At the risk of being redundant – for me – required reading. The “Seen / Unseen” series of essays by Frederic Bastiat explains where most go wrong in thinking. The topics are as relevant today as when he wrote about it in 1850 because they address fundamental principles. At some point in your reading an “aha” moment is almost guaranteed, and I predict you will refer back to his points often.
The Broken Window article is the first in the series.
I. THE BROKEN WINDOW
Have you ever witnessed the anger of the good shopkeeper, James B., 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.
Let us take a view of industry in general, as affected by this circumstance. The window being broken, the glazier's trade is encouraged to the amount of six francs; this is that which is seen. If the window had not been broken, the shoemaker's trade (or some other) would have been encouraged to the amount of six francs; this is that which is not seen.
And if that which is not seen is taken into consideration, because it is a negative fact, as well as that which is seen, because it is a positive fact, it will be understood that neither industry in general, nor the sum total of national labour, is affected, whether windows are broken or not.
Now let us consider James B. himself. In the former supposition, that of the window being broken, he spends six francs, and has neither more nor less than he had before, the enjoyment of a window.
In the second, where we suppose the window not to have been broken, he would have spent six francs on shoes, and would have had at the same time the enjoyment of a pair of shoes and of a window.
Now, as James B. forms a part of society, we must come to the conclusion, that, taking it altogether, and making an estimate of its enjoyments and its labours, it has lost the value of the broken window.
When we arrive at this unexpected conclusion: "Society loses the value of things which are uselessly destroyed;" and we must assent to a maxim which will make the hair of protectionists stand on end - To break, to spoil, to waste, is not to encourage national labour; or, more briefly, "destruction is not profit."
What will you say, Monsieur Industriel -- what will you say, disciples of good M. F. Chamans, who has calculated with so much precision how much trade would gain by the burning of Paris, from the number of houses it would be necessary to rebuild?
I am sorry to disturb these ingenious calculations, as far as their spirit has been introduced into our legislation; but I beg him to begin them again, by taking into the account that which is not seen, and placing it alongside of that which is seen. The reader must take care to remember that there are not two persons only, but three concerned in the little scene which I have submitted to his attention. One of them, James B., represents the consumer, reduced, by an act of destruction, to one enjoyment instead of two. Another under the title of the glazier, shows us the producer, whose trade is encouraged by the accident. The third is the shoemaker (or some other tradesman), whose labour suffers proportionably by the same cause. It is this third person who is always kept in the shade, and who, personating that which is not seen, is a necessary element of the problem. It is he who shows us how absurd it is to think we see a profit in an act of destruction. It is he who will soon teach us that it is not less absurd to see a profit in a restriction, which is, after all, nothing else than a partial destruction. Therefore, if you will only go to the root of all the arguments which are adduced in its favour, all you will find will be the paraphrase of this vulgar saying - What would become of the glaziers, if nobody ever broke windows?
That Which is Seen, and That Which is Not Seen; by Frederic Bastiat.
Another example of where “what is seen” is the protection of local industry and “what is unseen” is the lowered standard of living for all, and the increased reliance on government. Frederich Bastiat
Shot in the Foot
September 6, 2008; Page A10 (Wall Street Journal)
Trade protectionism is typically defended as a way to protect American jobs, even if it doesn't. But who wins when we impose tariffs even if there are no American jobs to defend?
With the exception of high-end footwear, more than 95% of the shoes Americans wear are produced outside the U.S. Yet the U.S. still imposes a tax on imported shoes that can reach as high as 67%, a legacy (believe it or not) of the Smoot-Hawley tariff of 1930. Shoe tariffs raise more money than auto tariffs, and the tax is applied most heavily on the lowest-priced imported footwear.
"This is the most regressive policy in America today," says Ed Gresser of the Progressive Policy Institute. "The biggest victims are poor, single mothers." He's right. The tariff steals about $5 billion a year from U.S. consumers, and a family that shops at Payless or Wal-Mart typically pays a $5 duty on a $15 pair of sneakers.
As with all tariffs, this one also creates perverse winners. Under current trade law, tariffs on fabric-soled shoes are only about one-third as high as tariffs on rubber-soled shoes. So one company, E.S. Originals of New York, has a patent for a process to imbed fabric into rubber soles. The sole purpose of this process is to get around the higher tariff. Shoe companies spend $40 million a year on royalties to pay for the imbedding technology -- which is an income transfer from low-income Americans to one company. One of the firms lobbying for retaining shoe tariffs is . . . E.S. Originals.
A coalition of retailers and shoe companies has been trying to build support to repeal the shoe tax, and it already has support from 157 U.S. House Members of both parties. The argument for doing so has gained momentum as import prices have climbed more than 20% so far this year thanks to the weak dollar. We hear that Ways and Means Chairman Charlie Rangel would like to repeal the tariff but feels constrained because under Congressional rules he'd have to raise taxes or cut spending by $2 billion a year to replace the lost revenue. Congress could always save the $2 billion by spending less, but it's politically so much easier to reduce the standard of living of working families by keeping an unjust tax.
Democrats in Denver last week talked a lot about burdens facing the working class. Repealing the shoe tariff is one quick way to make that more than just another political slogan.
Common sense says that machines help mankind, yet how does one answer the issue of the unemployment machines cause? Isn't that a bad thing? Frederic Bastiat provides the simple math that explains that it is not just the inventor of the machine that benefits, it is all of society, because machines ultimately cause prices for the goods they make to be reduced, with the savings being spent on other things. The net effect is no net loss in employment, but a gain in that we can have the item at a lower price..
From Basitat's chapter VIII of "That Which is Seen, and That Which is Not Seen" written in 1850 (France).
"...Now for our demonstration, which shall not be a long one.James B. had two francs which he had gained by two workmen; but it occurs to him, that an arrangement of ropes and weights might be made which would diminish the labour by half. Thus he obtains the same advantage, saves a franc, and discharges a workman.
He discharges a workman: this is that which is seen.
And seeing this only, it is said, "See how misery attends civilization; this is the way that liberty is fatal to equality. The human mind has made a conquest, and immediately a workman is cast into the gulf of pauperism. James B. may possibly employ the two workmen, but then he will give them only half their wages for they will compete with each other, and offer themselves at the lowest price. Thus the rich are always growing richer, and the poor, poorer. Society wants remodelling." A very fine conclusion, and worthy of the preamble.
Happily, preamble and conclusion are both false, because, behind the half of the phenomenon which is seen, lies the other half which is not seen.
The franc saved by James B. is not seen, no more are the necessary effects of this saving.
Since, in consequence of his invention, James B. spends only one franc on hand labour in the pursuit of a determined advantage, another franc remains to him.
If, then, there is in the world a workman with unemployed arms, there is also in the world a capitalist with an unemployed franc. These two elements meet and combine, and it is as clear as daylight, that between the supply and demand of labour, and between the supply and demand of wages, the relation is in no way changed.
The invention and the workman paid with the first franc, now perform the work which was formerly accomplished by two workmen. The second workman, paid with the second franc, realizes a new kind of work.
What is the change, then, which has taken place? An additional national advantage has been gained; in other words, the invention is a gratuitous triumph - a gratuitous profit for mankind.
From the form which I have given to my demonstration, the following inference might be drawn: - "It is the capitalist who reaps all the advantage from machinery. The working class, if it suffers only temporarily, never profits by it, since, by your own showing, they displace a portion of the national labour, without diminishing it, it is true, but also without increasing it."
I do not pretend, in this slight treatise, to answer every objection; the only end I have in view, is to combat a vulgar, widely spread, and dangerous prejudice. I want to prove, that a new machine only causes the discharge of a certain number of hands, when the remuneration which pays them as abstracted by force. These hands, and this remuneration, would combine to produce what it was impossible to produce before the invention; whence it follows that the final result is an increase of advantages for equal labour.
Who is the gainer by these additional advantages?
First, it is true, the capitalist, the inventor; the first who succeeds in using the machine; and this is the reward of his genius and his courage. In this case, as we have just seen, he effects a saving upon the expense of production, which, in whatever way it may be spent (and it always is spent), employs exactly as many hands as the machine caused to be dismissed.
But soon competition obliges him to lower his prices in proportion to the saving itself; and then it is no longer the inventor who reaps the benefit of the invention - it is the purchaser of what is produced, the consumer, the public, including the workmen; in a word, mankind.
And that which is not seen is, that the saving thus procured for all consumers creates a fund whence wages may be supplied, and which replaces that which the machine has exhausted.
Thus, to recur to the forementioned example, James B. obtains a profit by spending two francs in wages. Thanks to his invention, the hand labour costs him only one franc. So long as he sells the thing produced at the same price, he employs one workman less in producing this particular thing, and that is what is seen; but there is an additional workman employed by the franc which James B. has saved. This is that which is not seen.
When, by the natural progress of things, James B. is obliged to lower the price of the thing produced by one franc, then he no longer realizes a saving; then he has no longer a franc to dispose of, to procure for the national labour a new production; but then another gainer takes his place, and this gainer is mankind. Whoever buys the thing he has produced, pays a franc less, and necessarily adds this saving to the fund of wages; and this, again, is what is not seen."
Why is it that logic is dismissed by otherwise logical people? In the story below, Bastiat concludes "Dear me! how much trouble there is in proving that two and two make four; and if you succeed in proving it, it is said, "the thing is so plain it is quite tiresome," and they vote as if you had proved nothing at all."
From section III in "That Which is Seen, and That Which is Not Seen" by Frederic Bastiat, 1850
Have you ever chanced to hear it said "There is no better investment than taxes. Only see what a number of families it maintains, and consider how it reacts on industry; it is an inexhaustible stream, it is life itself."In order-to combat this doctrine, I must refer to my preceding refutation. Political economy knew well enough that its arguments were not so amusing that it could be said of them, repetitions please. It has, therefore, turned the proverb to its own use, well convinced that, in its mouth, repetitions teach.
The advantages which officials advocate are those which are seen. The benefit which accrues to the providers is still that which is seen. This blinds all eyes.
But the disadvantages which the tax-payers have to get rid of are those which are not seen. And the injury which results from it to the providers, is still that which is not seen, although this ought to be self-evident.
When an official spends for his own profit an extra hundred sous, it implies that a tax-payer spends for his profit a hundred sous less. But the expense of the official is seen, because the act is performed, while that of the tax-payer is not seen, because, alas! he is prevented from performing it.
You compare the nation, perhaps, to a parched tract of land, and the tax to a fertilizing rain. Be it so. But you ought also to ask yourself where are the sources of this rain and whether it is not the tax itself which draws away the moisture from the ground and dries it up?
Again, you ought to ask yourself whether it is possible that the soil can receive as much of this precious water by rain as it loses by evaporation?
There is one thing very certain, that when James B. counts out a hundred sous for the tax-gatherer, he receives nothing in return. Afterwards, when an official spends these hundred sous and returns them to James B., it is for an equal value of corn or labour. The final result is a loss to James B. of five francs.
It is very true that often, perhaps very often, the official performs for James B. an equivalent service. In this case there is no loss on either side; there is merely in exchange. Therefore, my arguments do not at all apply to useful functionaries. All I say is, - if you wish to create an office, prove its utility. Show that its value to James B., by the services which it performs for him, is equal to what it costs him. But, apart from this intrinsic utility, do not bring forward as an argument the benefit which it confers upon the official, his family, and his providers; do not assert that it encourages labour.
When James B. gives a hundred pence to a Government officer, for a really useful service, it is exactly the same as when he gives a hundred sous to a shoemaker for a pair of shoes.
But when James B. gives a hundred sous to a Government officer, and receives nothing for them unless it be annoyances, he might as well give them to a thief. It is nonsense to say that the Government officer will spend these hundred sous to the great profit of national labour; the thief would do the same; and so would James B., if he had not been stopped on the road by the extra-legal parasite, nor by the lawful sponger.
Let us accustom ourselves, then, to avoid judging of things by what is seen only, but to judge of them by that which is not seen.
Last year I was on the Committee of Finance, for under the constituency the members of the opposition were not systematically excluded from all the Commissions: in that the constituency acted wisely. We have heard M. Thiers say - "I have passed my life in opposing the legitimist party, and the priest party. Since the common danger has brought us together, now that I associate with them and know them, and now that we speak face to face, I have found out that they are not the monsters I used to imagine them."
Yes, distrust is exaggerated, hatred is fostered among parties who never mix; and if the majority would allow the minority to be present at the Commissions, it would perhaps be discovered that the ideas of the different sides are not so far removed from each other, and, above all, that their intentions are not so perverse as is supposed. However, last year I was on the Committee of Finance. Every time that one of our colleagues spoke of fixing at a moderate figure the maintenance of the President of the Republic, that of the ministers, and of the ambassadors, it was answered-
"For the good of the service, it is necessary to surround certain offices with splendour and dignity, as a means of attracting men of merit to them. A vast number of unfortunate persons apply to the President of the Republic, and it would be placing him in a very painful position to oblige him to be constantly refusing them. A certain style in the ministerial saloons is a part of the machinery of constitutional Governments."
Although such arguments may be controverted, they certainly deserve a serious examination. They are based upon the public interest, whether rightly estimated or not; and as far as I am concerned, I have much more respect for them than many of our Catos have, who are actuated by a narrow spirit of parsimony or of jealousy.
But what revolts the economical part of my conscience, and makes me blush for the intellectual resources of my country, is when this absurd relic of feudalism is brought forward, which it constantly is, and it is favourably received too:-
"Besides, the luxury of great Government officers encourages the arts, industry, and labour. The head of the State and his ministers cannot give banquets and soirees without causing life to circulate through all the veins of the social body. To reduce their means, would starve Parisian industry, and consequently that of the whole nation."
I must beg you, gentlemen, to pay some little regard to arithmetic, at least; and not to say before the National Assembly in France, lest to its shame it should agree with you, that an addition gives a different sum, according to whether it is added up from the bottom to the top, or from the top to the bottom of the column.
For instance, I want to agree with a drainer to make a trench in my field for a hundred sous. Just as we have concluded our arrangement, the tax-gatherer comes, takes my hundred sous, and sends them to the Minister of the Interior; my bargain is at end, but the Minister will have another dish added to his table. Upon what ground will you dare to affirm that this official expense helps the national industry? Do you not see, that in this there is only a reversing of satisfaction and labour? A Minister has his table better covered, it is true, but it is just as true that an agriculturist has his field worse drained. A Parisian tavern-keeper has gained a hundred sous,I grant you; but then you must grant me that a drainer has been prevented from gaining five francs. It all comes to this, - that the official and the tavern-keeper being satisfied, is that which is seen; the field undrained, and the drainer deprived of his job, is that which is not seen. Dear me! how much trouble there is in proving that two and two make four; and if you succeed in proving it, it is said, "the thing is so plain it is quite tiresome," and they vote as if you had proved nothing at all.
The Broken Window story as told by Frederic Bastitat (link). (see also version by Henry Hazlitt which is a little easier to read, but Bastiat's should not be missed for its subtle, yet illuminating differences) Below from his essay "That Which is Seen, and That Which is Not Seen"
Have you ever witnessed the anger of the good shopkeeper, James B., 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.
Let us take a view of industry in general, as affected by this circumstance. The window being broken, the glazier's trade is encouraged to the amount of six francs; this is that which is seen. If the window had not been broken, the shoemaker's trade (or some other) would have been encouraged to the amount of six francs; this is that which is not seen.
And if that which is not seen is taken into consideration, because it is a negative fact, as well as that which is seen, because it is a positive fact, it will be understood that neither industry in general, nor the sum total of national labour, is affected, whether windows are broken or not.
Now let us consider James B. himself. In the former supposition, that of the window being broken, he spends six francs, and has neither more nor less than he had before, the enjoyment of a window.
In the second, where we suppose the window not to have been broken, he would have spent six francs on shoes, and would have had at the same time the enjoyment of a pair of shoes and of a window.
Now, as James B. forms a part of society, we must come to the conclusion, that, taking it altogether, and making an estimate of its enjoyments and its labours, it has lost the value of the broken window.
When we arrive at this unexpected conclusion: "Society loses the value of things which are uselessly destroyed;" and we must assent to a maxim which will make the hair of protectionists stand on end - To break, to spoil, to waste, is not to encourage national labour; or, more briefly, "destruction is not profit."
What will you say, Monsieur Industriel -- what will you say, disciples of good M. F. Chamans, who has calculated with so much precision how much trade would gain by the burning of Paris, from the number of houses it would be necessary to rebuild?
I am sorry to disturb these ingenious calculations, as far as their spirit has been introduced into our legislation; but I beg him to begin them again, by taking into the account that which is not seen, and placing it alongside of that which is seen. The reader must take care to remember that there are not two persons only, but three concerned in the little scene which I have submitted to his attention. One of them, James B., represents the consumer, reduced, by an act of destruction, to one enjoyment instead of two. Another under the title of the glazier, shows us the producer, whose trade is encouraged by the accident. The third is the shoemaker (or some other tradesman), whose labour suffers proportionably by the same cause. It is this third person who is always kept in the shade, and who, personating that which is not seen, is a necessary element of the problem. It is he who shows us how absurd it is to think we see a profit in an act of destruction. It is he who will soon teach us that it is not less absurd to see a profit in a restriction, which is, after all, nothing else than a partial destruction. Therefore, if you will only go to the root of all the arguments which are adduced in its favour, all you will find will be the paraphrase of this vulgar saying - What would become of the glaziers, if nobody ever broke windows?