If fire break out, and catch in thorns, so that the stacks of corn, or the standing corn, or the field, be consumed therewith; he that kindled the fire shall surely make restitution (Exodus 22:6).

This passage has to do with legal liability. If somebody sets a fire on his own property, and this fire spreads to his neighbor’s property, the man who set the fire is legally responsible. He has to make restitution to his victim. This is a case of accidental damage. How much greater the liability when the damage is deliberate?

The Bible makes it clear that ownership involves legal responsibility. An owner is responsible for his property-based actions. He is not entitled to pass on his costs of ownership to his neighbor, unless his neighbor has given permission. His neighbor has been granted legal immunity for his property. This is a legal boundary. No one is allowed to invade his property. This is not just geographical property; this is any form of property. Economics in One Lesso... Hazlitt, Henry Best Price: $2.43 Buy New $7.43 (as of 12:35 UTC - Details)

Here, we see that the Bible teaches a concept of profit and loss. The owner of the initial field hopes to benefit in some way from lighting a fire on his property. This is a cost of operation. This is a risk. He is not allowed to transfer this risk to his neighbor. It is clear that in the case of a fire, his neighbor has suffered damages. The man who started the fire is legally responsible for the damages inflicted on the neighbor. This is a concept of strict liability.

There is not a hint in this text that neighborhoods are benefited by fires that get out of control. There is not a sense of the idea that invading another person’s property can take place at zero cost to either society or the victim. If this is true of an accidental fire, how much greater is the liability in the case of an arsonist?

With this as background, let us study the example of a perverse idea: the idea that inflicting destruction creates wealth. Hazlitt began with the issue of war. In 1946, this was in everybody’s mind. The world had just come through a devastating conflagration in which something in the range of 60 million people had died. He began with popular opinion, including the great captains of industry, chambers of commerce, labor union leaders, and editorial writers.

Though some of them would disdain to say that there are net benefits in small acts 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 postwar world made certainly prosperous by an enormous “accumulated” or “backed-up” demand. The Law Frederic Bastiat Best Price: $0.99 Buy New $5.80 (as of 06:15 UTC - Details)

He then reminded the reader: “It is merely our old friend, the broken-window fallacy, in new clothing, and grown fat beyond recognition.”

The assumption underlying the fallacy is that backed-up demand is a positive force in society. This demand has come about as a result of the prior destruction. Hazlitt went on to explain that just because people would like to own something that had been destroyed does not produce demand. Only their productivity produces demand. As in the case of the man with the broken window, this productivity will be used to purchase goods and services that the owner of the recently destroyed goods would not otherwise have purchased, had his goods not been destroyed.

1. Owner

The owner of the broken goods was a victim of violence. The war had invaded his property. He is now poorer than he had been before the war began. He had owned property that was in good working order. He now owns a pile of rubble. He has suffered a major loss.

Had his next-door neighbor started a fire on his own property, and the fire had spread to his neighbor’s property, the fire-starter would owe restitution. The victim would be compensated for his loss. Because he had been made poorer by the fire, he is legally entitled to restitution from the person who started the fire. There is no sense in which the owner of the burned-over property is better off than he was before the fire. Similarly, there is no sense in which the owner of rubble is better off because the war invaded his property.

An owner has responsibilities in life. These responsibilities led him to accumulate property before the war. Now this property is destroyed. This reduction of personal responsibility has taken place Against the State: An ... Rockwell Jr., Llewelly... Best Price: $5.02 Buy New $5.52 (as of 11:35 UTC - Details) through no fault of his own. But, to the extent that his property had enabled him better to fulfill his responsibilities, whether to God, his family, his community, or himself, he is now less able to fulfill those responsibilities than he had been prior to the war.

As an owner, he had been the beneficiary of multiple streams of income from his capital goods. He no longer has these streams of income because he no longer has functioning capital goods. He is poorer in terms of income than he had been before the war. He is less able to fulfill his responsibilities in life.

He also has a new concern. Will there be another war? Will his property be invaded again? Should he accumulate property that is easily destroyed in wartime? Should he allocate his property, such as labor, into forms of capital which, if he were confident of continuing peace, he would not consider? His life has been disrupted by the war, and not simply in the past. The war has reminded him of his own vulnerability. He must now consider allocations of his capital that will reduce his consumption or reduce his productivity, but which are necessary to protect him against another outbreak of violence.

2. Window

As an owner of capital, he had served the community. Scarce economic resources have economic value. We know this because they command prices in the market. Somebody is willing to bid for either ownership or the use of the resources. Somebody must make the decision regarding who should have access to these resources. Who should have access to the income streams or the streams of production that are generated by this property? Such decisions are not made at zero cost. Somebody has to be economically responsible for them. Somebody has to make decisions in terms of The Road to Serfdom: T... F. A. Hayek, Bruce Cal... Best Price: $3.06 Buy New $1.99 (as of 03:40 UTC - Details) the highest bids of consumers or their economic agents, entrepreneurs.

Before the war, the owner had decided that he would make the highest bids to retain ownership. He therefore forfeited the use of whatever money or wealth that the highest bidder for everything he owned would have paid him. That was his cost of operation. In terms of his own hierarchy of values, both moral and economic, he allocated wealth to retain ownership of his property.

If this property provided income for him, then he was able to make voluntary exchanges with other people. But now his tools of production are broken. Now he cannot afford to make these exchanges. The productivity that his tools of production had previously provided him is missing in action.

To say that he is better off now than he was before the war is ludicrous. Hazlitt’s argument shows that he is not better off. Now he must spend money or time to replenish his stock of capital. He may make these expenditures, but the cost of these expenditures ought to be clear: whatever he would otherwise have purchased, had the war not invaded his property. The broken tools of production, analytically speaking, are exactly like the broken window. He is the victim of violence.

There is no pent-up demand. There may be post-war demand, because the victim needs to replace his broken property. But this demand would have been manifested even if there had been no war. It simply would have been manifested in other areas of the economy. Total demand is less than it would otherwise have been, because the wealth of the person going into markets and attempting to buy goods and services is less than it was prior to the war. Human Action Ludwig von Mises Check Amazon for Pricing.

3. Stone

The implements that were used to destroy his property were weapons. They were deliberately designed to break things. He has been the victim of concentrated violence. He has been the victim of violence imposed on a systematic basis. In this case, the destroyer’s motivation was not envy. His motivation was destruction for the sake of the official causes of the war.

There is no doubt that war is destructive. It is certainly more destructive than a stone thrown at midnight by an envy-driven vandal. The war’s victim has suffered greater loss than the stone would have inflicted on him.

It may be that he was not the direct victim. But he was forced to pay taxes to support the war effort. He is therefore poorer than he would have been if he had not had to pay those taxes. There is no pent-up demand.

Read the Whole Article

The Best of Gary North