"The Blessings of Destruction"

Nothing could be more intuitive than recognizing that if something is destroyed then it must also be someone's loss.  Even a child understands this when he sees his tower of playing cards come tumbling down like so many investment banks from the recklessness of a sibling; or when a remote control airplane becomes irreparable after one too many nose dives into the pavement.  Destruction can be nothing else - no more than down can also be up.

But it seems that at some greater magnitude of destruction the rules change.  Maybe down can be up - as long as the down is very very large.  And perhaps down can be up - as long as those advocating for this definition are sufficiently "educated" or influential.  Indeed, it has been academics and politicians who have led the charge against logical economic thought in favor of illogical economic thought - from Keynes and FDR to Krugman and Obama.

Destructionomics has influenced policies like crop burning and provided an illusory silver lining to wartime annihilation.  And lest you think this illogic is relegated to the distant past, think again.  Of course, as Hazlitt points out, destructionomists only see half of the truth.  They only see the jobs created to fill the need caused by the destruction.  They do not account for the jobs that were destroyed or the jobs that would have been created.

Hazlitt further illuminates the fallacy of confusing need for demand.  But before addressing this, a quote by that superfluous man, Albert Jay Nock, will serve to set the stage for a more complete dissection of this fallacy:

"The general preoccupation with money led to several curious beliefs which are now so firmly rooted that one hardly sees how anything short of a collapse of our whole economic system can displace it. One such belief is that commodities—goods and services—can be paid for with money. This is not so. Money does not pay for anything, never has, never will. It is an economic axiom as old as the hills that goods and services can be paid for only with goods and services; but twenty years ago this axiom vanished from everyone's reckoning, and has never reappeared. No one has seemed in the least aware that everything which is paid for must be paid for out of production, for there is no other source of payment."

It is true that the need associated with the devastations of war are real.  But to equate need with demand is to presume that the need can be filled by production.  However, as Nock explains, the lack of productive gains eliminates this possibility.  Instead, destruction actually decreases the amount of goods and services in society.  Therefore, if structures previously destroyed are built once more, it is only because goods and services in some other part of the world were destroyed in order to do it, or goods and services that would have come to market were never allowed to.  Destruction is always a "net negative" for society.  The added complication of money is simply resolved.  Money is merely an intermediary.  It is simply the atmosphere through which goods and services travel from one owner to another.  An atmosphere ideally suited to its purpose and better than any other yet invented.  But only this and nothing more.

Hazlitt further explains how thinking of purchasing power in terms of money can lead to faulty economic reasoning, especially in the presence of a fiat money system that is prone to inflation by the monetary authority.  He called this the "monetary illusion" and the "monetary veil."  That is, people tend to see the rising nominal value of wages and confuse this with a greater degree of purchasing power.  "That which is not seen" is the decreasing real wage rate - the relative values between one's labor and the goods and services purchased with that labor.  Note that this perspective eliminates money in the calculation; effectively relegating it to its proper position - a medium of exchange.

Hazlitt's next chapter is "Public Works Mean Taxes."  Can government spending save us?