Sunday, September 24, 2006


It turns out that one of my favorite economists in history, Frederic Bastiat (1801-1850), has a hefty number of works online at the Online Library of Liberty. If you've never read Bastiat, I highly recommend him. He is accessible, witty, and insightful, full of great passages. As a taste, the chapter on value in his masterpiece, Economic Harmonies, opens:

A long discourse is always boring, and a long discourse on value must be doubly so.

Therefore, naturally enough, every inexperienced writer, when confronted with a problem in economics, tries to solve it without involving himself in a definition of value.

And he's always like that. He also writes little allegories and parables to make economic points. His most famous is the one in which he identifies the broken window fallacy in Ce qu'on voit et ce qu'on ne voit pas (That which is seen and that which is not seen):

Have you ever witnessed the anger of the good shopkeeper, James Goodfellow, 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.

Bastiat was not, of course, the first one to point out the fallacy. (To name just one predecessor, Berkeley points it out in the second or third dialogue of Alciphron.) But the parable puts the fallacy in such clear perspective, and has been so influential on economists afterward, that the identification of the fallacy is forever associated with Bastiat's name.

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