Some people have gotten upset at me for attempting to reduce their opportunity costs, since my last Independence Day article. Accusations levied at me ranging from acting as a “negative Nancy,” to inadvertently working on behalf of controlled opposition, have been flung my way for only being so bold as to point out their errors. I suspect the reason for why my critics react in such a vitriolic manner is because they are unable, or perhaps even unwilling, to see that which is not seen.
A parable of the broken window is told to us by the classically liberal political economist Frédéric Bastiat (who was also the author of The Law) in order to demonstrate to us how opportunity costs are incurred. If some ruffian breaks a window, then the presumption is that the shopkeeper would invest a portion of his saved capital to replace the now empty frame with a new windowpane. The question here, that nearly everyone who misunderstands this issue seems to miss, is whether the ruffian ultimately created or destroyed the shopkeeper’s wealth?
Although the demand for a new window from the shopkeeper does provide an opportunity for the glazier to supply that demand, what is neglected are the other potential uses of what that exact same capital could have been allocated towards instead, had the ruffian not broken the window. For instance, let’s assume the shopkeeper had been setting aside some of his profits in order to buy a new suit from the tailor, and that he was nearly close to his savings goal, and had tentatively planned to buy the suit from the tailor the following week. Unfortunately, the ruffian intervened, thereby chaotically upsetting the shopkeeper’s attempt to satisfy his desire for a new suit; and now, to keep his business afloat by continuing to attract both repeat and newer customers, the shopkeeper must now delay even longer in buying that suit he wanted from the tailor because he must now allocate that same capital towards buying a new windowpane from the glazier instead.
In other words, there are three rational actors here, not two; the shopkeeper, the glazier, and the tailor. It is the tailor who is “that which is not seen,” because he is not a party to the immediate transaction for the new windowpane between the shopkeeper and the glazier; the tailor represents a missed opportunity for the shopkeeper, presumably a more desirable one than what he ended up choosing to do. As Bastiat put it:
“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 see a profit in a restriction, which is, after all, nothing else than a partial destruction. Therefore, if you only go to the root of all arguments which are adduced to its favor, all you will find will be the paraphrase of this vulgar saying – What would become of the glaziers, if nobody ever broke windows?”
This analysis could arguably be applied to various fields of human endeavor, from picking cotton to building roads. Most revealingly, Bastiat goes on to reveal the opportunity costs of government wars, thereby debunking the notion of so-called “military Keynesianism” well before it was ever termed as such.
After pointing out the opportunity costs for actions levied against taxpayers ranging from taxation to subsidies, Bastiat decided to address a critique lobbied at him by the statists of his time. He said:
“Our adversaries consider, than an activity which is neither aided by supplies, nor regulated by Government, is an activity destroyed. We think just the contrary. Their faith is in the legislator, not in mankind; ours is in mankind, not in the legislator.”
Sadly, Bastiat’s observation here is more than applicable to our own detrimental political situation, especially if you consider the fourth branch of government. Bastiat also critiqued how any currency has the potential to warp an individual’s sense of value and wealth:
“But let us go to the root of the matter. We are deceived by money. To demand the cooperation of all the citizens in a common work, in the form of money, is in reality to demand a concurrence in kind; for every one procures, by his own labour, the sum to which he is taxed. Now, if all the citizens were to be called together, and made to execute, in conjunction, a work useful to all, this would be easily understood; their reward would be found in the results of the work itself.”
It’s almost as if Bastiat is encouraging direct barter here (despite its limitations due to its inherent problems of indivisibility of the goods being traded as well as the double coincidence of wants that is difficult to satisfy, to say the least), yet, Bastiat’s observation is well taken here, for I think he is illustrating how the perception of money could twist someone’s judgment about the value of his labor (of course, this necessarily implies a further explication on whether it matters what theory of value you subscribe to, but such a nuanced explanation is outside the scope of this book report).
I was also pleased to see how Bastiat showed the inherent corruption with the entire practice of so-called “government regulations.” Using the example of how one Monsieur Prohibant was able to offset his personal risk of market intervention by getting the French government to ban the import of all Belgian iron just so he could monopolize on that product by raising the price of his own iron by 5 francs, Bastiat concludes that:
“The violence used by M. Prohibant on the frontier, or that which he causes to be used by the law, may be judged very differently in a moral point of view. Some persons consider that plunder is perfectly justifiable, if only sanctioned by law. But, for myself, I cannot imagine anything more aggravating. However it may be, the economical results are the same in both cases. Look at the thing as you will; but if you are impartial, you will see that no good can come of legal or illegal plunder…[h]ere is the moral: To take by violence is not to produce, but to destroy. Truly, if taking by violence was producing, this country of ours would be a little richer than she is.”
Bastiat brilliantly described here how such corporatist plundering takes place; it’s all done by way of government law. With a thin veneer of moral sanctioning behind it, people typically do not resist such bans because the violence inherent in the system is hidden, as opposed to the violence that Monsieur Prohibant could have openly initiated had he taken the risk of coercing his competition himself (which, of course, would have been easily observable). In other words, the reason why despotic special interests actually prefer “government regulations” over street gang tactics is because it makes it possible for them to privatize gains while simultaneously socializing the losses; the real tragedy here is that these socialized losses are hidden simply because they are opportunity costs, usually expressed in the form of potential competitors who do not become so because the barriers to entry are set too high, for example. The more opportunity costs that government can inflict, the more it can hide its tyranny that much easier from the public.
Frédéric Bastiat’s Ce quo’on et ce qu’on ne voit pas (That Which is Seen and That Which is Unseen) is a groundbreaking economic work about the deception and trickery involved in government propaganda that insists on central planning, because they are preying on the public’s ignorance of opportunity costs. Granted, it could be argued that opportunity costs are hidden negative externalities, but either way, that does not therefore mean that the unintended consequences of those reformists who champion or acquiescence to “government regulations” should just be accepted as a matter of course. Much like the biological process of microevolution, the market generates wealth through the phenomenon of spontaneous order; thus, it does not require some grand designer(s) to sit down and painfully sketch out the intricate details for how a grandfather clock is going to function. All that is needed is to take laissez-faire seriously by allowing each human to determine for himself how best to provide for his own survival and how to satisfy his own desires.