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Word Gems 

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Henry Hazlitt

Economics In One Lesson

 The Blessings Of Destruction

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• "... the broken window fallacy, under a hundred disguises, is the most persistent in the history of economics...

"It is solemnly reaffirmed everyday by captains of industry ... labor union leaders ... editorial writers ... professors of economics in our best universities...

• "In their various ways they all dilate upon the advantages of destruction.

• "... they see almost endless benefits in enormous acts of destruction. They tell us how much better off economically we all are in war than in peace.

"They see 'miracles of production' which it requires a war to achieve. And they see a world made prosperous by an enormous 'accumulated' or 'backed-up' demand.

"In Europe they joyously counted the houses, the whole cities that 'had to be replaced.' In America they counted the houses that could not be built during the war, the nylon stockings that could not be supplied, the worn-out automobile tires, the obsolescent radios and refrigerators...

• "[But when] they bought houses [etc.] they had just that much less purchasing power for something else. Wherever business was increased in one direction, it was  ... correspondingly reduced in another.

"It was merely our old friend, the broken-window fallacy, in new clothing, and grown fat beyond recognition. This time it was supported by a whole bundle of related fallacies.

• "It confused need and demand.

"The more war destroys, the more it impoverishes, the greater is the post-war need... But need is not demand. Effective economic demand requires not merely need but corresponding purchasing power. The needs of India today are incomparably greater than the needs of America. But its purchasing power, and therefore the 'new business' it can stimulate, are incomparably smaller.

"But if we get past this point, there is a chance for another fallacy, and the broken-windowites usually grab it. They think of 'purchasing power' merely in terms of money. Now money can be run off by the printing press...

• "But the more money is turned out in this way, the more the value of any given unit of money falls. This falling value can be measured in rising prices of commodities.

"But as most people are so firmly in the habit of thinking of their wealth and income in terms of money, they consider themselves better off as these monetary totals rise, in spite of the fact that in terms of things they may have less and buy less.

• "Most of the 'good' economic results which people attribute to war are really owing to wartime inflation.

"They could be produced just as well by an equivalent peacetime inflation. We shall come back to this money illusion later.

"Now there is a half-truth in the 'backed-up' demand fallacy, just as there is in the broken-window fallacy. The broken window did make more business for the glazier... The destruction of houses and cities did make more business for the construction and building industries ... automobiles, radios ... for those particular products.

"To most people this seemed like an increase in total demand, as it partly was in terms of dollars of lower purchasing power.

"But what mainly took place was a diversion of demand to these particular products from others...

"The war, in short, changed the post-war direction of effort ... the structure of industry...

"Some of the countries in which there was greatest destruction, such as Germany, have advanced more rapidly than others...

• "But this does not mean that property destruction is an advantage... No man burns down his own house on the theory that the need to rebuild it will stimulate his energies...

"What is harmful ... to an individual must be equally harmful ... to the collection of individuals that make up a nation...

• "Mere inflation ... the mere issuance of more money, with the consequence of higher wagers and prices -- may look like the creation of more demand. But in terms of the actual production and exchange of real things it is not.

"It should be obvious that real buying power is wiped out to the same extent as productive power is wiped out...

• "It is sometimes said that the Germans and Japanese had a post-war advantage over the Americans because, their old plants having been destroyed completely by bombs... they could replace them with the most modern plants ... and thus produce more efficiently and at lower cost than the Americans with their older ... equipment.

• "But if this were really a clear net advantage, Americans could easily offset it by wrecking their old plants ... and building new plants...

"The simple truth is that there is an optimum rate of replacement, a best time for replacement...

"Plants and equipment cannot be replaced ... unless [one] can acquire the savings, the capital ... to make the replacement. But war destroys accumulated capital.

"There may be, it is true, offsetting factors. Technological discoveries and advances during a war may ... increase individual and national productivity...

• "But [this] should not divert us from recognizing the basic truth that the wanton destruction of anything of real value is always a net loss ... and whatever the off-setting considerations ... can never be, on net balance, a boon or a blessing."