Principles of Economics by Carl Menger
Previous
Section | Next
Section
Table
of
Contents
CHAPTER
I.
THE
GENERAL THEORY OF THE GOOD
1.
The General
Theory of the Good
ALL
THINGS
ARE SUBJECT to the law of cause and effect. This great principle knows
no exception, and we would search in vain in the realm of experience
for an example to the contrary. Human progress has no tendency to cast
it in doubt, but rather the effect of confirming it and of always
further widening knowledge of the scope of its validity. Its continued
and growing recognition is therefore closely linked to human progress.
One’s own person, moreover, and any of its states are links in this
great universal structure of relationships. It is impossible to
conceive of a change of one’s person from one state to
another in any
way other than one subject to the law of causality. If, therefore, one
passes from a state of need to a state in which the need is satisfied,
sufficient causes for this change must exist. There must be forces in
operation within one’s organism that remedy the disturbed state, or
there must be external things acting upon it that by their nature are
capable of producing the state we call satisfaction of our needs.
Things that can be placed in a causal connection with the satisfaction
of human needs we term useful
things. If,
however, we both recognize this
causal connection, and have the power actually to direct the useful
things to the satisfaction of our needs, we call them goods.
If a thing is to become a good, or in other words, if it is to acquire
goods-character, all four of the following prerequisites must be
simultaneously present:
1. A human
need.
2. Such
properties as render the thing capable of being brought
into a causal
connection
with the satisfaction
of this need.
3. Human
knowledge of this causal connection.
4. Command of the thing sufficient to direct it to the satisfaction
of the need.
Only when all four of these prerequisites are present simultaneously
can a thing become a good. When even one of them is absent, a thing
cannot acquire goods-character,
and a thing
already possessing
goods-character would lose it at once if but one of the four
prerequisites ceased to be present.
Hence a thing loses its goods-character: (1) if, owing to a change in
human needs, the particular needs disappear that the thing is capable
of satisfying, (2) whenever the capacity of the thing to be placed in a
causal connection with the satisfaction of human needs is lost as the
result of a change in its own properties, (3) if knowledge of the
causal connection between the thing and the satisfaction of human needs
disappears, or (4) if men lose command of it so completely that they
can no longer apply it directly to the satisfaction of their needs and
have no means of reestablishing their power to do so.
A special situation can be observed whenever things that are incapable
of being placed in any kind of causal connection with the satisfaction
of human needs are nevertheless treated by men as goods. This occurs
(1) when attributes, and therefore capacities, are erroneously ascribed
to things that do not really possess them, or (2) when non-existent
human needs are mistakenly assumed to exist. In both cases we have to
deal with things that do not, in reality, stand in the relationship
already described as determining the goods-character of things, but do
so only in the opinions of people. Among things of the first class are
most cosmetics, all charms, the majority of medicines administered to
the sick by peoples of early civilizations and by primitives even
today, divining rods, love potions, etc. For all these things are
incapable of actually satisfying the needs they are supposed to serve.
Among things of the second class are medicines for diseases that do not
actually exist, the implements, statues, buildings, etc., used by pagan
people for the worship of idols, instruments of torture, and the like.
Such things, therefore, as derive their goods-character merely from
properties they are imagined to possess or from needs merely imagined
by men may appropriately be called imaginary
goods.
As a people attains higher levels of civilization, and as men penetrate
more deeply into the true constitution of things and of their own
nature, the number of true goods becomes constantly larger, and as can
easily be understood, the number of imaginary goods becomes
progressively smaller. It is not unimportant evidence of the connection
between accurate knowledge and human welfare that the number of
so-called imaginary goods is shown by experience to be usually greatest
among peoples who are poorest in true goods.
Of special scientific interest are the goods that have been treated by
some writers in our discipline as a special class of goods called
“relationships.” In
this category are firms,
good-will, monopolies, copyrights, patents, trade licenses, authors’
rights, and also, according to some writers, family connections,
friendship, love, religious and scientific fellowships, etc. It may
readily be conceded that a number of these relationships do not allow a
rigorous test of their goods-character. But that many of them, such as
firms, monopolies, copyrights, customer good-will, and the like, are
actually goods is shown, even without appeal to further proof, by the
fact that we often encounter them as objects of commerce. Nevertheless,
if the theorist who has devoted himself most closely to this topic
admits
that the
classification of these relationships as goods has something strange
about it, and appears to the unprejudiced eye as an anomaly, there
must, in my opinion, be a somewhat deeper reason for such doubts than
the unconscious working of the materialistic bias of our time which
regards only materials and forces (tangible objects and labor services)
as things and, therefore, also as goods.
It has been pointed out several times by students of law that our
language has no term for “useful actions” in general, but only one for
“labor services.” Yet there is a whole series of actions, and even of
mere inactions, which cannot be called labor services but which are
nevertheless decidedly useful to certain persons, for whom they may
even have considerable economic value. That someone buys commodities
from me, or uses my legal services, is certainly no labor service on
his part, but it is nevertheless an action beneficial to me. That a
well-to-do doctor ceases the practice of medicine in a small country
town in which there is only one other doctor in addition to himself can
with still less justice be called a labor service. But it is certainly
an inaction of considerable benefit to the remaining doctor who thereby
becomes a monopolist.
Whether a larger or smaller number of persons regularly performs
actions that are beneficial to someone (a number of customers with
respect to a merchant, for instance) does not alter the nature of these
actions. And whether certain inactions on the part of some or all of
the inhabitants of a city or state which are useful to someone come
about voluntarily or through legal compulsion (natural or legal
monopolies, copyrights, trade marks, etc.), does not alter in any way
the nature of these useful inactions. From an economic standpoint,
therefore, what, are called clienteles, good-will, monopolies, etc.,
are the useful actions or inactions of other people, or (as in the case
of firms,
for example) aggregates of material goods, labor
services, and other useful actions and inactions. Even relationships of
friendship and love, religious fellowships, and the like, consist
obviously of actions or inactions of other persons that are beneficial
to us.
If, as is true of customer good-will, firms, monopoly rights, etc.,
these useful actions or inactions are of such a kind that we can
dispose of them, there is no reason why we should not classify them as
goods, without finding it necessary to resort to the obscure concept of
“relationships,” and without bringing these “relationships” into
contrast with all other goods as a special category. On the contrary,
all goods can, I think, be divided into the two classes of material
goods (including all forces of
nature insofar as they are goods)
and of useful human actions
(and inactions), the most important
of which are labor services.
2.
The Causal
Connections Between
Goods
Before proceeding to other topics, it appears to me to be of
preëminent importance to our science that we should become clear
about the causal connections between goods. In our own, as in all other
sciences, true and lasting progress will be made only when we no longer
regard the objects of our scientific observations merely as unrelated
occurrences, but attempt to discover their causal
connections
and the laws to which they are subject. The bread we eat, the flour
from which we bake the bread, the grain that we mill into flour, and
the field on which the grain is grown—all these things are goods. But
knowledge of this fact is not sufficient for our purposes. On the
contrary, it is necessary in the manner of all other empirical
sciences, to attempt to classify the various goods according to their
inherent characteristics, to learn the place that each good occupies in
the causal nexus of goods, and finally, to discover the economic laws
to which they are subject.
Our well-being at any given time, to the extent that it depends upon
the satisfaction of our needs, is assured if we have at our disposal
the goods required for their direct satisfaction. If, for example, we
have the necessary amount of bread, we are in a position to satisfy our
need for food directly. The causal connection between bread and the
satisfaction of one of our needs is thus a direct one, and a testing of
the goods-character of bread according to the principles laid down in
the preceding section presents no difficulty. The same applies to all
other goods that may be used directly for the satisfaction of our
needs, such as beverages, clothes, jewelry, etc.
But we have not yet exhausted the list of things whose goods-character
we recognize. For in addition to goods that serve our needs directly
(and which will, for the sake of brevity, henceforth be called “goods
of first order”) we find a large number of other things in our economy
that cannot be put in any direct causal connection with the
satisfaction of our needs, but which possess goods-character no less
certainly than goods of first order. In our markets, next to bread and
other goods capable of satisfying human needs directly, we also see
quantities of flour, fuel, and salt. We find that implements and tools
for the production of bread, and the skilled labor services necessary
for their use, are regularly traded. All these things, or at any rate
by far the greater number of them, are incapable of satisfying human
needs in any direct way—for what human need could be satisfied by a
specific labor service of a journeyman baker, by a baking utensil, or
even by a quantity of ordinary flour? That these things are
nevertheless treated as goods in human economy, just like goods of
first order, is due to the fact that they serve to produce bread and
other goods of first order, and hence are indirectly, even if not
directly, capable of satisfying human needs. The same is true of
thousands of other things that do not have the capacity to satisfy
human needs directly, but which are nevertheless used for the
production of goods of first order, and can thus be put in an indirect
causal connection with the satisfaction of human needs. These
considerations prove that the relationship responsible for the
goods-character of these things, which we will call goods of second
order, is fundamentally the same as that of goods of first order. The
fact that goods of first order have a direct and goods of second order
an indirect causal relation with the satisfaction of our needs gives
rise to no difference in the essence of that relationship, since the
requirement for the acquisition of goods-character is the existence of
some causal connection, but not necessarily one that is direct, between
things and the satisfaction of human needs.
At this point, it could easily be shown that even with these goods we
have not exhausted the list of things whose goods-character we
recognize, and that, to continue our earlier example, the grain mills,
wheat, rye, and labor services applied to the production of flour,
etc., appear as goods of third
order, while the fields, the
instruments and appliances necessary for their cultivation, and the
specific labor services of farmers, appear as goods of fourth
order. I think, however, that the idea I have been presenting is
already sufficiently clear.
In the previous section, we saw that a causal relationship between a
thing and the satisfaction of human needs is one of the prerequisites
of its goods-character. The thought developed in this section may be
summarized in the proposition that it is not a requirement of the
goods-character of a thing that it be capable of being placed in direct
causal connection with the satisfaction of human needs. It has been
shown that goods having an indirect causal relationship with the
satisfaction of human needs differ in the closeness of this
relationship. But it has also been shown that this difference does not
affect the essence of goods-character in any way. In this connection, a
distinction was made between goods of first, second, third, fourth, and
higher orders.
Again it is necessary that we guard ourselves, from the beginning, from
a faulty interpretation of what has been said. In the general
discussion of goods-character, I have already pointed out that
goods-character is not a property inherent in the goods themselves. The
same warning must also be given here, where we are dealing with the
order or place that a good occupies in the causal nexus of goods. To
designate the order of a particular good is to indicate only that this
good, in some particular employment, has a closer or more distant
causal relationship with the satisfaction of a human need. Hence the
order of a good is nothing inherent in the good itself and still less a
property of it.
Thus I do not attach any special weight to the orders assigned to
goods, either here or in the following exposition of the laws governing
goods, although the assignment of there orders will, if they are
correctly understood, become an important aid in the exposition of a
difficult and important subject. But I do wish especially to stress the
importance of understanding the causal relation between goods and the
satisfaction of human needs and, depending upon the nature of this
relation in particular cases, the more or less direct causal connection
of the goods with these needs.
3.
The Laws
Governing
Goods-Character
A.
The goods-character of goods of higher order is dependent on command of
corresponding complementary goods.
When we have goods of first order at our disposal, it is in our power
to use them directly for the satisfaction of our needs. If we have the
corresponding goods of second order at our disposal, it is in our power
to transform them into goods of first order, and thus to make use of
them in an indirect manner for the satisfaction of our needs.
Similarly, should we have only goods of third order at our disposal, we
would have the power to transform them into the corresponding goods of
second order, and these in turn into corresponding goods of first
order. Hence we would have the power to utilize goods of third order
for the satisfaction of our needs, even though this power must be
exercised by transforming them into goods of successively lower orders.
The same proposition holds true with all goods of higher order, and we
cannot doubt that they possess goods-character if it is in our power
actually to utilize them for the satisfaction of our needs.
This last requirement, however, contains a limitation of no slight
importance with respect to goods of higher order. For it is never in
our power to make use of any particular good of higher order for the
satisfaction of our needs unless we also have command of the other
(complementary) goods of higher order.
Let us assume, for instance, that an economizing individual possesses
no bread directly, but has at his command all the goods of second order
necessary to produce it. There can be no doubt that he will
nevertheless have the power to satisfy his need for bread. Suppose,
however, that the same person has command of the flour, salt, yeast,
labor services, and even all the tools and appliances necessary for the
production of bread, but lacks both fuel and water. In this second
case, it is clear that he no longer has the power to utilize the goods
of second order in his possession for the satisfaction of his need,
since bread cannot be made without fuel and water, even if all the
other necessary goods are at hand. Hence the goods of second order
will, in this case, immediately lose their goods-character with respect
to the need for bread, since one of the four prerequisites for the
existence of their goods-character (in this case the fourth
prerequisite) is lacking.
It is possible for the things whose goods-character has been lost with
respect to the need for bread to retain their goods-character with
respect to other needs if their owner has the power to utilize them for
the satisfaction of other needs than his need for bread, or if they are
capable, by themselves, of directly or indirectly satisfying a human
need in spite of the lack of one or more complementary goods. But if
the lack of one or more complementary goods makes it impossible for the
available goods of second order to be utilized, either by themselves
alone or in combination with other available goods, for the
satisfaction of any human need whatsoever, they will lose their
goods-character completely. For economizing men will no longer have the
power to direct the goods in question to the satisfaction of their
needs, and one of the essential prerequisites of their goods-character
is therefore missing.
Our investigation thus far yields, as a first result, the proposition
that the goods-character of goods of second
order is dependent
upon complementary goods of the same order being available to men with
respect to the production of at least one good of first order.
The question of the dependence of the goods-character of goods of
higher order than the second upon the availability of complementary
goods is more complex. But the additional complexity by no means lies
in the relationship of the goods of higher order to the corresponding
goods of the next lower order (the relationship of goods of third order
to the corresponding goods of second order, or of goods of fifth order
to those of fourth order, for example). For the briefest consideration
of the causal relationship between these goods provides a complete
analogy to the relationship just demonstrated between goods of second
order and goods of the next lower (first) order. The principle of the
previous paragraph may be extended quite naturally to the proposition
that the goods-character of goods of higher order is directly dependent
upon complementary goods of the same order being available with respect
to the production of at least one good of the next lower order.
The additional complexity arising with goods of higher than second
order lies rather in the fact that even command of all the goods
required for the production of a good of the next lower order does not
necessarily establish their goods-character unless men also have
command of all their complementary goods of this next and of all still
lower orders. Assume that someone has command of all the goods of third
order that are required to produce a good of second order, but does not
have the other complementary goods of second order at his command. In
this case, even command of all the goods of third order required for
the production of a single good of second order will not give him the
power actually to direct these goods of third order to the satisfaction
of human needs. Although he has the power to transform the goods of
third order (whose goods-character is here in question) into goods of
second order, he does not have the power to transform the goods of
second order into the corresponding goods of first order. He will
therefore not have the power to direct the goods of third order to the
satisfaction of his needs, and because he has lost this power, the
goods of third order lose their goods-character immediately.
It is evident, therefore, that the principle stated above—the
goods-character of goods of higher order is directly dependent upon
complementary goods of the same order being available with respect to
the production of at least one good of the next lower order—does not
include all the prerequisites for the establishment of the
goods-character of things, since command of all complementary goods of
the same order does not by itself give us the power to direct these
things to the satisfaction of our needs. If we have goods of third
order at our disposal, their goods-character is indeed directly
dependent on our being able to transform them into goods of second
order. But a further requirement for their goods-character is our
ability to transform the goods of second order in turn into goods of
first order, which involves the still further requirement that we must
have command of certain complementary goods of second order.
The relationships of goods of fourth, fifth, and still higher orders
are quite analogous. Here again the goods-character of things so remote
from the satisfaction of human needs is directly dependent on the
availability of complementary goods of the same order. But it is
dependent also upon our having command of the complementary goods of
the next lower order, in turn of the complementary goods of the order
below this, and so on, in such a way that it is in our power actually
to direct the goods of higher order to the production of a good of
first order, and thereby finally to the satisfaction of a human need.
If we designate the whole sum of goods that are required to utilize a
good of higher order for the production of a good of first order as its
complementary goods in the wider sense of the term, we obtain the
general principle that the goods-character
of goods of
higher order depends on our being able to command their complementary
goods in this wider sense of the term.
Nothing can place the great causal interconnection between goods more
vividly before our eyes than this principle of the mutual
interdependence of goods.
When, in 1862, the American Civil War dried up Europe’s most important
source of cotton, thousands of other goods that were complementary to
cotton lost their goods-character. I refer in particular to the labor
services of English and continental cottonmill workers who then, for
the greater part, became unemployed and were forced to ask public
charity. The labor services (of which these capable workers had
command) remained the same, but large quantities of them lost their
goods-character since their complementary good, cotton, was
unavailable, and the specific labor services could not by themselves,
for the most part, be directed to the satisfaction of any human need.
But these labor services immediately became goods again when their
complementary good again became available as the result of increased
cotton imports, partly from other sources of supply, and partly, after
the end of the American Civil War, from the old source.
Conversely, goods often lose their goods-character because men do not
have command of the necessary labor services, complementary to them. In
sparsely populated countries, particularly in countries raising one
predominant crop such as wheat, a very serious shortage of labor
services frequently occurs after especially good harvests, both because
agricultural workers, few in numbers and living separately, find few
incentives for hard work in times of abundance, and because the
harvesting work, as a result of the exclusive cultivation of wheat, is
concentrated into a very brief period of time. Under such conditions
(on the fertile plains of Hungary, for instance), where the
requirements for labor services, within a short interval of time, are
very great but where the available labor services are not sufficient,
large quantities of grain often spoil on the fields. The reason for
this is that the goods complementary to the crops standing on the
fields (the labor services necessary for harvesting them) are missing,
with the result that the crops themselves lose their goods-character.
When the economy of a people is highly developed, the various
complementary goods are generally in the hands of different persons.
The producers of each individual article usually carry on their
business in a mechanical way, while the producers of the complementary
goods realize just as little that the goods-character of the things
they produce or manufacture depends on the existence of other goods
that are not in their possession. The error that goods of higher order
possess goods-character by themselves, and without regard to the
availability of complementary goods, arises most easily in countries
where, owing to active commerce and a highly developed economy, almost
every product comes into existence under the tacit, and as a rule quite
unconscious, supposition of the producer that other persons, linked to
him by trade, will provide the complementary goods at the right time.
Only when this tacit assumption is disappointed by such a change of
conditions that the laws governing goods make their operation
manifestly apparent, are the usual mechanical business transactions
interrupted, and only then does public attention turn to these
manifestations and to their underlying causes.
B.
The goods-character of goods of higher order is derived from that of
the corresponding goods of lower order.
Examination of the nature and causal connections of goods as I have
presented them in the first two sections leads to the recognition of a
further law that goods obey as such—that is, without regard to their
economic character.
It has been shown that the existence of human needs is one of the
essential prerequisites of goods-character, and that if the human needs
with whose satisfaction a thing may be brought into causal connection
completely disappear, the goods-character of the thing is immediately
lost unless new needs for it arise.
From what has been said about the nature of goods, it is directly
evident that goods of first order lose their goods-character
immediately if the needs they previously served to satisfy all
disappear without new needs arising for them. The problem becomes more
complex when we turn to the entire range of goods causally connected
with the satisfaction of a human need, and inquire into the effect of
the disappearance of this need on the goods-character of the goods of
higher order causally connected with its satisfaction.
Suppose that the need for direct human consumption of tobacco should
disappear as the result of a change in tastes, and that at the same
time all other needs that the tobacco already prepared for human
consumption might serve to satisfy should also disappear. In this
event, it is certain that all tobacco products already on hand, in the
final form suited to human consumption, would immediately lose their
goods-character. But what would happen to the corresponding goods of
higher order? What would be the situation with respect to raw tobacco
leaves, the tools and appliances used for the production of the various
kinds of tobacco, the specialized labor services employed in the
industry, and in short, with respect to all the goods of second order
used for the production of tobacco destined for human consumption?
What, furthermore, would be the situation with respect to tobacco
seeds, tobacco farms, the labor services and the tools and appliances
employed in the production of raw tobacco, and all the other goods that
may be regarded as goods of third order in relation to the need for
tobacco? What, finally, would be the situation with respect to the
corresponding goods of fourth, fifth, and higher orders?
The goods-character of a thing is, as we have seen, dependent on its
being capable of being placed in a causal connection with the
satisfaction of human needs. But we have also seen that a direct
causal connection between a thing and the satisfaction of a need is by
no means a necessary prerequisite of its goods-character. On the
contrary, a large number of things derive their goods-character from
the fact that they stand only in a more or less indirect
causal
relationship to the satisfaction of human needs.
If it is established that the existence of human needs capable of
satisfaction is a prerequisite of goods-character in all cases, the
principle that the goods-character of things is immediately lost upon
the disappearance of the needs they previously served to satisfy is, at
the same time, also proven. This principle is valid whether the goods
can be placed in direct
causal connection with the satisfaction
of human needs, or derive their goods-character from a more or less indirect
causal connection with the satisfaction of human needs. It is clear
that with the disappearance of the corresponding needs the entire
foundation of the relationship we have seen to be responsible for the
goods-character of things ceases to exist.
Thus quinine would cease to be a good if the diseases it serves to cure
should disappear, since the only need with the satisfaction of which it
is causally connected would no longer exist. But the disappearance of
the usefulness of quinine would have the further consequence that a
large part of the corresponding goods of higher order would also be
deprived of their goods-character. The inhabitants of quinine-producing
countries, who currently earn their livings by cutting and peeling
cinchona trees, would suddenly find that not only their stocks of
cinchona bark, but also, in consequence, their cinchona trees, the
tools and appliances applicable only to the production of quinine, and
above all the specialized labor services, by means of which they
previously earned their livings, would at once lose their
goods-character, since all these things would, under the changed
circumstances, no longer have any causal relationship with the
satisfaction of human needs.
If, as the result of a change in tastes, the need for tobacco should
disappear completely, the first consequence would be that all stocks of
finished tobacco products on hand would be deprived of their
goods-character. A further consequence would be that the raw tobacco
leaves, the machines, tools, and implements applicable exclusively to
the processing of tobacco, the specialized labor services employed in
the production of tobacco products, the available stocks of tobacco
seeds, etc., would lose their goods-character. The services, presently
so well paid, of the agents who have so much skill in the grading and
merchandising of tobaccos in such places as Cuba, Manila, Puerto Rico,
and Havana, as well as the specialized labor services of the many
people, both in Europe and in those distant countries, who are employed
in the manufacture of cigars, would cease to be goods. Even tobacco
boxes, humidors, all kinds of tobacco pipes, pipe stems, etc., would
lose their goods-character. This apparently very complex phenomenon is
explained by the fact that all the goods enumerated above derive their
goods-character from their causal connection with the satisfaction of
the human need for tobacco. With the disappearance of this need, one of
the foundations underlying their goods-character is destroyed.
But goods of first order frequently, and goods of higher order as a
rule, derive their goods-character not merely from a single but from
more or less numerous causal connections with the satisfaction of human
needs. Goods of higher order thus do not lose their goods-character if
but one, or if, in general, but a part of these needs ceases to be
present. On the contrary, it is evident that this effect will take
place only if all
the needs with the satisfaction of which
goods of higher order are causally related disappear, since otherwise
their goods-character would, in
strict accordance with economic law,
continue to exist with respect to needs with the satisfaction of which
they have continued to be causally related even under the changed
conditions. But even in this case, their goods-character continues to
exist only to the extent to which they continue to maintain a causal
relationship with the satisfaction of human needs, and would disappear
immediately if the remaining needs should also cease to exist.
To continue the previous example, should the need of people for the
consumption of tobacco cease completely to exist, the tobacco already
manufactured into products suited to human consumption, and probably
also the stocks of raw tobacco leaves, tobacco seeds, and many other
goods of higher order having a causal connection with the satisfaction
of the need for tobacco, would be completely deprived of their
goods-character. But not all the goods of higher order used by the
tobacco industry would necessarily meet this fate. The land and
agricultural implements used in the cultivation of tobacco, for
instance, and perhaps also many tools and machines used in the
manufacture of tobacco products, would retain their goods-character
with respect to other human needs since they can be placed in causal
connection with these other needs even after the disappearance of the
need for tobacco.
The law that the goods-character of goods of higher order is derived
from the goods-character of the corresponding goods of lower order in
whose production they serve must not be regarded as a modification
affecting the substance of the primary principle, but merely as a
restatement of that principle in a more concrete form.
In what has preceded we have considered in general terms all the goods
that are causally connected both with one another and with the
satisfaction of human needs. The object of our investigation was the
whole causal chain up to the last link, the satisfaction of human
needs. Having stated the principle of the present section, we may now,
in the section following, turn our attention to a few links of the
chain at a time—by disregarding the causal connection between goods of
third order for instance, and the satisfaction of human needs for the
time being, and by observing only the causal connection of goods of
that order with the corresponding goods of any higher order of our
choice.
4.
Time and Error
The process by which goods of higher order are progressively
transformed into goods of lower order and by which these are directed
finally to the satisfaction of human needs is, as we have seen in the
preceding sections, not irregular but subject, like all other processes
of change, to the law of causality. The idea of causality, however, is
inseparable from the idea of time. A process of change involves a
beginning and a becoming, and these are only conceivable as processes
in time. Hence it is certain that we can never fully understand the
causal interconnections of the various occurrences in a process, or the
process itself, unless we view it in time and apply the measure of time
to it. Thus, in the process of change by which goods of higher order
are gradually transformed into goods of first order, until the latter
finally bring about the state called the satisfaction of human needs,
time is an essential feature of our observations.
When we have the complementary goods of some particular higher order at
our command, we must transform them first into goods of the next lower
order, and then by stages into goods of successively still lower orders
until they have been fashioned into goods of first order, which alone
can be utilized directly for the satisfaction of our needs. However
short the time periods lying between the various phases of this process
may often appear (and progress in technology and in the means of
transport tend continually to shorten them), their complete
disappearance is nevertheless inconceivable. It is impossible to
transform goods of any given order into the corresponding goods of
lower order by a mere wave of the hand. On the contrary, nothing is
more certain than that a person having goods of higher order at his
disposal will be in the actual position of having command of goods of
the next lower order only after an appreciable period of time, which
may, according to the particular circumstances involved, sometimes be
shorter and sometimes longer. But what has been said here of a single
link of the causal chain is even more valid with respect to the whole
process.
The period of time this process requires in particular instances
differs considerably according to the nature of the case. An
individual, having at his disposal all the land, labor services, tools,
and seed required for the production of an oak forest, will be
compelled to wait almost a hundred years before the timber is ready for
the axe, and in most cases actual possession of timber in this
condition will come only to his heirs or other assigns. On the other
hand, in some cases a person who has at his disposal the ingredients
and the necessary tools, labor services, etc., required for the
production of foods or beverages, will be in a position to use the
foods or beverages themselves in only a few moments. Yet however great
the difference between the various cases, one thing is certain: the
time period lying between command of goods of higher order and
possession of the corresponding goods of lower order can never be
completely eliminated. Goods of higher order acquire and maintain their
goods-character, therefore, not with respect to needs of the immediate
present, but as a result of human foresight, only with respect to needs
that will be experienced when the process of production has been
completed.
After what has been said, it is evident that command of goods of higher
order and command of the corresponding goods of first order differ,
with respect to a particular kind of consumption, in that the latter
can be consumed immediately
whereas the former represent an
earlier stage in the formation of consumption goods and hence can be
utilized for direct consumption only after the passage of an
appreciable period of time, which is longer or shorter according to the
nature of the case. But another exceedingly important difference
between immediate command of a consumption good and indirect command of
it (through possession of goods of higher order) demands our
consideration.
A person with consumption goods directly at his disposal is certain of
their quantity and quality. But a person who has only indirect command
of them, through possession of the corresponding goods of higher order,
cannot determine with the same certainty the quantity and quality of
the goods of first order that will be at his disposal at the end of the
production process.
A person who has a hundred bushels
of grain can
plan his disposition
of this good with that certainty, as to quantity and quality, which the
immediate possession of any good is generally able to offer. But a
person who has command of such quantities of land, seed, fertilizer,
labor services, agricultural implements, etc., as are normally required
for the production of a hundred bushels of grain, faces the chance of
harvesting more than that quantity of grain, but also the chance of
harvesting less. Nor can the possibility of a complete harvest failure
be excluded. He is exposed, moreover, to an appreciable uncertainty
with respect to the quality of the product.
This uncertainty with respect to the quantity and quality of product
one has at one’s disposal through possession of the corresponding goods
of higher order is greater in some branches of production than it is in
others. An individual who has at his disposal the materials, tools, and
labor services necessary for the production of shoes, will be able,
from the quantity and quality of goods of higher order on hand, to draw
conclusions with a considerable degree of precision about the quantity
and quality of shoes he will have at the end of the production process.
But a person with command of a field suitable for growing flax, the
corresponding agricultural implements, as well as the necessary labor
services, flaxseed, fertilizer, etc., will be unable to form a
perfectly certain judgment about the quantity and quality of oilseed he
will harvest at the end of the production process. Yet he will be
exposed to less uncertainty with respect to the quantity and quality of
his product than a grower of hops, a hunter, or even a pearl-fisher.
However great these differences between the various branches of
production may be, and even though the progress of civilization tends
to diminish the uncertainty involved, it is certain that an appreciable
degree of uncertainty regarding the quantity and quality of a product
finally to be obtained will always be present, although sometimes to a
greater and sometimes to a less extent, according to the nature of the
case.
The final reason for this phenomenon is found in the peculiar position
of man in relation to the causal process called production of goods.
Goods of higher order are transformed, in accordance with the laws of
causality, into goods of the next lower order; these are further
transformed until they become goods of first order, and finally bring
about the state we call satisfaction of human needs. Goods of higher
order are the most important elements of this causal process, but they
are by no means the only ones. There are other elements, apart from
those belonging to the world of goods, that affect the quantity and
quality of the outcome of the causal process called production of
goods. These other elements are either of such a kind that we have not
recognized their causal connection with our well-being, or they are
elements whose influence on the product we well know but which are, for
some reason, beyond our control.
Thus, until a short time ago, men did not know the influence of the
different types of soils, chemicals, and fertilizers, on the growth of
various plants, and hence did not know that these factors sometimes
have a more and sometimes a less favorable (or even an unfavorable)
effect on the outcome of the production process, with respect to both
its quantity and its quality. As a result of discoveries in the field
of agricultural chemistry, a certain portion of the uncertainties of
agriculture has already been eliminated, and man is in a position, to
the extent permitted by the discoveries themselves, to induce the
favorable effects of the known factors in each case and to avoid those
that are detrimental.
Changes in weather offer an example from the second category. Farmers
are usually quite clear about the kind of weather most favorable for
the growth of plants. But since they do not have the power to create
favorable weather or to prevent weather injurious to seedlings, they
are dependent to no small extent on its influence upon the quantity and
quality of their harvested product. Although weather, like all other
natural forces, makes itself felt in accordance with inexorable causal
laws, it appears to economizing men as a series of accidents, since it
is outside their sphere of control.
The greater or less degree of certainty in predicting the quality and
quantity of a product that men will have at their disposal due to their
possession of the goods of higher order required for its production,
depends upon the greater or less degree of completeness of their
knowledge of the elements of the causal process of production, and upon
the greater or less degree of control they can exercise over these
elements. The degree of uncertainty in predicting both the quantity and
quality of a product is determined by opposite relationships. Human
uncertainty about the quantity and quality of the product
(corresponding goods of first order) of the whole causal process is
greater the larger the number of elements involved in any way in the
production of consumption goods which we either do not understand or
over which, even understanding them, we have no control—that is, the
larger the number of elements that do not have goods-character.
This uncertainty is one of the most important factors in the economic
uncertainty of men, and, as we shall see in what follows, is of the
greatest practical significance in human economy.
5.
The Causes of
Progress in
Human Welfare
“The greatest improvement in the productive powers of labour,” says
Adam Smith, “and the greater part of the skill, dexterity, and judgment
with which it is anywhere directed, or applied, seem to have been the
effects of the division of labour.” And:
“It is the great
multiplication of the productions of all the different arts, in
consequence of the division of labour, which occasions, in a
well-governed society, that universal opulence which extends itself to
the lowest ranks of the people.”
In such a manner Adam Smith has made the progressive division of labor
the central factor in the economic progress of mankind—in harmony with
the overwhelming importance he attributes to labor as an element in
human economy. I believe, however, that the distinguished author I have
just quoted has cast light, in his chapter on the division of labor, on
but a single cause of progress in human welfare while other, no less
efficient, causes have escaped his attention.
We may assume that the tasks in the collecting economy of an Australian
tribe are, for the most part, divided in the most efficient way among
the various members of the tribe. Some are hunters; others are
fishermen; and still others are occupied exclusively with collecting
wild vegetable foods. Some of the women are wholly engaged in the
preparation of food, and others in the fabrication of clothes. We may
imagine the division of labor of the tribe to be carried still further,
so that each distinct task comes to be performed by a particular
specialized member of the tribe. Let us now ask whether a division of
labor carried so far, would have such an effect on the increase of the
quantity of consumable goods available to the members of the tribe as
that regarded by Adam Smith as being the consequence of the progressive
division of labor. Evidently, as the result of such a change, this
tribe (or any other people) will achieve either the same result from
their labor with less effort or, with the same effort, a greater result
than before. It will thus improve its condition, insofar as this is at
all possible, by means of a more appropriate and efficient allocation
of occupational tasks. But this improvement is very different from that
which we can observe in actual cases of economically progressive
peoples.
Let us compare this last case with another. Assume a people which
extends its attention to goods of third, fourth, and higher orders,
instead of confining its activity merely to the tasks of a primitive
collecting economy—that is, to the acquisition of naturally available
goods of lowest order (ordinarily goods of first, and possibly second,
order). If such a people progressively directs goods of ever higher
orders to the satisfaction of its needs, and especially if each step in
this direction is accompanied by an appropriate division of labor, we
shall doubtless observe that progress in welfare which Adam Smith was
disposed to attribute exclusively to the latter factor. We shall see
the hunter, who initially pursues game with a club, turning to hunting
with bow and hunting net, to stock farming of the simplest kind, and in
sequence, to ever more intensive forms of stock farming. We shall see
men, living initially on wild plants, turning to ever more intensive
forms of agriculture. We shall see the rise of manufactures, and their
improvement by means of tools and machines. And in the closest
connection with these developments, we shall see the welfare of this
people increase.
The further mankind progresses in this direction, the more varied
become the kinds of goods, the more varied consequently the
occupations, and the more necessary and economic also the progressive
division of labor. But it is evident that the increase in the
consumption goods at human disposal is not the exclusive effect of the
division of labor. Indeed, the division of labor cannot even be
designated as the most important cause of the economic progress of
mankind. Correctly, it should be regarded only as one factor among the
great influences that lead mankind from barbarism and misery to
civilization and wealth.
The explanation of the effect of the increasing employment of goods of
higher order upon the growing quantity of goods available for human
consumption (goods of first order) is a matter of little difficulty.
In its most primitive form, a collecting economy is confined to
gathering those goods of lowest order that happen to be offered by
nature. Since economizing individuals exert no influence on the
production of these goods, their origin is independent of the wishes
and needs of men, and hence, so far as they are concerned, accidental.
But if men abandon this most primitive form of economy, investigate the
ways in which things may be combined in a causal process for the
production of consumption goods, take possession of things capable of
being so combined, and treat them as goods of higher order, they will
obtain consumption goods that are as truly the results of natural
processes as the consumption goods of a primitive collecting economy,
but the available quantities of these goods will no longer be
independent of the wishes and needs of men. Instead, the quantities of
consumption goods will be determined by a process that is in the power
of men and is regulated by human purposes within the limits set by
natural laws. Consumption goods, which before were the product of an
accidental concurrence of the circumstances of their origin, become
products of human will, within the limits set by natural laws, as soon
as men have recognized these circumstances and have achieved control of
them. The quantities of consumption goods at human disposal are limited
only by the extent of human knowledge of the causal connections between
things, and by the extent of human control over these things.
Increasing understanding of the causal connections between things and
human welfare, and increasing control of the less proximate conditions
responsible for human welfare, have led mankind, therefore, from a
state of barbarism and the deepest misery to its present stage of
civilization and well-being, and have changed vast regions inhabited by
a few miserable, excessively poor, men into densely populated civilized
countries. Nothing is more certain than that the degree of economic
progress of mankind will still, in future epochs, be commensurate with
the degree of progress of human knowledge.
6.
Property
The needs of men are manifold, and their lives and welfare are not
assured if they have at their disposal only the means, however ample,
for the satisfaction of but one of these needs. Although the manner,
and the degree of completeness, of satisfaction of the needs of men can
display an almost unlimited variety, a certain harmony in the
satisfaction of their needs is nevertheless, up to a certain point,
indispensable for the preservation of their lives and welfare. One man
may live in a palace, consume the choicest foods, and dress in the most
costly garments. Another may find his resting place in the dark corner
of a miserable hut, feed on leftovers, and cover himself with rags. But
each of them must try to satisfy his needs for shelter and clothing as
well as his need for food. It is clear that even the most complete
satisfaction of a single need cannot maintain life and welfare.
In this sense, it is not improper to say that all the goods an
economizing individual has at his command are mutually interdependent
with respect to their goods-character, since each particular good can
achieve the end they all serve, the preservation of life and
well-being, not by itself, but only in combination with the other goods.
In an isolated household economy, and even when but little trade exists
between men, this joint purpose of the goods necessary for the
preservation of human life and welfare is apparent, since all of them
are at the disposal of a single economizing individual. The harmony of
the needs that the individual households attempt to satisfy is
reflected in their property. At
a higher stage of
civilization, and particularly in our highly developed exchange
economy, where possession of a substantial quantity of any one economic
good gives command of corresponding quantities of all other goods, the
interdependence of goods is seen less clearly in the economy of the
individual members of society, but appears much more distinctly if the
economic system as a whole is considered.
We see everywhere that not single goods but combinations of goods of
different kinds serve the purposes of economizing men. These
combinations of goods are at the command of individuals either
directly, as is the case in the isolated household economy, or in part
directly and in part indirectly, as is the case in our developed
exchange economy. Only in their entirety do these goods bring about the
effect that we call the satisfaction of our requirements, and in
consequence, the assurance of our lives and welfare.
The entire sum of goods at an economizing individual’s command for the
satisfaction of his needs, we call his property.
His property
is not, however, an arbitrarily combined quantity of goods, but a
direct reflection of his needs, an integrated whole, no essential part
of which can be diminished or increased without affecting realization
of the end it serves.
Lorenz
v. Stein, Lehrbuch der
Volkswirthschaft, Wien, 1858,
pp. 36ff.
Previous
Section | Next
Section
Table of
Contents