbiligiri  On September 27, 2008 at 4:19 pm

    Will have to get back to you after reading your comment in more detail!

    I meant email notification for new comments on a post. I think logging in with my wordpress id should do the trick. Let me see.

  • Aristotle The Geek  On September 27, 2008 at 7:28 pm

    You could subscribe to this – https://aristotlethegeek.wordpress.com/comments/feed/. Anytime anybody comments on any post on my blog, the feed will get updated.

    If you want it post specific however, for this post, the comment feed is – https://aristotlethegeek.wordpress.com/2008/09/09/of-candle-makers-and-broken-windows/feed/. Attach “feed/” to any post url to access its comment feed.

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