THE BLESSING OF DESTRUCTION
SO WE HAVE finished with the broken window. An elementary
fallacy. Anybody, one would think, would be able to avoid it
after a few moments' thought. Yet the broken-window fallacy,
under a hundred disguises, is the most persistent in the history
of economics. It is more rampant now than at any time in the
past. It is solemnly reaffirmed every day by great captains of
industry, by chambers of commerce, by labor union leaders,
by editorial writers and newspaper columnists and radio and
television commentators, by learned statisticians using the
most refined techniques, by professors of economics in our best
universities. In their various ways they all dilate upon the
advantages of destruction.
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 world made prosperous by an enormous
"accumulated" or "backed-up" demand. In Europe, after
World War II, they joyously counted the houses, the whole
cities that had been leveled to the ground and 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 automobiles and tires, the obsolescent
radios and refrigerators. They brought together formidable
totals.
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 with demand. The more war destroys, the more it
impoverishes, the greater is the postwar need. Indubitably.
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" that 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. As this is being written, in
fact, printing money is the world's biggest industry—if the
product is measured in monetary terms. 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 at
the time attributed to World War I I were really owing to
wartime inflation. They could have been, and were, 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 was in the broken-window fallacy. The broken
window did make more business for the glazier. The destruction
of war did make more business for the producers of certain
things. The destruction of houses and cities did make more
business for the building and construction industries. The
inability to produce automobiles, radios, and refrigerators during
the war did bring about a cumulative postwar demand 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 people of Europe built
more new houses than otherwise because they had to. But
when they built more houses they had just that much less
manpower and productive capacity left over for everything
else. When they bought houses they had just that much less
purchasing power for something else. Wherever business was
increased in one direction, it was (except insofar as productive
energies were stimulated by a sense of want and urgency)
correspondingly reduced in another.
The war, in short, changed the postwar direction of effort; it
changed the balance of industries; it changed the structure of
industry.
Since World War I I ended in Europe, there has been rapid
and even spectacular "economic growth" both in countries that
were ravaged by war and those that were not. Some of the
countries in which there was greatest destruction, such as
Germany, have advanced more rapidly than others, such as
France, in which there was much less. In part this was because
West Germany followed sounder economic policies. In part it
was because the desperate need to get back to normal housing
and other living conditions stimulated increased efforts. But
this does not mean that property destruction is an advantage to
the person whose property has been destroyed. No man burns
down his own house on the theory that the need to rebuild it
will stimulate his energies.
After a war there is normally a stimulation of energies for a
time. At the beginning of the famous third chapter of his History
of England, Macaulay pointed out that:
No ordinary misfortune, no ordinary misgovern-
ment, will do so much to make a nation wretched as
the constant progress of physical knowledge and the
constant effort of every man to better himself will do
to make a nation prosperous. It has often been found
that profuse expenditure, heavy taxation, absurd
commercial restriction, corrupt tribunals, disastrous
wars, seditions, persecutions, conflagrations, inundations,
have not been able to destroy capital so fast
as the exertions of private citizens have been able to
create it.
No man would want to have his own property destroyed
either in war or in peace. What is harmful or disastrous to an
individual must be equally harmful or disastrous to the collection
of individuals that make up a nation.
Many of the most frequent fallacies in economic reasoning
come from the propensity, especially marked today, to think in
terms of an abstraction—the collectivity, the "nation"—and to
forget or ignore the individuals who make it up and give it
meaning. No one could think that the destruction of war was an
economic advantage who began by thinking first of all of the
people whose property was destroyed.
Those who think that the destruction of war increases total
"demand" forget that demand and supply are merely two sides
of the same coin. They are the same thing looked at from
different directions. Supply creates demand because at bottom
it is demand. The supply of the thing they make is all that
people have, in fact, to offer in exchange for the things they
want. In this sense the farmers' supply of wheat constitutes
their demand for automobiles and other goods. All this is
inherent in the modern division of labor and in an exchange
economy.
This fundamental fact, it is true, is obscured for most people
(including some reputedly brilliant economists) through such
complications as wage payments and the indirect form in which
virtually all modern exchanges are made through the medium
of money. John Stuart Mill and other classical writers, though
they sometimes failed to take sufficient account of the complex
consequences resulting from the use of money, at least saw
through "the monetary veil" to the underlying realities. To that
extent they were in advance of many of their present-day
critics, who are befuddled by money rather than instructed by
it. Mere inflation—that is, the mere issuance of more money,
with the consequence of higher wages 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. We should
not let ourselves be deceived or confused on this point by the
effects of monetary inflation in raising prices or "national income"
in monetary terms.
It is sometimes said that the Germans or the Japanese had a
postwar advantage over the Americans because their old plants,
having been destroyed completely by bombs during the war,
they could replace them with the most modern plants and
equipment and thus produce more efficiently and at lower costs
than the Americans with their older and half-obsolete plants
and equipment. But if this were really a clear net advantage,
Americans could easily offset it by immediately wrecking their
old plants, junking all the old equipment. In fact, all manufacturers
in all countries could scrap all their old plants and
equipment every year and erect new plants and install new
equipment.
The simple truth is that there is an optimum rate of replacement,
a best time for replacement. It would be an advantage for
a manufacturer to have his factory and equipment destroyed by
bombs only if the time had arrived when, through deterioration
and obsolescence, his plant and equipment had already acquired
a null or a negative value and the bombs fell just when he
should have called in a wrecking crew or ordered new equipment
anyway.
It is true that previous depreciation and obsolescence, if not
adequately reflected in his books, may make the destruction of
his property less of a disaster, on net balance, than it seems. It is
also true that the existence of new plants and equipment speeds
up the obsolescence of older plants and equipment. If the
owners of the older plant and equipment try to keep using it
longer than the period for which it would maximize their profit,
then the manufacturers whose plants and equipment were
destroyed (if we assume that they had both the will and capital
to replace them with new plants and equipment) will reap a
comparative advantage or, to speak more accurately, will reduce
their comparative loss.
We are brought, in brief, to the conclusion that it is never an
advantage to have one's plants destroyed by shells or bombs
unless those plants have already become valueless or acquired a
negative value by depreciation and obsolescence.
In all this discussion, moreover, we have so far omitted a
central consideration. Plants and equipment cannot be replaced
by an individual (or a socialist government) unless he or
it has acquired or can acquire the savings, the capital accumulation,
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, for example, increase
individual or national productivity at this point or that,
and there may eventually be a net increase in overall productivity.
Postwar demand will never reproduce the precise pattern
of prewar demand. But such complications should not divert us
from recognizing the basic truth that the wanton destruction of
anything of real value is always a net loss, a misfortune, or a
disaster, and whatever the offsetting considerations in a particular
instance, can never be, on net balance, a boon or a
blessing.
SO WE HAVE finished with the broken window. An elementary
fallacy. Anybody, one would think, would be able to avoid it
after a few moments' thought. Yet the broken-window fallacy,
under a hundred disguises, is the most persistent in the history
of economics. It is more rampant now than at any time in the
past. It is solemnly reaffirmed every day by great captains of
industry, by chambers of commerce, by labor union leaders,
by editorial writers and newspaper columnists and radio and
television commentators, by learned statisticians using the
most refined techniques, by professors of economics in our best
universities. In their various ways they all dilate upon the
advantages of destruction.
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 world made prosperous by an enormous
"accumulated" or "backed-up" demand. In Europe, after
World War II, they joyously counted the houses, the whole
cities that had been leveled to the ground and 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 automobiles and tires, the obsolescent
radios and refrigerators. They brought together formidable
totals.
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 with demand. The more war destroys, the more it
impoverishes, the greater is the postwar need. Indubitably.
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" that 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. As this is being written, in
fact, printing money is the world's biggest industry—if the
product is measured in monetary terms. 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 at
the time attributed to World War I I were really owing to
wartime inflation. They could have been, and were, 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 was in the broken-window fallacy. The broken
window did make more business for the glazier. The destruction
of war did make more business for the producers of certain
things. The destruction of houses and cities did make more
business for the building and construction industries. The
inability to produce automobiles, radios, and refrigerators during
the war did bring about a cumulative postwar demand 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 people of Europe built
more new houses than otherwise because they had to. But
when they built more houses they had just that much less
manpower and productive capacity left over for everything
else. When they bought houses they had just that much less
purchasing power for something else. Wherever business was
increased in one direction, it was (except insofar as productive
energies were stimulated by a sense of want and urgency)
correspondingly reduced in another.
The war, in short, changed the postwar direction of effort; it
changed the balance of industries; it changed the structure of
industry.
Since World War I I ended in Europe, there has been rapid
and even spectacular "economic growth" both in countries that
were ravaged by war and those that were not. Some of the
countries in which there was greatest destruction, such as
Germany, have advanced more rapidly than others, such as
France, in which there was much less. In part this was because
West Germany followed sounder economic policies. In part it
was because the desperate need to get back to normal housing
and other living conditions stimulated increased efforts. But
this does not mean that property destruction is an advantage to
the person whose property has been destroyed. No man burns
down his own house on the theory that the need to rebuild it
will stimulate his energies.
After a war there is normally a stimulation of energies for a
time. At the beginning of the famous third chapter of his History
of England, Macaulay pointed out that:
No ordinary misfortune, no ordinary misgovern-
ment, will do so much to make a nation wretched as
the constant progress of physical knowledge and the
constant effort of every man to better himself will do
to make a nation prosperous. It has often been found
that profuse expenditure, heavy taxation, absurd
commercial restriction, corrupt tribunals, disastrous
wars, seditions, persecutions, conflagrations, inundations,
have not been able to destroy capital so fast
as the exertions of private citizens have been able to
create it.
No man would want to have his own property destroyed
either in war or in peace. What is harmful or disastrous to an
individual must be equally harmful or disastrous to the collection
of individuals that make up a nation.
Many of the most frequent fallacies in economic reasoning
come from the propensity, especially marked today, to think in
terms of an abstraction—the collectivity, the "nation"—and to
forget or ignore the individuals who make it up and give it
meaning. No one could think that the destruction of war was an
economic advantage who began by thinking first of all of the
people whose property was destroyed.
Those who think that the destruction of war increases total
"demand" forget that demand and supply are merely two sides
of the same coin. They are the same thing looked at from
different directions. Supply creates demand because at bottom
it is demand. The supply of the thing they make is all that
people have, in fact, to offer in exchange for the things they
want. In this sense the farmers' supply of wheat constitutes
their demand for automobiles and other goods. All this is
inherent in the modern division of labor and in an exchange
economy.
This fundamental fact, it is true, is obscured for most people
(including some reputedly brilliant economists) through such
complications as wage payments and the indirect form in which
virtually all modern exchanges are made through the medium
of money. John Stuart Mill and other classical writers, though
they sometimes failed to take sufficient account of the complex
consequences resulting from the use of money, at least saw
through "the monetary veil" to the underlying realities. To that
extent they were in advance of many of their present-day
critics, who are befuddled by money rather than instructed by
it. Mere inflation—that is, the mere issuance of more money,
with the consequence of higher wages 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. We should
not let ourselves be deceived or confused on this point by the
effects of monetary inflation in raising prices or "national income"
in monetary terms.
It is sometimes said that the Germans or the Japanese had a
postwar advantage over the Americans because their old plants,
having been destroyed completely by bombs during the war,
they could replace them with the most modern plants and
equipment and thus produce more efficiently and at lower costs
than the Americans with their older and half-obsolete plants
and equipment. But if this were really a clear net advantage,
Americans could easily offset it by immediately wrecking their
old plants, junking all the old equipment. In fact, all manufacturers
in all countries could scrap all their old plants and
equipment every year and erect new plants and install new
equipment.
The simple truth is that there is an optimum rate of replacement,
a best time for replacement. It would be an advantage for
a manufacturer to have his factory and equipment destroyed by
bombs only if the time had arrived when, through deterioration
and obsolescence, his plant and equipment had already acquired
a null or a negative value and the bombs fell just when he
should have called in a wrecking crew or ordered new equipment
anyway.
It is true that previous depreciation and obsolescence, if not
adequately reflected in his books, may make the destruction of
his property less of a disaster, on net balance, than it seems. It is
also true that the existence of new plants and equipment speeds
up the obsolescence of older plants and equipment. If the
owners of the older plant and equipment try to keep using it
longer than the period for which it would maximize their profit,
then the manufacturers whose plants and equipment were
destroyed (if we assume that they had both the will and capital
to replace them with new plants and equipment) will reap a
comparative advantage or, to speak more accurately, will reduce
their comparative loss.
We are brought, in brief, to the conclusion that it is never an
advantage to have one's plants destroyed by shells or bombs
unless those plants have already become valueless or acquired a
negative value by depreciation and obsolescence.
In all this discussion, moreover, we have so far omitted a
central consideration. Plants and equipment cannot be replaced
by an individual (or a socialist government) unless he or
it has acquired or can acquire the savings, the capital accumulation,
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, for example, increase
individual or national productivity at this point or that,
and there may eventually be a net increase in overall productivity.
Postwar demand will never reproduce the precise pattern
of prewar demand. But such complications should not divert us
from recognizing the basic truth that the wanton destruction of
anything of real value is always a net loss, a misfortune, or a
disaster, and whatever the offsetting considerations in a particular
instance, can never be, on net balance, a boon or a
blessing.
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