Parable of the broken window

The parable of the broken window was introduced by Frédéric Bastiat to illustrate why destruction, and the money spent to recover from destruction, is not actually a net benefit to society. The parable, also known as the broken window fallacy or glazier's fallacy, seeks to show how opportunity costs, as well as the law of unintended consequences, affect economic activity in ways that are "unseen" or ignored.

Quotes

• Let us begin with the simplest illustration possible: let us, emulating Bastiat, choose a broken pane of glass.
  A young hoodlum, say, heaves a brick through the window of a baker’s shop. Th shopkeeper runs out, furious, but the boy is gone. A crowd gathers and begins to stare with quiet satisfaction at the gaping hole in the window and the shattered glass over the bread and pies. After a while the crowd feels the need for philosophic reflection. And several of its members are almost certain to remind each other or the baker that, after all, the misfortune has its bright side. It will make business for some glazier. As they begihn to think of this, they elaborate upon it. How much does a new plate glass window cost? Fifty dollars? That will be quite a sum. After all, if windows were never broken, what would happen to the glass business? Then, of course, the thing is endless. The glazier will have $50 more to spend with other merchants, and these in turn will have $50 more to spend with still other merchants, and so on, ad infinitum. The smashed window will go on providing money and employment in an ever widening circle. The theological conclusion from all this would be, if the crowd drew it, that the little hoodlum who threw the brick, far from being a public menace, was a public benefactor.
  Now let us take another look. The crowd is at least right in its first conclusion. This little ct of vandalism will, in the first instance, man more business for some glazier. The glazier will be no more unhappy to learn of the incident than an undertaker to learn of a death. But the shopkeeper will be out $50 that he was planning to spend for a new suit. Because he has had to replace a window, he will have to go without the suit (or some equivalent need or luxury). Instead of having a window and $50 he now has merely a window. Or, as he was planning to buy the suit that very afternoon, instead of having both a window and a suit he must be content with the window and no suit. If we think of him as a part of the community, the community has lost a new suit that might otherwise have come into being, and is just that much poorer.
  The glazier’s gain of business, in short, is merely the tailor’s loss of business. No one “employment” has been added. The people in the crowd were thinking only of two parties to the transaction, the baker and the glazier. They had forgotten the potential third party involvd, the tailor. They fogot him precisely because he will not now enter the scene. They will see the new window in the next day or two. They will never see the extra suit, precisely because it will never be made. They see only what is immediately visible to the eye
  • Henry Hazlitt, Economics in One Lesson (1946), Ch. 2. The Broken Window

• So we have finished with the broken window. An elementary fallacy. Anybody, one would think, would be able to avoid it after a few moments’ thought. Yet the broken-window fallacy, under a hundred disguises, is the most persistent in the history of economics. It is more rampant now than at any time in the past. It is solemnly reaffirmed every day by great captains of industry, by chambers of commerce, by labor union leaders, by editorial writers and newspaper columnists and radio commentators, by learned statisticians using the most refined techniques, by professors of economics in our best universities. In their various ways they all dilate upon the advantages of destruction.
  • Henry Hazlitt, Economics in One Lesson (1946), Ch. 3. The Blessings of Destruction

• Though some of them would disdain to say that there are net benefits in small acts of destruction, they see almost endless benefits in enormous acts of destruction. They tell us how much better off economically we all are in war than in peace. They see “miracles of production” which it requires a war to achieve. And they see a postwar world made certainly prosperous by an enormous “accumulated” or “backed up” demand. In Europe they joyously count the houses, the whole cities that have been leveled to the ground and that “will have to be replaced.” In America they count the houses that could not be built during the war, the nylon stockings that could not be supplied, the worn-out automobiles and tires, the obsolescent radios and refrigerators. They bring together formidable totals.
  It is merely our old friend, the broken-window fallacy, in new clothing, and grown fat beyond recognition. This time it is supported by a whole bundle of related fallacies. It confuses need with demand.
  • Henry Hazlitt, Economics in One Lesson (1946), Ch. 3. The Blessings of Destruction