Debuking the so called broken window “Fallacy” and proving it’s not fallacious.

The argument behind the broken window fallacy assumes into question that the man with the Broken window would naturally have spent his money elsewhere and it would have stimulated even more demand had the window not been broken. This is not necessarily the case. It could simply be that he intends to put the money into A Savings account at a bank. His marginal propensity to consume is not necessarily the same as the man who repairs his window. IF he puts it into a bank account instead it does not stimulate demand and the economy is better off because the window was broken.

A typical libertarian defense of this in response to this would be that if the Bankers got the deposit they could make more loans in their Fractional reserve banking system but I’d argue against this moving of the goalpost and defense as well because I’d argue the structural effect of the Banks in general is pure poison.

The Banks make loans at interest and that effectively harms long term aggregate demand to stimulate short term demand.


If people are stuck paying their loans off they have less money to spend buying things and consuming and demand shrinks.

Therefore this defense is invalid because the economy would be better off because not only did the Broken window stimulate aggregate demand by forcing the man who’s window broke to spend money instead of saving money but on top of that if he had instead Saved his money he would have helped the Banks Poison Long Term Aggregate demand in the application of interest. By preventing the banks from making one additional loan the broken window helped the economy.