I was reading through Frederic Bastiat’s “That Which is Seen, and That Which is Not Seen” essay, where he outlines his Broken Window Theory. Bastiat states that when a shopkeeper’s careless son breaks a window, onlookers console him saying, “Everybody has to make a living, and what would become of glass-makers if glass windows were never broken?” Bastiat attempts to refute this logic by saying that ‘what is seen’ is the immediate ₣6 profit made by the glass-maker, but ‘what is not seen’ is the fact that the shopkeeper (had his window not been broken) would have spent that ₣6 on a new pair of shoes AND still had the unbroken window. Because of the broken window, he now has to spend the ₣6 on fixing his window, and therefore he comes out of it all with the mere neutral satisfaction that he had before–that of having an unbroken window. So Bastiat states that in the situation of the broken window, the shopkeeper enjoys one less good than in the situation of the unbroken window. Therefore, Bastiat concludes, destruction gives no economic benefit to society.
However, I noticed Bastiat just went on after that without examining what happened to the ₣6 that went to the glass maker. Suppose the glass maker turned around and used that ₣6 to buy a pair of shoes.
Bastiat claims that in the broken window situation, the shoemaker goes without profit, but really the ₣6 doesn’t just disappear into a black hole when the glass-maker gets ahold of it. The glass-maker could just as easily use that ₣6 to buy a pair of shoes. In either the broken window or the unbroken window scenario, can’t the shoe-maker still sell a pair of shoes, just to a different person in each scenario?
I’m having trouble understanding Bastiat’s logic here. Can anyone help me out?
No, the fallacy is that wealth is created anew, i.e. that after the window is destroyed there is more wealth than there was before, because the shopkeeper's purchase of the shoes (the unseen) is not taken into account. So what is seen is a new window plus the shoes, versus the shopkeeper with his window intact. Seemingly there is more economic activity. The fact that he would spend his earnings is ignored by those who perpetrate the fallacy. What you're saying is both scenarios should lead to the same level of wealth - but that isn't what Bastiat is out to refute if I have understood him correctly.
The fallacy would be: new window + new shoes - broken window > window intact.
Compare with: new window + new shoes - broken window = window intact + new shoes.
Hope that's clearer.
-Jon
I cannot be caged. I cannot be controlled. Understand this as you die, ever pathetic, ever fools.
Irenicus' Diaries.
Try and keep things focused. Bastiat is making a specific argument. Let's say the window remains intact. The shopkeeper spends the money on the shoes. He now has his window and a new pair of shoes. Let's say it is destroyed. Now all he has is a broken window that needs fixing. The windowmaker may or may not spend it, but the point is the shopkeeper's wealth was destroyed in the process - no new wealth was created, it was gobbled up in the process. If the shopkeeper had spent it, the money would still circulate through the economy just as if the windowmaker had spent it, only there will be no destroyed window.
But the way I see it, the ultimate result of each scenario at the end of the day is:
Unbroken Window ScenarioShopkeeper = one unbroken window, one pair of shoes gainedGlassmaker = nothingShoemaker = one pair of shoes sold
Broken Window ScenarioShopkeeper = one unbroken window (because the glassmaker replaced it)Glassmaker = one window pane sold, one pair of shoes gainedShoemaker = one pair of shoes sold
I'm having trouble seeing how the opportunity of a broken window isn't economically beneficial here. Sure, the shopkeeper loses wealth (which is very unfortunate for him) in the broken window scenario, but the glassmaker gains wealth in the broken window scenario, and the shoemaker can gain wealth in either scenario (for him, it doesn't matter WHO buys the pair of shoes, he still sells one pair of shoes in either scenario).
Where am I going wrong here?
The way I understand the fallacy is that it asserts that destruction can be creative of wealth. Bastiat's exposition shows that, someone is losing out in the transaction. The windowmaker may spend the revenue they gain, but someone has lost. There is no net benefit on the whole. The shopkeeper might've spent the money anyway, which is the "unseen".
But, as I pointed out in my tally chart above, at the end of the day, the broken window scenario has the exact same result as the unbroken window scenario, but the broken window scenario also has one window pane sold. Sure, the shopkeeper loses something in the broken window scenario, but it seems that the shopkeeper's loss is more than offset by the glassmaker's gain.
1 unbroken window + 1 pair of shoes gained + 1 pair of shoes sold < 1 unbroken window + 1 pair of shoes gained + 1 pair of shoe sold + 1 glass window sold
Right?
Ohhhhhh, I see. Bastiat isn't saying that one broken window is a net loss to society, he's saying that's a benefitless transfer of wealth that shouldn't have been necessary. Is that it?
More or less. I've not read Bastiat though - only Hazlitt's explosion of the fallacy.
Freiheit:Bastiat claims that in the broken window situation, the shoemaker goes without profit, but really the ₣6 doesn’t just disappear into a black hole when the glass-maker gets ahold of it. The glass-maker could just as easily use that ₣6 to buy a pair of shoes.
The glass maker isnt making 100% profit on the 6 franks. He is probably spending 5 to replace the window and pocketing 1 as profit.
There is no way the glass maker could buy the pair of shoes.
Freiheit:Bastiat isn't saying that one broken window is a net loss to society,
He is saying its a net loss.
A brand new pane has to be made and consumed in order to repair the window. If the baker's window had remained unbroken that new pane could have been used to build a new house and actually create wealth.
Good point. You're right.
Freiheit:Broken Window ScenarioShopkeeper = one unbroken window (because the glassmaker replaced it)Glassmaker = one window pane sold, one pair of shoes gainedShoemaker = one pair of shoes sold
Not quite correct.
Shoemaker: + one pair of shoes sold - money to pay for broken window
The entirety of the benefit to the Glassmaker is balanced by the negative to the Shoemaker (who pays for this "benefit"). So you may as well some the situation up (after cancelling these two out):
Unbroken Window ScenarioShopkeeper = one unbroken window, one pair of shoes gainedShoemaker = one pair of shoes sold
Broken Window ScenarioShopkeeper = unbroken windowShoemaker = pair of shoes sold
You can see in the broken window scenario that there is now a pair of shoes missing. This is basically what the Shoemaker has had to use to pay for the broken window. Ultimately, money is just a goose chase. We pay for everything with our labour.