Bastiat's fable of the broken window also brilliantly refuted Keynesianism nearly a century before its birth. Here, he outlines three levels of economic analysis. A mischievous boy hurls a rock at a plate glass store window, and breaks the glass. As a crowd gathers round, the first-level analysis, common sense, comments on the event. Common sense deplores the destruction of property in breaking the window, and sympathizes with the storekeeper for having to spend his money repairing the window. But then, says Bastiat, comes the second-level, sophisticated analyst or what we might call a proto-Keynesian. The Keynesian says: oh, but you people don't realize that the breaking of the window is really an economic blessing. For, in having to repair the window, the storekeeper invigorates the economy by his spending, and gives welcome employment to glaziers and their workers. Destruction of property, by compelling spending, therefore stimulates the economy and has an invigorating ‘multiplier effect’ on production and employment.
But then in steps Bastiat, the third-level analyst, and points out the grievous fallacy in the destructionist proto-Keynesian position. The alleged sophisticated critic, says Bastiat, concentrates on ‘what is seen’ and neglects ‘what is not seen’. The sophisticate sees that the storekeeper must give employment to glaziers by spending money to repair his window. But what he doesn't see is the storekeepers's opportunity foregone. If he did not have to spend the money on repairing the window, he could had added to his capital, and to everyone's standard of living, and thereby employed people in the act of advancing, rather than merely trying to sustain, the current stock of capital. Or, the storekeeper might have spent the money on his own consumption, employing people in that form of production.
In this way, the ‘economist’, Bastiat's third-level observer, vindicates common sense and refutes the apologia for destruction of the pseudo-sophisticate. He considers what is not seen as well as what is seen. Bastiat, the economist, is the truly sophisticated analyst.
Frédéric Bastiat was also a perceptive political, or politico-economic, theorist. Attacking statism as a growing parasitic burden upon producers in the market, he defined the state as ‘the great fiction by which everyone tries to live off everyone else’. And in his work on The Law (1850), Bastiat insisted that law and government must be strictly limited to defending the persons, the liberty, and the property of people against violence; any going beyond that role would be destructive of liberty and prosperity.
While often praised as a gifted popularizer, Bastiat has been systematically derided and undervalued as a theorist. Criticizing the classical Smithian distinction between ‘productive’ labour (on material goods) and ‘unproductive’ labour (in producing immaterial services), Bastiat made an important contribution to economic theory by pointing out that all goods, including material ones, are productive and are valued precisely because they produce immaterial services. Exchange, he pointed out, consists of the mutually beneficial trade of such services. In emphasizing the centrality of immaterial services in production and consumption, Bastiat built on J.B. Say's insistence that all market resources were ‘productive’, and that income to productive factors were payments for that productivity. Bastiat also built upon Charles Dunoyer's thesis in his Nouveau traité d'économie social (New Treatise on Social Economy) (1830) that ‘value is measured by services rendered, and that products exchange according to the quality of services stored in them’.
Perhaps most important, in stark contrast to the Smith-Ricardo classical school's exclusive emphasis on production, and neglect of the goal of economic endeavours – consumption, Bastiat proclaimed once again the continental emphasis on consumption as the goal and hence the determinant of economic activity. Bastiat's own oft-repeated triad: ‘Wants, Efforts, Satisfactions’ summed it up: wants are the goal of economic activity, giving rise to efforts, and eventually yielding satisfactions. Furthermore, Bastiat noted that human wants are unlimited, and hierarchically ordered by individuals in their scales of value.
Bastiat's concentration on exchange, and on analysis of exchange, was also a highly important contribution, especially in contrast to the British classicists' focus on production of material wealth. It was the emphasis on exchange that led Bastiat and the French school to stress the ways in which the free market leads to a smooth and harmonious organization of the economy. Hence the importance of laissez-faire.
Frédéric Bastiat was born in 1801 in Bayonne, in south-western France, the son of a landowner and prominent merchant in the Spanish trade. Orphaned at the age of nine, Bastiat entered his uncle's business firm in 1818; when, seven years later, he inherited his grandfather's landed estate, Bastiat left the firm and became a gentleman farmer. But his interests were neither in trade nor in agriculture, but in the study of political economy. Fluent in English, Italian and Spanish, Bastiat steeped himself in all the extant economic literature in these languages. Apart from an unsuccessful attempt to establish an insurance firm in Portugal in the early 1840s, as well as being a member of the district council and his undemanding service as a country judge, Bastiat spent two decades in quiet study and reflection on economic problems. He was most heavily influenced by J.B. Say, partially by Adam Smith, by Destutt de Tracy, and particularly by the great four-volume laissez-faire libertarian work of Charles Comte, A Treatise on Legislation (1827). Indeed, as a teenager, Bastiat had been a subscriber to Comte and Dunoyer's journal, Le Censeur, and he was to become a friend and colleague of Dunoyer's in the struggle for free trade.
Bastiat entered the economic literature with a sparkling attack on protectionism in France and England in the Journal des Économistes in late 1844, an article which created a sensational impact. Bastiat followed this up with another article in the Journal, in early 1845, denouncing socialism and the concept of a ‘right to labour’. During the few years he had left on earth, Bastiat poured forth a stream of lucid and influential writings. His two-volume Economic Sophisms (1845), a collection of witty essays on protectionism and government controls, sold out quickly, going into several editions, and was swiftly translated into English, Spanish, Italian and German. During the same year, Bastiat published Cobden et la Ligue, his tribute to Cobden and the Anti-Corn Law League: a history of the League that included the principal speeches and articles by Cobden, Bright, and other stalwarts of the League.
After setting up a free trade association in Bordeaux in 1846, Bastiat moved to Paris, where he stepped up his literary efforts and organized a national association for free trade. He became the secretary-general of the national association, as well as editor-in-chief of Le Libre-Échange (Free Trade), the periodical of the French free trade association. Even though in frail health, Bastiat also participated in the revolution of 1848, being elected to the constituent and then the legislative assembly, where he served from 1848 until his death.
Bastiat's final political service has been undervalued by most historians. While generally voting in the minority in the assembly as a stalwart of individual liberty and laissez-faire, Bastiat was highly influential as vice-president (and often acting president) of the assembly's finance committee. There he fought tirelessly for lower government spending, lower taxes, sound money, and free trade. While he fought ardently in opposition to socialist and communist schemes, Bastiat elected to sit on the Left, as a proponent of laissez-faire and the republic, and as an opponent of protectionism, absolute monarchy, and a warlike foreign policy. As a consistent civil libertarian, Bastiat also fought against the jailing of socialists, the outlawry of peaceful trade unionism, or the declaration of martial law. Bastiat also made his mark by at least partially converting the man who would become the president of the provisional republic in 1848, the eminent poet and orator Alphonse Marie Louis Lamartine (1790–1869) from his previous socialism to (an admittedly inconsistent) laissez-faire position.
Bastiat died young in 1850, leaving his two-volume theoretical magnum opus, Economic Harmonies, only partially published; the remainder was published posthumously. It was a fitting memorial to Bastiat that his friend Michel Chevalier, the man whom he had converted to free trade and laissez-faire, should have been the one to conclude, with Richard Cobden, the great free trade Anglo-French treaty of 1860.
Bastiat met Cobden on his first trip to England in the summer of 1845, and for the remainder of Bastiat's life the two men were close friends and frequent correspondents, visiting each other frequently. The two influenced each other greatly, Bastiat providing Cobden with broader theoretical insights in his devotion to free trade, and the latter inspiring Bastiat to organize a movement in France similar to the Anti-Corn Law League. In particular, Cobden took from Bastiat a devotion to natural law and natural rights; an emphasis on the harmony of individuals, groups, and nations through the mutual benefits of the free market; and a staunch opposition to war and an interventionist foreign policy, and a devotion to international peace. The two also shared a consistent devotion to laissez-faire devoid of the numerous hesitancies and qualifications imposed by the classical economists, or of the gloomy Ricardian hostility to landlords or to land rent.