No Free Lunch: Economics for a Fallen World: Third Edition, Revised

Chapter Thirteen: Market “Failure” and the Role of the Government 317 GREAT ECONOMISTS IN HISTORY FRÉDÉRIC BASTIAT 1801-1850 In this chapter on market failure it is appropriate to highlight an economist who was at the forefront of highlighting false economic thinking in response to market failures, Frédéric Bastiat of France. Bastiat is perhaps the greatest communicator of economic truths that economists have ever had. He was not a technically trained economist, but as a businessman in an export industry, economist Thomas DiLorenzo say s Bastiat saw first-hand the evils of protectionism— closing businesses and unemployed workers. Bastiat inherited the family business at the age of 25 and was able to comfortably pursue his intellectual interests, including political and economic philosophy. Bastiat spent the rest of his short life honing his arguments and engaging the political culture; he was elected to several offices culminating in the national assembly. Bastiat’s brilliance was in his use of the reductio ad absurdum . With this method of argumentation, he took his opponents’ policies to their logical conclusion (a conclusion that none in the general public could agree with), and showed therefore the principle must be invalid. In his classic Candlemakers’ Petition, Bastiat shows the absurdity of trade restrictions that favor domestic producers. Bastiat suggested that the candlemakers could petition legislators to prevent the sun from giving its light, since the sun was bad for domestic candlemakers and all the related jobs. “What we pray for is, that it may please you to pass a law ordering the shutting up of all windows, sky-lights, dormer-windows, outside and inside shutters, curtains, blinds, bull’s-eyes; in a word, of all openings, holes, chinks, clefts, and fissures, by or through which the light of the sun has been in use to enter houses, to the prejudice of the meritorious manufactures with which we flatter ourselves we have accommodated our country,—a country which, in gratitude, ought not to abandon us now to a strife so unequal.” – Candlemakers’ Petition Any of the objections made against the ban against the sun could just as easily be applied to other trade restrictions; Bastiat had the opponents of free trade on the run with his powerful arguments. Bastiat illustrated the fallacious reasoning in support of government policies with his Broken Window Fallacy . Bastiat noted government policies often pursue a goal that produces “seen” (but relatively small) benefits, while incurring large but “unseen” costs. In the broken window fallacy, a broken window may lead to additional spending to repair the window, and the money the repairman makes will be spent many times over. So maybe we should break more windows? The fallacy is the unseen cost; what would the businessman have spent the money on which only repaired his window? He could have purchased something that would have added to his business (such as a new machine), which would also have created the multiplying economic effect in the economy, while leaving his business better off. In his History of Economic Analysis , Joseph Schumpeter was not kind to Bastiat: “I do not hold that Bastiat was a bad theorist. I hold that he was no theorist.” Perhaps we need fewer theorists! Portrait of Frédéric Bastiat (Public Domain) 1