What is a system? A 19th century answer.

Frederic Bastiat is a name that is little known in Operational Research circles.  Actually, I hadn't heard of this nineteenth century economist until earlier this month.  Yet he wrote about one of O.R.'s essential features, the extent of the system being modelled or studied.  Frederic was a French economist, an essayist and member of the French assembly.  In 1850 he published a pamphlet containing his essay "Ce qu'on voit et ce qu'on ne voit pas" ("What is Seen and What is Unseen") which included a story, sometimes called a parable, about the economic effects of a child breaking the glass in a shop-window.

He didn't use the word "system" in the essay.  I shall use that word, because it is part of the language of O.R.  Bastiat simply asked the reader to consider the extent of the effect of that damaged window pane.  "The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen."

But is that the extent of the system?  Bastiat argued that there is a larger system which is unseen.  "as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library."

"The window being broken, the glazier's trade is encouraged to the amount of six francs; this is that which is seen. If the window had not been broken, the shoemaker's trade (or some other) would have been encouraged to the amount of six francs; this is that which is not seen."  So the system affected by the broken window extends beyond the glazier to encompass the alternative businesses where that six francs could have been spent.

(some of Frederic's thinking was concerned with what would happen, economically, if all the buildings in a part of Paris were to be destroyed.)

Economists claim that this is the earliest discussion of "opportunity cost".  That is another term which arises in O.R., especially in the context of the sensitivity analysis of a linear programming solution, where the reduced cost (opportunity cost) is the amount by which an coefficient in the objective function would have to improve before it would be possible for the corresponding variable to enter the optimal basis of the solution.

So, rise up, you O.R. scientists, and praise the name of Frederic Bastiat!


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