Broken window theory essay

These theorists further argue that the very concept of excess savings is meaningless without the presumption of an authority which can define the proper amount of savings. Money saved represents demand for money which is a commodity like windows or suits. The result of spending saved money is to decrease the demand for money relative to suits or glass and therefore contributes to general price inflation (or loss of purchasing power). Such an authority would suggest that by controlling prices (forcing the exchange of savings for consumer goods) the economy could be bettered. This concept when enforced by governments is known as price controls and results in shortages when prices are artificially reduced below market value. A shortage of savings results in a reduction of capital investment as more resources are diverted from future needs to present needs. The shop owner was saving so that he could grow his business, but an outside authority determined that his savings were 'excess' and that by breaking his window the economy would be better off. Without free exchange there are no prices, and without prices there can be no economic calculation, and without proper economic calculation there is no means to determine whether or not a particular action will be 'profitable.' Therefore any authority that suggests that there might be an 'excess of savings' presumes the ability to make economic calculations without prices established by free exchange. Ludwig von Mises argued that this was impossible. [11]

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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Broken window theory essay

broken window theory essay


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