While in contemporary Economics the notion of opportunity costs is usually a foregone conclusion in calculations of various economic scales, it is a surprisingly recent addition to the subject area.
Despite not describing them as “opportunity costs” per se, Frederic Bastiat was the first classical economist to describe the notion in his 1848 essay containing the “Parable of the Broken Window”. In this parable, Bastiat tells the tale of a father who suffers the aforementioned broken window at the hands of his delinquent son. At once citizens of the town gather to observe and comment and no doubt some uttered the common phrase: “What would become of the glaziers if nobody broke any windows?” And it is this very cliché that Bastiat dedicates his essay to disproving.
The logic of the townsfolk seems reasonable enough; thanks to the broken windows the glazier is now, for the sake of argument, 10 dollars richer, and will then be able to spend that amount elsewhere, boosting consumption and incentivising money circulation. Clearly, Bastiat points out, the townsfolk have made several misconceived assumptions due to taking into account only the visible ( as Bastiat puts it: “what is seen”) consequences and ignoring the implicit (“what is not seen”) impacts.
In the case of the broken window, the visible consequences are merely the earning of the 10 dollars by the glazier. The unseen costs however can be many and of various types. For Bastiat the first and most important unseen cost is that of the loss of those same dollars for another industry that the father could have spent them on. The gain in this case for the glazier results in a zero-sum loss for another industry because the father’s consumption capacity is clearly finite. Detractors could conversely declare that Bastiat’s other important unseen cost is that of the window itself. While in contemporary times the notion of wasting resources with little to no attempt at their re-utilization seems indicative of at least poor economic foresight, this was not the case in Bastiat’s France. The 19th century models of economics, so far from modern notions of recycling, had few qualms about suggesting wilful destruction as a potential incentive for investment and production, a notion that Bastiat was eager to disprove. In a relatively bold move for the time he thus declared that “destruction is not profitable”. The loss to society of the resources that composed the window could not possibly be justified by the added expenditure since the original resources are lost, thereby ending the tale of the poor man’s window.
And while the parable is indeed interesting for its introduction of opportunity costs (although the term was not coined as such until 1914 by Friedrich von Wieser), it is also an interesting thought experiment in itself. For instance, detractors could declare that in his first unseen cost of the loss of the 10 dollars for another industry, Bastiat is simply assuming that the father would not keep the money under his mattress or in another otherwise unproductive capacity. In this case then the breaking of the window would have the added benefit of forcing consumption where there was none. Of course on the other hand, supporters of Bastiat’s notions and of free market liberalism in general might be averse to such notions of economic dictating which comes with its own set of assumptions. That this parable can so easily conjure opposing views is evidence of its worth as a context for discourse.