The Broken Window Fallacy
The broken window fallacy is an allegory made famous by the French philosopher Frederic Bastiat in his 1850 essay Ce qu'on voit et ce qu'on ne voit pas (That Which is Seen and Not Seen.) The Broken Window Fallacy demonstrates how opportunity costs, as well as the law of unintended consequences, affect economic activity in ways that are often "unseen" or ignored.
The Broken Window
Have you ever been witness to the fury of that solid citizen, James Goodfellow, when his incorrigible son has happened to break a pane of glass?
If you have been present at this spectacle, certainly you must also have observed that the onlookers, even if there are as many as thirty of them, seem with one accord to offer the unfortunate owner the selfsame consolation: “It’s an ill wind that blows nobody some good. Such accidents keep industry going. Everybody has to make a living. What would become of the glaziers if no one ever broke a window?”
Suppose that it will cost six francs to repair the damage. If you mean that the accident gives six francs&’ worth of encouragement to the aforesaid industry, I agree. I do not contest it in any way; your reasoning is correct. The glazier will come, do his job, receive six francs, congratulate himself, and bless in his heart the careless child. That is what is seen.
But if, by way of deduction, you conclude, as happens only too often, that it is good to break windows, that it helps to circulate money, that it results in encouraging industry in general, I am obliged to cry out: That will never do! Your theory stops at what is seen. It does not take account of what is not seen.
It is not seen that, since our citizen has spent six francs for one thing, he will not be able to spend them for another. It is not seen that if he had not had a windowpane to replace, he would have replaced, for example, his worn-out shoes or added another book to his library. In brief, he would have put his six francs to some use or other for which he will not now have them.
Let us next consider industry in general. The window having been broken, the glass industry gets six francs&’ worth of encouragement; that is what is seen.
If the window had not been broken, the shoe industry (or some other) would have received six francs&’ worth of encouragement; that is what is not seen.
And if we were to take into consideration what is not seen, because it is a negative factor, as well as what is seen, because it is a positive factor, we should understand that there is no benefit to industry in general or to national employment as a whole, whether windows are broken or not broken.
Now let us consider James Goodfellow.
On the first hypothesis, that of the broken window, he spends six francs and has, neither more nor less than before, the enjoyment of one window.
On the second, that in which the accident did not happen, he would have spent six francs for new shoes and would have had the enjoyment of a pair of shoes as well as of a window.
Now, if James Goodfellow is part of society, we must conclude that society, considering its labors and its enjoyments, has lost the value of the broken window.
From which, by generalizing, we arrive at this unexpected conclusion: “Society loses the value of objects unnecessarily destroyed,” and at this aphorism, which will make the hair of the protectionists stand on end: “To break, to destroy, to dissipate is not to encourage national employment,” or more briefly: “Destruction is not profitable.”
The reader must apply himself to observe that there are not only two people, but three, in the little drama that I have presented. The one, James Goodfellow, represents the consumer, reduced by destruction to one enjoyment instead of two. The other, under the figure of the glazier, shows us the producer whose industry the accident encourages. The third is the shoemaker (or any other manufacturer) whose industry is correspondingly discouraged by the same cause. It is this third person who is always in the shadow, and who, personifying what is not seen, is an essential element of the problem.
SEPTEMBER 23, 2009 by WILLIAM ANDERSON
Contrary to what Automotive News breathlessly declared, the Cash program pretty much was what anyone with common sense and decent economic training could have predicted. It spurred sales for a while, but after the money dried up, so did the new car sales.
JANUARY 28, 2009 by WILLIAM ANDERSON
If the process of creating more and more money by fiat (called inflation) goes on unchecked, as it did during the past decade, then not only does the value of money on the margin fall, but its growth triggers an unsustainable boom that ultimately collapses in a bust.
DECEMBER 23, 2008
AUGUST 11, 2008
Imagine a story about collapse of the real-estate markets that states: Most of the millions piled up in paper profits had melted away, many of the millions sunk in developments had been sunk for good and all, the vast inverted pyramid of credit had toppled to earth, and the lesson of the economic falsity of a scheme of land values based upon grandiose plans, preposterous expectations, and hot air had been taught in a long agony of deflation.
A story written in 2008? No, an extract from Frederick Lewis Allens 1931 book Only Yesterday. The real-estate boom and bust we are now experiencing had a spectacular predecessor during the 1920s and 1930s. History may not repeat itself exactly, but episodes composed of speculative mania, construction boom, financial misfeasance and malfeasance, and expansive monetary policy do recur from time to time. More . . .
A NEW article by Robert Higgs
Related Freeman Articles
Fallacy and hypothesis.
FEBRUARY 02, 2010 by SANDY IKEDA
Both the broken-window fallacy and the broken-window hypothesis offer solid arguments against some forms of harmful intervention.
MAY 21, 2009 by ART CARDEN
What about World War II? Did it end the Great Depression? More generally, is war good for the economy? I answer both in the negative and borrow here from Ludwig von Mises: "War prosperity is like the prosperity that an earthquake or a plague brings." As Higgs points out, because of the array of interventions in the wartime economy, war materiel was valued incorrectly and therefore the GDP data overstate economic conditions. Moreover, conscription and arms production gave a misleading employment picture