Today is the 209th birthday of Frederic Bastiat, the patron saint of economic communicators.
Of all the essays ever written, the one I most wish every voter could read and understand is Bastiat’s That Which is Seen and That Which is Not Seen. A boy breaks a window. Someone in the crowd observes that it’s all for the best—if windows weren’t occasionally broken, then glaziers would starve. This can’t be right, says Bastiat. If it were, we’d have no reason to diapprove of a glazier who pays boys to break windows. But why is it wrong? It’s wrong because it focuses on what is seen—six francs in the glazier’s pocket—and ignores what is unseen, namely the shoemaker who is deprived of a sale because those six francs come from what would have been the homeowner’s shoe budget.
Bastiat’s great insight in this essay is that exactly the same fallacy, in only slightly subtler form, underlies many of the public policy positions that were taken seriously in the 19th century—and, we might add, in the 21st.
The disbanding of troops (in Bastiat’s time) or a reduction in military procurement (in ours) is said to create great hardship for those who who sell bread to the troops, or parts and labor to the military contractors. It’s said that if we dismiss 100,000 unnecessary soldiers (or a 100,000 unnecessary workers), we’ll drive them into other industries where wages must fall. That’s what you see.
But what you do not see is this. You do not see that to dismiss a hundred thousand soldiers is not to do away with a hundred millions of money, but to return it to the tax-payers. You do not see that to throw a hundred thousand workers on the market, is to throw into it, at the same moment, the hundred millions of money needed to pay for their labour; that consequently, the same act which increases the supply of hands, increases also the demand; from which it follows, that your fear of a reduction of wages is unfounded. You do not see that, before the disbanding as well as after it, there are in the country a hundred millions of money corresponding with the hundred thousand men. That the whole difference consists in this: before the disbanding, the country gave the hundred millions to the hundred thousand men for doing nothing; and that after it, it pays them the same sum for working. You do not see, in short, that when a tax-payer gives his money either to a soldier in exchange for nothing, or to a worker in exchange for something, all the ultimate consequences of the circulation of this money are the same in the two cases; only, in the second case, the tax-payer receives something, in the former he receives nothing. The result is—a dead loss to the nation.
And on he goes, relentlessly applying the same observation to taxation, public support of the arts, trade restrictions, credit markets and more. Nobody has ever said it better or more accurately.
Edited to Add: Commenter Cloudesley Shovell observes that I appear to have gotten the date of Bastiat’s birthday wrong, but suggests that Bastiat is worth celebrating for the entire month of June. I regret the error and gratefully accept both the correction and the exit strategy.