Warfare and the Economy

I remember during the Iraq war hearing people say that wars are usually good for boosting the US economy. Henry Hazlitt argues that this idea is nonsense and is just another version of the broken window fallacy. The French economist Frédéric Bastiat wrote a parable in 1850 about a shopkeeper’s broken window to encourage readers to consider the unintended consequences of economic and political decisions. Suppose a shopkeeper has a son who breaks one of his windows. The shopkeeper must now hire a glazier to replace his window. Some may say the act of breaking the window was a good thing because it gave money to the glazier who then uses that money to buy some other good or service, which encourages industrial activity. If this were true, then the best way to stimulate the economy would be to go around destroying and replacing all the windows in the city. Most people would agree this sounds like a ridiculous policy. The glazier has more business, but the shopkeeper has less money to patronize other businesses. Bastiat writes: “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… [p. 3]. The same can be said about any specific industries that thrive during or after wartime. Hazlitt writes that the reconstruction effort in Europe after WWII may have been beneficial for construction businesses, “But when they built more houses they had just that much less manpower and productive capacity left over for everything else” [p. 27]. Similarly, the European people had that much less money to spend on other consumer goods.

References

Frédéric Bastiat (2011). The Bastiat Collection (2nd ed.). Ludwig von Mises Institute.

Henry Hazlitt (1979). Economics in One Lesson: The Shortest and Surest Way to Understand Basic Economics. Three Rivers Press.