Introduction
Why do I believe it is necessary to replace a classic? There are several reasons. First and foremost, it was written in 1946. A lot has happened since then, including the publication of Ludwig von Mises' Human Action (1949). Second, it was written under a strict deadline. Hazlitt had been given a six-week leave of absence, and he had to produce the book from start to finish. It is possible to do this. I have written several books in less than a month. I wrote my introductory book on Christian economics, Inherit the Earth (1987), in two weeks. But I had a tremendous advantage at the time, which a year earlier I would not have enjoyed. I had a structure, as I explain below. Hazlitt did not have a comparable structure. This made his work more difficult, and it made the book less effective than it might have been. Third, he targeted a different audience: readers of his business columns. I target Christians. (Orthodox Jews are invited to come along for the ride.) Fourth, I place ethics at the heart of my analysis: the deliberate breaking of the window. Hazlitt did not -- not explicitly, anyway.
He began the book with a classic analogy: Frédéric Bastiat's broken window. It was a powerful analytical tool when it was first published in 1850, the year the author died. It was long ignored by professional economists, probably because Bastiat was perceived by them as a journalist at best. Everyone knew that he was a gifted essayist and a master of rhetoric -- the art of persuasion. But his essays were never accepted by writers in the field of what was then called political economy. By the time that economics developed as a separate academic field after 1900, he was forgotten.
Then came Hazlitt's book. Hazlitt resurrected Bastiat's brilliant analogy, and then he applied it, chapter by chapter, state intervention by state intervention. He demonstrated the analytical power of the original observation. The fundamental insight of Bastiat was this: the typical observer of economic affairs is blinded by the visibility of the effects of spending. He does not think to investigate what else could have been done with the money. This insight has become the most common definition of economic cost: the most valuable use forgone because a buyer spends the money on something else. Anyone who wants to demonstrate economic logic can do no better than to invoke the broken window analogy.
Every economic decision is something of a broken window. It is the substitution of a new set of conditions for an older set of conditions. Maybe we do not break the old window, but we exchange it for something we think will be better. We come to forks in the road, decision by decision. Once we take a particular fork in the road, we can never return to exactly the same fork. Our world changes at the margin. It changes because of the decision which we made. So, when we think of the cost of any decision, we should always think of it as a decision to go down one road rather than another. We spend our money and we spend our time on one thing, and therefore we cannot spend it on another.
Because public works were popular in France in 1850, and everywhere else, Bastiat's observation helped make it possible to come to grips with the real costs that are borne by individuals and societies when violence is used against a property owner. Just because the government is the violator, this in no way changes the economic analysis of the replacement costs of the broken window.
The power of the analogy is simple, for this reason: we can understand it. It does not involve a long chain of reasoning. We find it difficult to follow long chains of reasoning, and economic analysis, more than any other social science, usually involves long chains of reasoning. People get lost along the way. Also, as the reasoning becomes more complex, people's commitment to the details of the chain of reasoning grows weaker. If it is necessary to argue a point in such a way that not a single link in the chain is left out or misapplied, then the outcome of the chain of reasoning is not clear, either to the person making the argument, or to the person who is listening carefully -- initially -- and attempting to follow it. The longer the argument, the less its persuasive strength. People get bogged down in the details. They cannot keep the details straight. If you can't keep the details straight, you cannot be confident that you have gone from point A to point Z in a systematic and accurate way.
Making effective use of the analogy of the broken window involves pointing to only a couple of short chains of reasoning. There are more chains, and they can be long, but you don't need to follow all of them in order to make your point. Most people can follow this chain, and one of the reasons why they can follow it is the simplicity of the analogy. We can understand a broken window. We can understand the economic burden of replacing that window. We do not get bogged down in a long chain of reasoning.
This is why Hazlitt's book was a success. Bastiat did not make it work in his lifetime. He died in the year he came up with it. A century later, Henry Hazlitt made it work.
My book is not an attempt to reinvent the wheel. My book is an attempt to re-balance the wheel, stick a new tire on it, and to sell it to a new audience.
I believe that Christian economics must begin with the issue of ultimate ownership. This sets it apart from modern economic analysis, which begins with the issue of scarcity. Second, this leads to the issue of theft, which in turn raises the issue of ethics.
I believe that the ultimate form of causation in human history is ethical: right vs. wrong. Modern economists do not share my view. It goes beyond this. They openly reject it. They proclaim economic analysis as value-free. I regard this as self-deception. It is a variation of an ancient temptation: "Hath God said?" Yes, He has. "Thou shalt not steal." There are negative sanctions attached to this commandment. These negative sanctions are both endogenous (inherent in the economy) and exogenous (imposed by God on the economy).
A. Adam Smith's Strategic Error
I come now to a crucial point. I am not the first person to make this point; Tom Bethell is. He did this in Chapter 7 of his book, The Noblest Triumph (1998). Adam Smith began with scarcity as the heart of his economic analysis: the famous third chapter in The Wealth of Nations (1776). This was on the division of labor/specialization. He set the pattern for subsequent economic theorists.
Smith should have started with ownership. He should have made private ownership the bedrock foundation of his analysis.
By beginning with the division of labor, he committed a strategic error. Critics from the Left immediately challenged him. They were also able to invoke the division of labor. They invoked state planning as a way to deal with the problems of coordinating the division of labor.
The fundamental economic issue, ownership, did not become a major focus of economic theory until the 1950's. So, for almost two centuries, the crucial economic issue had not been central in free market economic analysis.
B. Bastiat's Two Essays
In 1850, the year of his death, Bastiat wrote a long essay, "That Which is Seen, and That Which is Not Seen." In it, he offered an analogy: the broken window. Someone throws a stone through another man's window. That man must now replace his window. He will have to hire a window repairman, who in turn will have to hire others. The broken window has therefore led to greater spending. The economy benefits.
Yet the victim experienced a loss. How can good come out of bad? How can a destructive act produce wealth? This was a paradox that confronted Bastiat. He solved it brilliantly. The owner of the window had other uses for his money. These he regarded as better uses. He either would have saved his money or else he would have spent it on other things besides a new window. In either case, the economy would have benefitted. Other producers would have benefitted. This, he said, is that which is not seen. The spending on the new window is what people see.
In short, he said, "follow the money." Follow the money backwards: back to what he would have done, had not an envy-driven person tossed a stone through that window.
This is a strategy of economic analysis. Bastiat ended his essay by quoting a French author.
I might subject a host of other questions to the same test; but I shrink from the monotony of a constantly uniform demonstration, and I conclude by applying to political economy what Chateaubriand says of history:"There are," he says, "two consequences in history; an immediate one, which is instantly recognized, and one in the distance, which is not at first perceived. These consequences often contradict each other; the former are the results of our own limited wisdom, the latter, those of that wisdom which endures. The providential event appears after the human event. God rises up behind men. Deny, if you will, the supreme counsel; disown its action; dispute about words; designate, by the term, force of circumstances, or reason, what the vulgar call Providence; but look to the end of an accomplished fact, and you will see that it has always produced the contrary of what was expected from it, if it was not established at first upon morality and justice." -- Chateaubriand's Posthumous Memoirs.
There is a second fact, even more crucial to my book, but not for Hazlitt's: the issue of ethics. Bastiat wrote another essay in 1850: The Law. In that essay, he turned to ethics, namely, the issue of theft. He described the welfare state. He also identified its underlying motive. He called this the politics of plunder.
The Fatal Idea of Legal PlunderBut on the other hand, imagine that this fatal principle has been introduced: Under the pretense of organization, regulation, protection, or encouragement, the law takes property from one person and gives it to another; the law takes the wealth of all and gives it to a few -- whether farmers, manufacturers, ship owners, artists, or comedians. Under these circumstances, then certainly every class will aspire to grasp the law, and logically so.
The excluded classes will furiously demand their right to vote -- and will overthrow society rather than not to obtain it. Even beggars and vagabonds will then prove to you that they also have an incontestable title to vote. They will say to you:
"We cannot buy wine, tobacco, or salt without paying the tax. And a part of the tax that we pay is given by law -- in privileges and subsidies -- to men who are richer than we are. Others use the law to raise the prices of bread, meat, iron, or cloth. Thus, since everyone else uses the law for his own profit, we also would like to use the law for our own profit. We demand from the law the right to relief, which is the poor man's plunder. To obtain this right, we also should be voters and legislators in order that we may organize Beggary on a grand scale for our own class, as you have organized Protection on a grand scale for your class. Now don't tell us beggars that you will act for us, and then toss us, as Mr. Mimerel proposes, 600,000 francs to keep us quiet, like throwing us a bone to gnaw. We have other claims. And anyway, we wish to bargain for ourselves as other classes have bargained for themselves!"
And what can you say to answer that argument!
Perverted Law Causes Conflict
As long as it is admitted that the law may be diverted from its true purpose -- that it may violate property instead of protecting it -- then everyone will want to participate in making the law, either to protect himself against plunder or to use it for plunder. Political questions will always be prejudicial, dominant, and all-absorbing. There will be fighting at the door of the Legislative Palace, and the struggle within will be no less furious. To know this, it is hardly necessary to examine what transpires in the French and English legislatures; merely to understand the issue is to know the answer.
Bastiat based his analysis on the issue of ethics: a refusal to use the state for the purpose of plunder.
This question of legal plunder must be settled once and for all, and there are only three ways to settle it:The few plunder the many.
Everybody plunders everybody.
Nobody plunders anybody.
To understand correctly Bastiat's essay on the thing not seen, we must understand its connection to his idea of the state acting as an agency of plunder. He grounded his analysis of the economics of the broken window in terms of his broader concern: to persuade people not to adopt the politics of plunder.
He took a stand against the modern welfare statist's rewriting of God's commandment, "Thou shalt not steal." They have revised it as follows: "Thou shalt not steal, except by majority vote."
C. Hazlitt's Partial Use of Bastiat
We now return to Hazlitt's book. Hazlitt, following the lead of Bastiat, began with a violation of private property: the broken window. This act was a violation of ownership, but Hazlitt did not focus on the rights of ownership. In other words, he did not begin with the fundamental economic issue: "Who is legally responsible for the allocation of property, and why?" But there was a fundamental difference in Hazlitt's approach. He did not ground his criticism of state intervention in terms of ethics. He limited his use of the analogy of the broken window to this: a refutation of state intervention as the basis of economic growth.
Both men began with a negative sanction: throwing a stone through a window. This was a violation of property rights, but they never mentioned property rights. Had they done so, this would have raised the issue of ownership.
Then they followed the money. They showed that the owner had to re-allocate his financial budget to replace the broken window. Already, he was a loser. That was because he was a victim of a violent invasion of his rights of ownership.
Bastiat in The Law extended his critiques of state interventionism that he presented in his essay on the thing not seen. His criticism of the state in the essay was not grounded in morality. He merely traced the economic causes to their effects: a forced redistribution of wealth. Hazlitt picked up on this theme, but he did not adopt Bastiat's ethics-based refutation of state intervention, which jhe prresented in The Law.
This is a fundamental difference between my book and Hazlittt's. I return to Bastiat's ethics-based analysis in The Law.
I begin with ownership. Specifically, I begin with God's ownership of all things. Men's ownership is delegated ownership. It is inherently a form of stewardship. This is a multi-phased stewardship: up to God, outward toward other participants in the economy, downward to those under his legal and also economic authority, and inward toward himself. Any violation of this stewardship is theft. It is a violation of ethics. So, by grounding my concept of ownership on the concept of God's ownership, I necessarily must invoke the issue of ethics: "Thou shalt not steal."
Hazlitt used Bastiat's broken window analogy as the analytical basis of his chapters. He followed the money analytically. He and Bastiat followed it back to the money owned by the window owner before someone tossed a stone through his window.
Beyond this general reliance on Bastiat's analytical procedure, Hazlitt followed no structure in his chapters. He was a clear writer. He was unique in this regard. But the chapters are not self-consciously structured in terms of a series of themes. I call these cookie-cutters. I use them all the time. Without these, it is difficult to recall the specifics of Hazlitt's arguments in each chapter.
I like to keep thing simple. So, I have adopted a five-point model. I cut each chapter into these five analytical cookies:
1. Owner
2. Window
3. Stone
4. Costs
5. Consequences.
I have written a book on this approach: The Covenantal Structure of Christian Economics (2015). I divide economics into these five categories:
1. Ownership
2. Stewardship 3. Law
4. Sanctions
5. Inheritance
In terms of social theory in general, these are as follows:
1. Sovereignty
2. Authority/hierarchy/representation
3. Ethics/law
4. Sanctions: positive and negative
5. Succession
The archetype is this:
1. God
2. Man
3. Law
4. Judgment
5. Time
I have written a book on this: Unconditional Surrender (5th ed., 2010).
I have worked with this structure since 1986. It affects much of my writing. It no doubt limits my thinking, but it also focuses my thinking. It makes it fairly easy to write rapid analyses, such as this book, which took a little under a hundred hours. I may miss lots of important issues, but these five are always the most important issues. Social theory that ignores any of these five points cannot be accurate. It is seriously incomplete.
By the way, just for the record, the Pentateuch is structured in terms of this framework:
Genesis (creation/sovereignty)
Exodus (hierarchy: Moses vs. Pharaoh)
Leviticus (laws)
Numbers (sanctions/war)
Deuteronomy (inheritance/conquest)
I wrote 16 of the 31 volumes of my economic commentary of the Bible to prove this, and then explore its implications.
For those of you who wonder where I got this structure, it was from a book published by my Institute for Christian Economics, Ray Sutton's That You May Prosper (1987). He derived it from Meredith Kline's The Treaty of the Great King (1963). Kline got it from George Mendenhall: Law and Covenant in Israel and the Ancient Near East (1955). I like to think that Mendenhall got it from God.
After you have read half a dozen of my chapters, you should be able to figure out in advance what I will say in each of the next chapters. As I say, I use a cookie cutter. Once you understand it, you will find that my analyses are straightforward.
Hazlitt did the grunt work in 1946. He, too, used a cookie cutter: Bastiat's analogy of the broken window. He had another at his disposal: Bastiat's concept of the politics of plunder. He did not pick it up and use it. I do.
I begin with point one: God is the original owner. My analysis there relates to the doctrine of subjective economic imputation: unitary, yet also corporate. God imputes value. I also cover economic stewardship (delegated ownership): individual, yet also corporate. I assume these doctrines in this book, but I do not expound them. I assume the existence of corporate judgment on corporate violations of private property.
Because God delegates ownership to individuals and institutions, this ownership is legitimate. It establishes ownership in society: a stewardship function. I begin here in each chapter: point one.
Point two is the window: the legal and institutional arrangements that are based on private ownership. Private ownership is a legal extension of the biblical concept of stewardship. God holds owners responsible for the administration of God's property. Thus, theft is an assault on God by way of His lawfully constituted legal and economic agents.
I identify the state's breaking of the window as an act of theft. It is a violation of God's legal boundaries around private property. I say what Hazlitt refused to say: state intervention into the private property order is organized theft. This is point three of my model: law.
Theft has consequences: sanctions. This is point four. I follow Hazlitt's lead in discussing the specific cause-and-effect outcomes of government intervention, chapter by chapter. This intervention makes most people poorer: the opposite of what promoters of government intervention promised the voters. Some people do get richer: the beneficiaries of the intervention.
The result of this reduction of wealth is reduced economic growth: point five of my model.
With this as background, you are ready for my book.
Note: the 1979 edition of Hazlitt's book, published by Arlington House, included an extra chapter, listed as Chapter XVIII: "What Rent Control Does." It does not appear in the edition published in 2008 by the Mises Institute. It did not appear in the 1946 edition.For documentation, go here: http://bit.ly/CEIOL-Doc-Intro
All chapters of my book are here: http://bit.ly/CEIOL