Parable of the Broken Window

zorg

The parable of the broken window was introduced by French economist and political theorist Frédéric Bastiat in his 1850 essay Ce qu’on voit et ce qu’on ne voit pas (That Which Is Seen and That Which Is Unseen) to illustrate the hidden costs associated with destroying property of others. The parable, also known as the broken window fallacy, demonstrates how the law of unintended consequences affects economic activity people typically see as beneficial.

For example, if a hoodlum throws a brick through a bake shop window one could falsely assume that he has actually stimulated the economy. When the baker replaces the window it means new work for the glass factory, the shipping company, and repair shop, etc. The fallacy is in failing to account for unseen costs. The baker might have intended to buy a suit with the money he know must spend to replace his window. That means lost work for the tailor, the textile mill, and so on.

Some believe that war is a benefactor, since historically it often has focused the use of resources and triggered advances in technology and other areas while reducing unemployment. However, this belief is often given as an example of the broken window fallacy. The money spent on the war effort is money that cannot be spent on food, clothing, health care, consumer electronics or other areas. The stimulus felt in one sector of the economy comes at a direct—but hidden—cost to other sectors.

‘Non-purchases’ (sometimes called opportunity cost) are hidden because they can’t be counted, and thus the illusion that the benefits cost nothing. British writer, William Hazlitt, summarized the principle by saying, ‘Everything we get, outside the free gifts of nature, must in some way be paid for.’ American writer, Robert A. Heinlein, popularized a summarization of the concept called ‘There Ain’t No Such Thing As A Free Lunch.’

Tags:

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.