Principles of Economics by Carl Menger
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CHAPTER
II. ECONOMY AND ECONOMIC GOODS
NEEDS
ARISE FROM
OUR drives and the drives are imbedded in our nature. An
imperfect satisfaction of needs leads to the stunting of our nature.
Failure to satisfy them brings about our destruction. But to satisfy
our needs is to live and prosper. Thus the attempt to provide for the
satisfaction of our needs is synonymous with the attempt to provide for
our lives and well-being. It is the most important of all human
endeavors, since it is the prerequisite and foundation of all others.
In practice, the concern of men for the satisfaction of their needs is
expressed as an attempt to attain command of all the things on which
the satisfaction of their needs depends. If a person has command of all
the consumption goods necessary to satisfy his needs, their actual
satisfaction depends only on his will. We may thus consider his
objective as having been attained when he is in possession of these
goods, since his life and well-being are then in his own hands. The
quantities of consumption goods a person must have to satisfy his needs
may be termed his requirements.
The
concern of men for the maintenance of
their lives and well-being becomes, therefore, an attempt to provide
themselves with their requirements.
But if men were concerned about providing themselves with their
requirements for goods only when they experienced an immediate need of
them, the satisfaction of their needs, and hence their lives and
well-being, would be very inadequately assured.
If we suppose the inhabitants of a country to be entirely without
stocks of foodstuffs and clothing at the beginning of winter, there can
be no doubt that the majority of them would be unable to save
themselves from destruction, even by the most desperate efforts
directed to the satisfaction of their needs. But the further
civilization advances, and the more men come to depend upon procuring
the goods necessary for the satisfaction of their needs by a long
process of production (pp. 67ff.), the more compelling becomes the
necessity of arranging in advance for the satisfaction of their
needs—that is, of providing their requirements for future time periods.
Even an Australian savage does not postpone hunting until he actually
experiences hunger. Nor does he postpone building his shelter until
inclement weather has begun and he is already exposed to its harmful
effects.
But
men in civilized societies alone
among economizing individuals plan for the satisfaction of their needs,
not for a short period only, but for much longer periods of time.
Civilized men strive to ensure the satisfaction of their needs for many
years to come. Indeed, they not only plan for their entire lives, but
as a rule, extend their plans still further in their concern that even
their descendants shall not lack means for the satisfaction of their
needs.
Wherever we turn among civilized peoples we find a system of
large-scale advance provision for the satisfaction of human needs. When
we are still wearing our heavy clothes for protection against the cold
of winter, not only are ready-made spring clothes already on the way to
retail stores, but in factories light cloths are being woven which we
will wear next summer, while yarns are being spun for the heavy
clothing we will use the following winter. When we fall ill we need the
services of a physician. In legal disputes we require the advice of a
lawyer. But it would be much too late, for a person in either
contingency to meet his need, if he should only then attempt to acquire
the medical or legal knowledge and skills himself, or attempt to
arrange the special training of other persons for his service, even
though he might possess the necessary means. In civilized countries,
the needs of society for these and similar services are provided for in
good time, since experienced and proven men, having prepared themselves
for their professions many years ago, and having since collected rich
experiences from their practices, place their services at the disposal
of society. And while we enjoy the fruits of the foresight of past
times in this way, many men are being trained in our universities to
meet the needs of society for similar services in the future.
The concern of men for the satisfaction of theirs needs thus becomes an
attempt to provide in advance
for meeting their requirements in
the future, and we shall therefore call a person’s requirements those
quantities of goods that are necessary to satisfy his needs within the
time period covered by his plans.
There are two kinds of knowledge that men must possess as a
prerequisite for any successful attempt to provide in advance for the
satisfaction of their needs. They must become clear: (a) about their
requirements—that is, about the quantities of goods they will need to
satisfy their needs during the time period over which their plans
extend, and (b) about the quantities of goods at their disposal for the
purpose of meeting these requirements.
All provident activity directed to the satisfaction of human needs is
based on knowledge of these two classes of quantities. Lacking
knowledge of the first, the activity of men would be conducted blindly,
for they would be ignorant of their objective. Lacking knowledge of the
second, their activity would be planless, for they would have no
conception of the available means.
In what follows, it will first be shown how men arrive at a knowledge
of their requirements for future time periods; it will then be shown
how they estimate the quantities of goods that will be at their
disposal during these time periods; and finally a description will be
given of the activity by which men endeavor to direct the quantities of
goods (consumption goods and means of production) at their disposal to
the most effective satisfaction of their needs.
1.
Human
Requirements
A.
Requirements
for goods of first order (consumption
goods).
Human beings experience directly and immediately only needs for goods
of first order—that is, for goods that can be used directly for the
satisfaction of their needs (p. 56). If no requirements for these goods
existed, none for goods of higher order could arise. Requirements for
goods of higher order are thus dependent upon requirements for goods of
first order, and an investigation of the latter constitutes the
necessary foundation for the investigation of human requirements in
general. We shall first, accordingly, be occupied with human
requirements for goods of first order, and then with an exposition of
the principles according to which human requirements for goods of
higher order are regulated.
The quantity of a good of first order necessary to satisfy a concrete
human need
(and
hence also the quantity necessary
to satisfy all the needs for a good of first order arising in a certain
period of time) is determined directly by the need itself (by the needs
themselves) and bears a direct quantitative relationship to it (them).
If, therefore, men were always correctly and completely informed, as a
result of previous experience, about the concrete needs they will have,
and about the intensity with which these needs will be experienced
during the time period for which they plan, they could never be in
doubt about the quantities of goods necessary for the satisfaction of
their needs—that is, about the magnitude of their requirements for
goods of first order.
But experience tells us that we are often more or less in doubt whether
certain needs will be felt in the future at all. We are aware, of
course, that we will need food, drink, clothing, shelter, etc., during
a given time period. But the same certainty does not exist with respect
to many other goods, such as medical services, medicines, etc., since
whether we shall experience a need for these goods or not often depends
upon influences that we cannot foresee with certainty.
Even with needs that we know in advance will be experienced in the time
period for which we plan, we may be uncertain about the quantities
involved. We are well aware that these needs will make themselves felt,
but we do not know beforehand in exactly what degree—that is, we do not
know the exact quantities of goods that will be necessary for their
satisfaction. But these are the very quantities here in question.
In the case of needs about which there is uncertainty as to whether
they will arise at all in the time periods for which men make their
plans, experience teaches us that, in spite of their deficient
foresight, men by no means fail to provide for their eventual
satisfaction. Even healthy persons living in the country are, to the
extent permitted by their means, in possession of a medicine chest, or
at least of a few drugs for unforeseen emergencies. Careful
householders have fire extinguishers to preserve their property in case
of fire, weapons to protect it if necessary, probably also fire- and
burglar-proof safes, and many similar goods. Indeed, even among the
goods of the poorest people I believe that some goods will be found
that are expected to be utilized only in unforeseen contingencies.
The circumstance that it is uncertain whether a need for a good will be
felt during the period of our plans does not, therefore, exclude the
possibility that we will provide for its eventual satisfaction, and
hence does not cause the reality of our requirements for goods
necessary to satisfy such needs to be in question. On the contrary, men
provide in advance, and as far as their means permit, for the eventual
satisfaction of these needs also, and include the goods necessary for
their satisfaction in their calculations whenever they determine their
requirements as a whole.
But what has been said here of needs whose appearance is altogether
uncertain is fully as true where there is no doubt that a need for a
good will arise but only uncertainty as to the intensity with which it
will be felt, since in this case also men correctly consider their
requirements to be fully met when they are able to have at their
disposal quantities of goods sufficient for all anticipated
eventualities.
A further point that must be taken into consideration here is the capacity
of human needs to grow.
If human needs are capable of growth
and, as is sometimes maintained, capable of infinite growth, it could
appear as if this growth would extend the limits of the quantities of
goods necessary for the satisfaction of human needs continually, indeed
even to complete infinitely, and that therefore any advance provision
by men with respect to their requirements would be made utterly
impossible.
On this subject of the capacity of human needs for infinite growth, it
appears to me, first of all, that the concept of infinity is applicable
only to unlimited progress in the development of human needs, but not
to the quantities of goods necessary for the satisfaction of these
needs during a given period of time. Although it is granted that the
series is infinite, each individual element of the series is
nevertheless finite. Even if human needs can be considered unlimited in
their development into the most distant periods of the future, they are
nevertheless capable of quantitative determination for all given, and
especially for all economically significant, time periods. Thus, even
under the assumption of uninterrupted progress in the development of
human needs, we have to deal with finite and never with infinite, and
thus completely indeterminate, magnitudes if we concern ourselves only
with definite time periods.
If we observe people in provident activity directed to the satisfaction
of their future needs, we can easily see that they are far from letting
the capacity of their needs to grow escape their attention. On the
contrary, they are most diligently concerned to take account of it. A
person expecting an increase in his family or a higher social position
will pay due attention to his increased future needs in the
construction and furnishing of dwellings and in the purchase of
carriages and similar durable goods. As a rule, and as far as his means
will permit, he will attempt to take account of the higher claims of
the future, not in a single connection only, but with respect to his
holdings of goods as a whole. We can observe an analogous phenomenon in
the activities of municipal governments. We see municipalities
constructing waterworks, public buildings (schools, hospitals, etc.),
parks, streets, and so on, with attention not only to the needs of the
present, but with due consideration to the increased needs of the
future. Naturally this tendency to give attention to future needs is
even more distinctly evident in the activities of national governments.
To summarize what has been said, it appears that human requirements for
consumption goods are magnitudes whose quantitative determination with
respect to future time periods poses no fundamental difficulties. They
are magnitudes about which, in activities directed to the satisfaction
of their needs, men actually endeavor to attain clarity within feasible
limits and insofar as a practical necessity compels them—that is, their
attempts to determine these magnitudes are limited, on the one hand, to
those time periods for which, at any time, they plan to make provision
and, on the other hand, to a degree of exactness that is sufficient for
the practical success of their activity.
B.
Requirements
for goods of higher order (means of production).
If our requirements for goods of first order for a coming time period
are already directly met by existing quantities of these goods, there
can be no question of a further provision for these same requirements
by means of goods of higher order. But if these requirements are not
met, or are not completely met, by existing goods of first order (that
is, if they are not met directly), requirements for goods of higher
order for the time period in question do arise. These requirements are
the quantities of goods of higher order that are necessary, in the
existing state of technology of the relevant branches of production,
for supplying our full requirements for goods of first order.
The simple relationship just presented with respect to our requirements
for the means of production is to be observed, however, as we shall see
in what follows, only in rare cases. An important modification of this
principle arises from the causal interrelationships between goods.
It was demonstrated earlier (pp. 58ff.) that it is impossible for men
to employ any one good of higher order for the production of
corresponding goods of lower order unless they are able, at the same
time, to have the complementary goods at their disposal. Now what was
said earlier of goods in general becomes more sharply precise here when
we take into account the available quantities of goods. It was shown
earlier that we can change goods of higher order into goods of lower
order, and thus use them for the satisfaction of human needs, only if
we have the complementary goods simultaneously at our disposal. This
principle can now be restated in the following terms: We
can bring
quantities of goods of higher order to the production of given
quantities of goods of lower order, and thus finally to the meeting of
our requirements, only if we are in the position of having the
complementary quantities of the other goods of higher order
simultaneously at our disposal.
Thus, for instance, even the
largest quantity of land cannot be employed for the production of a
quantity of grain, however small, unless we have at our disposal the
(complementary) quantities of seed, labor services, etc., that are
necessary for the production of this small quantity of grain.
Hence requirements for a single good of higher order are never
encountered. On the contrary, we often observe that, whenever the
requirements for a good of lower order are not at all or are only
incompletely met, requirements for each of the corresponding goods of
higher order are experienced only jointly with quantitatively
corresponding requirements for the other complementary goods of higher
order.
Suppose, for example, that with still unfilled requirements for 10,000
pairs of shoes for a given time period, we can command the quantities
of tools, labor services, etc., necessary for the production of this
quantity of shoes but only enough leather for the production of 5,000
pairs. Or else suppose that we are in a position to command all the
other goods of higher order necessary for the production of 10,000
pairs of shoes but only enough labor services for the production of
5,000 pairs. In both instances, there can be no doubt that our full
requirements, with respect to
the given time period, would extend
to such quantities of the various goods of higher order necessary for
the production of shoes as would suffice for the production of 10,000
pairs. Our effective
requirements, however, with
respect to the
other complementary goods, would, in each case, extend to such
quantities only as are needed for the production of 5,000 pairs. The
remaining requirements would be latent,
and would only become effective
if the other, lacking, complementary quantities should also become
available.
From what has been said, we derive the principle that, with
respect
to given future time periods, our effective requirements for particular
goods of higher order are dependent upon the availability of
complementary quantities of the corresponding goods of higher order.
When cotton imports to Europe declined considerably because of the
American Civil War, requirements for cotton piece goods remained
evidently quite unaffected since that war could not change the needs
for these goods significantly. To the extent to which there were future
requirements for cotton piece goods that were not already met by
finished manufactured products, there were also, as a result,
requirements for the corresponding quantities of goods of higher
order necessary for the production of cotton cloth. Hence these
requirements also could not, on the whole, be altered significantly in
any way by the civil war. But since the available quantity of one of
the necessary goods of higher order, namely raw cotton, declined
considerably, the natural consequence was that a part of the previous
requirements for goods complementary to raw cotton with respect to the
production of cotton cloth (labor services, machines, etc.) became latent,
and the effective
requirements for them diminished to such
quantities as were necessary for processing the available quantities of
raw cotton. As soon, however, as imports of raw cotton revived again,
the effective requirements for these goods also experienced an
increase—to the exact extent, of course, that the latent
requirements diminished.
Immigrants, bringing with them viewpoints acquired in highly developed
mother countries, often fall into the error of striving from the outset
for an extended landed property to the neglect of more important
considerations, and even without regard to whether the corresponding
quantities of the other goods, complementary to the land, are available
in their settlements. Yet nothing is more certain than that they can
progress in using the land for the satisfaction of their needs only to
the extent that they are able to acquire the corresponding
complementary quantities of seed grain, cattle, agricultural
instruments, etc. Their course of action betrays an ignorance of the
above principle, which makes itself so inexorably felt that men must
either submit to its validity or bear the injurious consequences of its
neglect.
The further civilization progresses with a highly developed division of
labor, the more accustomed do people in various lines become to
producing quantities of goods of higher order under the implicit and as
a rule correct assumption that other persons will produce the
corresponding quantities of the complementary goods. Manufacturers of
opera glasses very seldom produce the glass lenses, the ivory or
tortoise-shell cases, and the bronze parts, used in assembling the
opera glasses. On the contrary, it is known that the producers of these
glasses generally obtain the separate parts from specialized
manufacturers or artisans and only assemble these parts, adding perhaps
a few finishing touches. The glass-cutter who makes the lenses, the
fancy-goods worker who makes the ivory or tortoise-shell cases, and the
bronze-worker who makes the bronze castings, all operate under the
implicit assumption that requirements for their products do exist. And
yet nothing is more certain than that the effective requirements for
the products of each one of them are dependent upon the production of
the complementary quantities in such a fashion that, if the production
of glass lenses were to suffer an interruption, the effective
requirements for the other goods of higher order necessary for the
production of telescopes, opera-glasses, and similar goods, would
become latent. At this point, economic disturbances would appear that
laymen usually consider completely abnormal, but which are, in reality,
entirely in accordance with economic laws.
C.
The time
limits within which human needs are felt.
In our present investigation, the only topic still remaining to be
taken into consideration is the problem of time, and we must
demonstrate for what time periods men actually plan their requirements.
On this question, it is clear, in the first place, that our
requirements for goods of first order appear to be met, with reference
to a given future time period, if, within this time period, we will be
in the position of having directly
at our disposal the
quantities of goods of first order that we require. It is different if
we must meet our requirements for goods of first or, in general, of
lower order indirectly (that is, by means of quantities of the
corresponding goods of higher order), because of the lapse of time that
is inevitable in any production process. Let us designate as Period I
the time period that begins now and extends to the point in time when a
good of first order can be produced from the corresponding goods of
second order now at our disposal. Let us call Period II the time period
following Period I and extending to the point in time when a good of
first order can be produced from the goods of third order now available
to us. And similarly, let us designate the following time periods III,
IV, and so on. A sequence of time periods is thus defined for each
particular kind of good. For each of these time periods we have
immediate and direct requirements for the good of first order, and
these requirements are actually met since, during these time periods,
we come to have direct command of the necessary quantities of the good
of first order.
Suppose, however, that we should try to meet our requirements for a
good of first order during Period II by means of goods of fourth order.
It is clear that this would be physically impossible, and that an
actual provision of our requirements for the good of first order within
the posited time period could result only from the use of goods of
first or second order.
The same observation can be made not only with respect to our
requirements for goods of first order, but with respect to our
requirements for all goods of lower order in relation to the available
goods of higher order. We cannot, for example, provide our requirements
for goods of third order during Period V by obtaining command, during
that time period, of the corresponding quantities of goods of sixth
order. On the contrary, it is clear that for this purpose we would
already have had to obtain command of the latter goods during Period II.
If the requirements of a people for grain for the current year were not
directly covered in late autumn by the then existing stocks of grain,
it would be much too late to attempt to employ the available land,
agricultural implements, labor services, etc., for that purpose. But
autumn would be the proper time to provide for the grain requirements
of the following year by utilizing the above-mentioned goods of higher
order. Similarly, to meet our requirements for the labor services of
competent teachers a decade from now, we must already, at the present
time, educate capable persons for this purpose.
Human requirements for goods of higher order, like those for goods of
lower order, are not only magnitudes that are quantitatively determined
in strict accordance with definite laws, and that can be estimated
beforehand by men where a practical necessity exists, but they are
magnitudes also which, within certain time limits, men do calculate
with an exactness sufficient for their practical affairs. Moreover, the
record of the past demonstrates that, on the basis of previous
experience as to their needs and as to the processes of production, men
continually improve their ability to estimate more exactly the
quantities of the various goods that will be needed to satisfy their
needs, as well as the particular time periods within which these
requirements for the various goods will arise.
2.
The
Available Quantities
If it is generally correct that clarity about the objective of their
endeavors is an essential factor in the success of every activity of
men, it is also certain that knowledge of requirements for goods in
future time periods is the first prerequisite for the planning of all
human activity directed to the satisfaction of needs. Whatever may be
the external conditions, therefore, under which this activity of men
develops, its success will be dependent principally upon correct
foresight of the quantities of goods they will find necessary in future
time periods—that is, upon correct advance formulation of their
requirements. It is clear also that a complete lack of foresight would
make any planning of activity directed to the satisfaction of human
needs completely impossible.
The second factor that determines the success of human activity is the
knowledge gained by men of the means available to them for the
attainment of the desired ends. Wherever, therefore, men may be
observed in activities directed to the satisfaction of their needs,
they are seen to be seriously concerned to obtain as exact a knowledge
as possible of the quantities of goods available to them for this
purpose. How they proceed to do so is the subject that will occupy us
in this section.
The quantities of goods available, at any time, to the various members
of a society are set by existing circumstances, and in determining
these quantities the only problems they have are to measure and take
inventory of the goods at their disposal. The ideal result of these two
varieties of provident human activity is the complete enumeration of
the goods available to them at a given point in time, their
classification into perfectly homogeneous categories, and the exact
determination of the number of items in each category. In practical
life, however, far from pursuing this ideal, men customarily do not
even attempt to obtain results as fully exact as is possible in the
existing state of the arts of measuring and taking inventory, but are
satisfied with just the degree of exactness that is necessary for
practical purposes. Yet it is significant evidence of the great
practical importance that exact knowledge of the existing quantities of
goods available to them has for many people that we find a quite
exceptional degree of exactness of this knowledge among merchants,
industrialists, and such persons generally as have developed a high
degree of provident activity. But even at the lowest levels of
civilization we encounter a certain amount of knowledge of the
available quantities of goods, since it is evident that a complete lack
of this knowledge would make impossible any provident activity of men
directed to the satisfaction of their needs.
To the degree to which men engage in planning activity directed to the
satisfaction of their needs, they endeavor to attain clarity as to the
quantities of goods available to them at any time. Wherever a
considerable trade in goods already exists, therefore, we will find men
attempting to form a judgment about the quantities of goods currently
available to the other members of the society with whom they maintain
trading connections.
As long as men have no considerable trade with one another, each man
obviously has but a small interest in knowing what quantities of goods
are in the hands of other persons. As soon, however, as an extensive
trade develops, chiefly as a result of division of labor, and men find
themselves dependent in large part upon exchange in meeting their
requirements, they naturally acquire a very obvious interest in being
informed not only about all the goods in their own possession but also
about the goods of all the other persons with whom they maintain
trading relations, since part of the possessions of these other persons
is then accessible to them, if not directly, yet indirectly (by way of
trade).
As soon as a society reaches a certain level of civilization, the
growing division of labor causes the development of a special
professional class which operates as an intermediary in exchanges and
performs for the other members of society not only the mechanical part
of trading operations (shipping, distribution, the storing of goods,
etc.), but also the task of keeping records of the available
quantities. Thus we observe that a specific class of people has a
special professional interest in compiling data about the quantities of
goods, so-called stocks
in the widest sense of the word,
currently at the disposal of the various peoples and nations whose
trade they mediate. The data they compile cover trading regions that
are smaller or larger (single counties, provinces, or even entire
countries or continents) according to the position the intermediaries
in question occupy in commercial life. They have, moreover, an interest
in many other general kinds of information, but we will have occasion
to discuss this at a later point.
The keeping of such statistical records, insofar as they relate to the
quantities of goods currently at the disposal of sizeable groups of
individuals, or even at the disposal of whole nations or groups of
nations, meets, however, with not inconsiderable difficulties, since
the exact determination of these stocks can be made only by means of a
census. The procedure of a census presupposes a complicated apparatus
of public officials, covering an entire trading area and equipped with
the necessary powers. Such an apparatus can be supplied only by
national governments, and by these only within their own territories.
Moreover, a census fails to be efficient even within these limits, as
is known to every expert, when it deals with goods whose available
quantities are not easily accessible to official enumeration.
Censuses, too, can be undertaken conveniently only from time to time.
Indeed, it is ordinarily possible to undertake them only at
considerable intervals of time. Hence the data obtained at a certain
point in time for all goods whose available quantities are
subject
to severe fluctuations will not infrequently already have lost
practical value, even though the figures may lay claim to reliability.
Government activity directed to the determination of the quantities of
goods available at any time to a given people or nation is, therefore,
naturally confined: (1) to goods whose quantities are subject only to
slight changes, as is the case with land, buildings, domestic animals,
transportation facilities, etc., since a census of such items, taken at
a particular point in time, maintains its validity for later points in
time as well, and (2) to goods whose available quantities are subject
to such a degree of public control that the correctness of the figures
obtained is thereby guaranteed, at least in some degree.
With the signal interest that the business world, under the
circumstances just described, has in as exact a knowledge as possible
of the quantities of goods available in certain trading areas, it is
understandable that it is not satisfied with the incomplete results of
this activity of governments, performed, as it is for the most part,
with little commercial understanding and always covering only
particular countries or parts of countries rather than entire trading
areas. On the contrary, the business world itself attempts to provide
independently, and not infrequently at considerable financial
sacrifice, as inclusive and as exact information as is possible of the
quantities in question. This need has produced many organs serving the
special interests of the business world, whose task consists, in
considerable part, of informing the members of each branch of
production about the current state of stocks in the various trading
areas.
Among these organs are the correspondents who are maintained by large
business houses at the major markets for each of their commodities. One
of the chief duties of these correspondents is to keep their
employers continuously informed about the condition of commodity
stocks. For every important commodity there is also a considerable
number of periodically published business reports that serve the same
purpose. Anyone who carefully follows the grain reports of Bell in
London or Meyer in Berlin, the sugar reports of Licht in Magdeburg, the
cotton reports of Ellison and Haywood in Liverpool, etc., will find
reliable information in them about the current state of commodity
stocks (and many other data of importance to the business world, which
I will discuss later) based on investigations of various kinds and on
ingenious calculation where investigation is not feasible. These
estimates of commodity stocks have a very definite influence, as we
shall see, on economic phenomena, notably price formation. The cotton
reports of Ellison and Haywood, for example, contain periodical
information about current stocks of the different grades of cotton in
Liverpool, in England in general, on the continent, and in America,
India, Egypt and the other producing regions; they inform us regularly
about the quantities of cotton in process of shipment on the high seas
(floating cargo), about the ports to which they are consigned, and
whether the quantities in England are still in the hands of the
wholesalers, already in the warehouses of spinners or other buyers, or
assigned for export, etc.
These reports are based on public censuses of all kinds, which the
business world immediately strives to make serviceable if they prove at
all trustworthy, on information gathered by expert correspondents in
various places, and in part also on the estimates of experienced
businessmen of proven reliability. They cover not only the stocks
available at any given time but also the quantities of goods expected
to be at the disposal of men in future time periods.
In
the above-mentioned reports of
Licht, for example, one finds not only news of the fluctuations of
sugar stocks in all the trading areas in contact with Germany, but also
a comprehensive collection of facts concerning raw material and
manufacturing production. In particular, one finds current reports on
the area of land planted in sugar cane and sugar beets, on the present
condition of the cane and beet crops, on the expected influence of the
weather on the time and quantitative and qualitative results of the
harvest, on the harvest itself, on the capacities of sugar factories
and refineries, on the number of these plants that are active and the
number that are idle, on the amount of foreign and domestic output that
is expected to reach the German market and the times of expected
arrival, on technical progress in methods of sugar production, on
disturbances in the distributive apparatus, etc. Similar data on other
commodities are contained in the other business reports mentioned in
the previous paragraph.
Such reports are usually sufficient to inform the business world about
the available quantities of certain commodities in the more or less
extensive trading areas relevant to each commodity, and to provide it
with a basis for judging prospective changes in stocks. Where actual
uncertainties exist, the reports serve to draw attention to this
circumstance, so that, in all cases where the outcome of a particular
transaction depends upon the larger or smaller available quantity of a
good, its risky character is brought to the attention of the business
world.
3.
The
Origin of Human Economy and Economic Goods
A. Economic
goods.
In
the two preceding sections we have seen how separate individuals, as
well as the inhabitants of whole countries and groups of countries
united by trade, attempt to form a judgment on the one hand about their
requirements for future time periods and, on the other, about the
quantities of goods available to them for meeting these requirements,
in order to gain in this way the indispensable foundation for activity
directed to the satisfaction of their needs. The task to which we now
turn is to show how men, on the basis of this knowledge, direct the
available quantities of goods (consumption goods and means of
production) to the greatest possible satisfaction of their needs.
An
investigation
of the requirements for, and available quantities of, a good may
establish the existence of any one of the three following relationships:
(a)
that
requirements are larger than the available quantity.
(b) that requirements are smaller than the available quantity.
(c) that requirements and the available quantity are equal.
We can regularly observe the first of these relationships—where a part
of the needs for a good must necessarily remain unsatisfied—with by far
the greater number of goods. I do not refer here to articles of luxury
since, with them, this relationship seems self-evident. But even the
coarsest pieces of clothing, the most ordinary living accommodations
and furnishings, the most common foods, etc., are goods of this kind.
Even earth, stones, and the most insignificant kinds of scrap are, as a
rule, not available to us in such great quantities that we could not
employ still greater quantities of them.
Wherever this relationship appears with respect to a given time
period—that is, wherever men recognize that the requirements for a good
are greater than its available quantity—they achieve the further
insight that no part of the available quantity, in any way practically
significant, may lose its useful properties or be removed from human
control without causing some concrete human needs, previously provided
for, to remain unsatisfied, or without causing these needs now to be
satisfied less completely than before.
The first effects of this insight upon the activity of men intent to
satisfy their needs as completely as possible are that they strive: (1)
to maintain at their disposal every unit of a good standing in this
quantitative relationship, and (2) to conserve its useful properties.
A further effect of knowledge of this relationship between requirements
and available quantities is that men become aware, on the one hand,
that under all circumstances a part of their needs for the good in
question will remain unsatisfied and, on the other hand, that any
inappropriate employment of partial quantities of this good must
necessarily result in part of the needs that would be provided for by
appropriate employment of the available quantity remaining unsatisfied.
Accordingly, with respect to a good subject to the relationship under
discussion, men endeavor, in provident activity directed to the
satisfaction of their needs: (3) to make a choice between their more
important needs, which they will satisfy with the available quantity of
the good in question, and needs that they must leave unsatisfied, and
(4) to obtain the greatest possible result with a given quantity of the
good or a given result with the smallest possible quantity—or in other
words, to direct the quantities of consumers’ goods available to them,
and particularly the available quantities of the means of production,
to the satisfaction of their needs in the most appropriate manner.
The complex of human activities directed to these four objectives is
called economizing, and goods standing in the quantitative relationship
involved in the preceding discussion are the exclusive objects of it.
These goods are economic
goods in contrast to such goods as men
find no practical necessity of economizing—for reasons which, as we
shall see later, can be traced to quantitative relationships accessible
to exact measurement, just as this has been shown to be possible in the
case of economic goods.
But before we proceed to demonstrate these relationships and the
phenomena of life ultimately determined by them, we will consider a
phenomenon of social life which has assumed immeasurable significance
for human welfare and which, in its ultimate causes, springs from the
same quantitative relationship that we became acquainted with earlier
in this section.
So far we have presented the phenomena of life that result from the
fact that the requirements of men for many goods are greater than the
quantities available to them in a very general way, and without special
regard to the social organization of men. What has been said to this
point therefore applies equally to an isolated individual and to a
whole society, however it may be organized. But the social life of men,
pursuing their individual interests even as members of
society,
brings to view a special phenomenon in the case of all goods whose
available quantities are less than the requirements for them. An
account of this phenomenon may find its place here.
If the quantitative relationship under discussion occurs in a society
(that is, if the requirements of a society for a good are larger than
its available quantity), it is impossible, in accordance with what was
said earlier, for the respective needs of all individuals composing the
society to be completely satisfied. On the contrary, nothing is more
certain than that the needs of some members of this society will be
satisfied either not at all or, at any rate, only in an incomplete
fashion. Here human self-interest finds an incentive to make itself
felt, and where the available quantity does not suffice for all, every
individual will attempt to secure his own requirements as completely as
possible to the exclusion of others.
In this struggle, the various individuals will attain very different
degrees of success. But whatever the manner in which goods subject to
this quantitative relationship are divided, the requirements of some
members of the society will not be met at all, or will be met only
incompletely. These persons will therefore have interests opposed to
those of the present possessors with respect to each portion of the
available quantity of goods. But with this Opposition of interest, it
becomes necessary for society to protect the various individuals in the
possession of goods subject to this relationship against all possible
acts of force. In this way, then, we arrive at the economic origin of
our present legal order, and especially of the so-called protection
of ownership, the basis of
property.
Thus human economy and property have a joint economic origin since both
have, as the ultimate reason for their existence, the fact that goods
exist whose available quantities are smaller than the requirements of
men. Property, therefore, like human economy, is not an arbitrary
invention but rather the only practically possible solution of the
problem that is, in the nature of things, imposed upon us by the
disparity between requirements for, and available quantities
of,
all economic goods.
As a result, it is impossible to abolish the institution of property
without removing the causes that of necessity bring it about—that is,
without simultaneously increasing the available quantities of all
economic goods to such an extent that the requirements of all members
of society can be met completely, or without reducing the needs of men
far enough to make the available goods suffice for the complete
satisfaction of their needs. Without establishing such an equilibrium
between requirements and available amounts, a new social order could
indeed ensure that the available quantities of economic goods would be
used for the satisfaction of the needs of different persons than at
present. But by such a redistribution it could never surmount the fact
that there would be persons whose requirements for economic goods would
either not be met at all, or met only incompletely, and against whose
potential acts of force, the possessors of economic goods would have to
be protected. Property, in this sense, is therefore inseparable from
human economy in its social form, and all plans of social reform can
reasonably be directed only toward an appropriate distribution of
economic goods but never to the abolition of the institution of
property itself.
B.
Non-economic
goods.
In the preceding section I have described the every-day phenomena that
result from the fact that requirements for certain goods are larger
than their available quantities. I shall now demonstrate the phenomena
arising from the opposite relationship—that is, as a consequence of a
relationship in which the requirements of men for a good are smaller
than the quantity of it available to them.
The first result of this relationship is that men not only know that
the satisfaction of all their needs for such goods is completely
assured, but know also that they will be incapable of exhausting the
whole available quantity of such goods for the satisfaction of these
needs.
Suppose that a village is dependent for water on a mountain stream with
a normal flow of 200,000 pails of water a day. When there are
rainstorms, however, and in the spring, when the snow melts on the
mountains, the flow rises to 300,000 pails. In times of greatest
drought it falls to but 100,000 pails of water daily. Suppose further
that the inhabitants of the village, for drinking and other uses,
usually need 200, and at the most 300, pails daily for the complete
satisfaction of their needs. Their highest requirement of 300 pails is
in contrast with an available minimum of at least 100,000 pails per
day. In this and in every other case where a quantitative relationship
of this kind is found, it is clear not only that the satisfaction of
all needs for the good in question is assured, but also that the
economizing individuals will be able to utilize the available quantity
only partially
for the satisfaction of their needs. It is
evident also that partial quantities of these goods may be removed from
their disposal, or may lose their useful properties, without any
resultant diminution in the satisfaction of their needs, provided only
that the aforementioned quantitative relationship is not thereby
reversed. As a result, economizing men are under no practical necessity
of either preserving every unit of such goods at their command or
conserving its useful properties.
Nor can the third and fourth of the above-described phenomena of human
economic activity be observed in the case of goods whose available
quantities exceed requirements for them. If such a relationship should
exist, what sense would there be in any attempt to make a choice
between needs that men should satisfy with the available quantity and
needs that they will resign themselves to leaving unsatisfied, when
they are unable to exhaust the whole quantity available to them even
with the most complete satisfaction of all their needs? And what could
move men to achieve the greatest possible result with each quantity of
such goods, and any given result with the least possible quantity?
It is clear, accordingly, that all the various forms in which human
economic activity expresses itself are absent in the case of goods
whose available quantities are larger than the requirements for them,
just as naturally as they will necessarily be present in the case of
goods subject to the opposite quantitative relationship. Hence they are
not objects of human economy, and for this reason we call them non-economic
goods.
To this point we have considered the relationship underlying the
non-economic character of goods in a general way—that is, without
regard to the present social organization of men. There remains only
the task of indicating the special social phenomena that result from
this quantitative relationship.
As we have seen, the effort of individual members of a society to
attain command of quantities of goods adequate for their needs to the
exclusion of all other members has its origin in the fact that the
quantity of certain goods available to society is smaller than the
requirements for them. Since it is therefore impossible, when such a
relationship exists, to meet the requirements of all individuals
completely, each individual feels prompted to meet his own requirements
to the exclusion of all other economizing individuals. Thus, when all
the members of a society compete for a given quantity of goods that is
insufficient, under any circumstances, to satisfy completely all the
needs of the various individuals, a practical solution to this conflict
of interests is, as we have seen, only conceivable if the various
portions of the whole amount at the disposal of society pass into the
possession of some of the economizing individuals, and if these
individuals are protected by society in their possession to the
exclusion of all other individuals in the economy.
The situation with respect to goods that do not have economic character
is profoundly different. Here the quantities of goods at the disposal
of society are larger than its requirements, with the result that all
individuals are able to satisfy their respective needs completely, and
portions of the available amount of goods remain unused because they
are useless for the satisfaction of human needs. Under such
circumstances, there is no practical necessity for any individual to
secure a part of the whole sufficient to meet his requirements, since
the mere recognition of the quantitative relationship responsible for
the non-economic character of the goods in question gives him
sufficient assurance that, even if all other members of society
completely meet their requirements for these goods, more than
sufficient quantities will still remain for him to satisfy his needs.
As experience teaches, the efforts of single individuals in society are
therefore not directed to securing possession of quantities of
non-economic goods for the satisfaction of their own individual needs
to the exclusion of other individuals. These goods are therefore
neither objects of economy nor objects of the human desire for
property. On the contrary, we can actually observe a picture of
communism with respect to all goods standing in the relationship
causing non-economic character; for men are communists whenever
possible under existing natural conditions. In towns situated on rivers
with more water than is wanted by the inhabitants for the satisfaction
of their needs, everyone goes to the river to draw any desired quantity
of water. In virgin forests, everyone fetches unhindered the quantity
of timber he needs. And everyone admits as much light and air into his
house as he thinks proper. This communism is as naturally founded upon
a non-economic relationship as property is founded upon one that is
economic.
C.
The
relationship between economic and non-economic goods.
In the two preceding sections we examined the nature and origin of
human economy, and demonstrated that the difference between economic
and non-economic goods is ultimately founded on a difference, capable
of exact determination, in the relationship between requirements for
and available quantities of these goods.
But if this has been established, it is also evident that the economic
or non-economic character of goods is nothing inherent in them nor any
property of them, and that therefore every good, without regard to its
internal properties or its external attributes, attains economic
character when it enters into the quantitative relationship explained
above, and loses it when this relationship is reversed.
Economic character is by no means restricted to goods that are the
objects of human economy in a social context. If an isolated
individual’s requirements for a good are greater than the quantity of
the good available to him, we will observe him retaining possession of
every unit at his command, conserving it for employment in the manner
best suited to the satisfaction of his needs, and making a choice
between needs that he will satisfy with the quantity available to him
and needs that he will leave unsatisfied. We will also find that the
same individual has no reason to engage in this activity with respect
to goods that are available to him in quantities exceeding his
requirements. Hence economic and non-economic goods also exist for an
isolated individual. The cause of the economic character of a good
cannot therefore be the fact that it is either an “object of exchange”
or an “object of property.” Nor can the fact that some goods are
products of labor while others are given us by nature without labor be
represented with any greater justice as the criterion for
distinguishing economic from non-economic character, in spite of the
fact that a great deal of clever reasoning has been devoted to
attempting to interpret actual phenomena that contradict this view in a
sense that does not. For experience tells us that many goods on which
no labor was expended (alluvial land, water power, etc.) display
economic character whenever they are available in quantities that do
not meet our requirements. Nor does the fact that a thing is a product
of labor by itself necessarily result in its having goods-character,
let alone economic character. Hence the labor expended in the
production of a good cannot be the criterion of economic character. On
the contrary, it is evident that this criterion must be sought
exclusively in the relationship between requirements for and available
quantities of goods.
Experience, moreover, teaches us that goods of the same kind do not
show economic character in some places but are economic goods in other
places, and that goods of the same kind and in the same place attain
and lose their economic character with changing circumstances.
While quantities of fresh drinking water in regions abounding in
springs, raw timber in virgin forests, and in some countries even land,
do not have economic character, these same goods exhibit economic
character in other places at the same time. Examples are no less
numerous of goods that do not have economic character at a particular
time and place but which, at this same place, attain economic character
at another time. These differences between goods and their
changeability cannot, therefore, be based on the properties of the
goods. On the contrary, one can, if in doubt, convince oneself in all
cases, by an exact and careful examination of these relationships, that
when goods of the same kind have a different character in two different
places at the same time, the relationship between requirements and
available quantities is different in these two places, and that
wherever, in one place, goods that originally had non-economic
character become economic goods, or where the opposite takes place, a
change has occurred in this quantitative relationship.
According to our analysis, there can be only two kinds of reasons why a
non-economic good becomes an economic good: an increase in human
requirements or a diminution of the available quantity.
The chief causes of an increase in requirements are: (1) growth of
population, especially if it occurs in a limited area, (2) growth of
human needs, as the result of which the requirements of any given
population increase, and (3) advances in the knowledge men have of the
causal connection between things and their welfare, as the result of
which new useful purposes for goods arise.
I need hardly point out that all these phenomena accompany the
transition of mankind from lower to higher levels of civilization. From
this it follows, as a natural consequence, that with advancing
civilization non-economic goods show a tendency to take on economic
character, chiefly because one of the factors involved is the magnitude
of human requirements, which increase with the progressive development
of civilization. If to this is added a diminution of the available
quantities of goods that previously did not exhibit economic character
(timber, for instance, through the clearance or devastation of forests
associated with certain phases of cultural development), nothing is
more natural than that goods, whose available quantities on an earlier
level of civilization by far outstripped requirements, and which
therefore did not show economic character, should become economic goods
with the passage of time. In many places, especially in the new world,
this transition from non-economic to economic character can be proven
historically for many goods, especially timber and land. Indeed the
transition can be observed even at the present time. Despite the fact
that information in this field is only fragmentary, I believe that in
Germany, once so densely forested, but few places are to be found where
the inhabitants have not, at some time, experienced this transition—in
the case of firewood, for example.
From what has been said, it is clear that all changes by which economic
goods become non-economic goods, and conversely, by which the latter
become economic goods can be reduced simply to a change in the
relationship between requirements and available quantities.
Goods that occupy an intermediate position between economic and
non-economic goods with respect to the characteristics they exhibit may
lay claim to a special scientific interest.
In this class must be counted, above all, such goods in highly
civilized countries as are produced by the government and offered for
public use in such large quantities that any desired amount of them is
at the disposal of even the poorest member of society, with the result
that they do not attain economic character for the consumers.
Public school education, for instance, in a highly developed society is
usually such a good. Pure healthy drinking water also is considered a
good of such importance by the inhabitants of many cities that,
wherever nature does not make it abundantly available, it is brought by
aqueducts to the public fountains in such large quantities that not
only are the requirements of the inhabitants for drinking water
completely met but also, as a rule, considerable quantities above these
requirements are available. While instruction by a teacher is an
economic good for those in need of such instruction in societies at a
low level of civilization, this same good becomes a non-economic good
in more highly developed societies, since it is provided by the state.
Similarly, in many large cities pure and healthy drinking water, which
previously had economic character for consumers, becomes a non-economic
good.
Conversely, goods that are naturally available in quantities exceeding
requirements may attain economic character for their consumers if a
powerful individual excludes the other members of the economy from
freely acquiring and using them. In densely wooded countries, there are
many villages surrounded by natural forests abounding in timber. In
such places, the available quantity of timber by far exceeds the
requirements of the inhabitants, and uncut wood would not have economic
character in the natural course of events. But when a powerful person
seizes the whole forest, or the greater part of it, he can regulate the
quantities of timber actually available to the inhabitants of his
village in such a way that timber nevertheless acquires economic
character for them. In the heavily wooded Carpathians, for instance,
there are numerous places where peasants (the former villains) must buy
the timber they need from large landholders, even while the latter let
many thousands of logs rot every year in the forest because the
quantities available to them far exceed their present requirements.
This, however, is a case in which goods that would not possess economic
character in the natural course of events artificially become economic
goods for the consumers. In such circumstances, these goods actually
manifest all the phenomena of economic life that are characteristic of
economic goods.
Finally, goods belong in this category that do not exhibit economic
character at the present time but which, in view of future
developments, are already considered by economizing men as economic
goods in many respects. More precisely, if the available quantity of a
non-economic good is continually diminishing, or if the requirements
for it are continually increasing, and the relationship between
requirements and available quantity is such that the final transition
of the good in question from non-economic to economic status can be
foreseen, economizing individuals will usually make portions of the
available quantity objects of their economic activity. They will do
this even when the quantitative relationship responsible for the
non-economic character of the good still actually prevails, and will,
when living as members of a society, usually guarantee themselves their
individual requirements by taking possession of quantities
corresponding to these requirements. The same reasoning applies to
non-economic goods whose available quantities are subject to such
violent fluctuations that only command of a certain surplus in normal
times assures command of requirements in times of scarcity. It applies
also to all non-economic goods with respect to which the boundary
between requirements and available quantities is already so close (the
third case mentioned on p. 94, above all, belongs in this category)
that any misuse or ignorance on the part of some members of the economy
may easily become injurious to the others, or when special
considerations (considerations of comfort or cleanliness for example)
apparently make expedient the seizure of partial quantities of the
non-economic goods. For these and similar reasons the phenomenon of
property can also be observed in the case of goods that appear to us
still, with respect to other aspects of economic life, as non-economic
goods.
Finally, I would like to direct the attention of my readers to a
circumstance that is of great importance in judging the economic
character of goods. I refer to differences in the quality of goods. If
the total available quantity of a good is not sufficient to meet the
requirements for it, every appreciable part of the total quantity
becomes an object of human economy and thus an economic good whatever
its quality. And if the available quantities of a good are greater than
the requirements for it, and there are therefore portions of the total
stock that are utilized for the satisfaction of no need whatever, all
units of the good must, in accordance with what has already been said
about the nature of non-economic goods, have non-economic character if
they are all of exactly the same quality. But if some portions of the
available stock of a good have certain advantages over the other
portions, and these advantages are of such a kind that various human
needs can be better satisfied or, in general, more completely satisfied
by using these rather than the other, less useful, portions, it may
happen that the goods of better quality will attain economic character
while the other (inferior) goods still exhibit non-economic character.
Thus, in a country with a superabundance of land, for instance, land
that is preferable because of the composition of the soil or by reason
of its location may already have attained economic character while
poorer lands still exhibit non-economic character. And in a city
situated on a river with drinking water of inferior quality, quantities
of spring water may already be objects of individual economy when the
river water does not, as yet, show economic character.
Thus, if we sometimes find that different portions of the whole supply
of a good differ in character at the same time, the reason, in this
case too, always lies solely in the fact that the available quantities
of the goods of better grade are smaller than requirements while the
poorer goods are available in quantities exceeding requirements
(requirements not covered by the goods of better grade). Such instances
do not, therefore, constitute exceptions, but are, on the contrary, a
confirmation of the principles stated in this chapter.
D.
The laws
governing the economic character of goods.
In our investigation of the laws governing human requirements, we have
reached the result that the existence of requirements for goods of
higher order is dependent: (1) on our having requirements for the
corresponding goods of lower order, and also (2) on these requirements
for goods of lower order being not already provided for, or at least
not completely provided for. We have defined an economic good as a good
whose available quantity does not meet requirements completely, and
thus we have the principle that the
existence of requirements for
goods of higher order is dependent upon the corresponding goods of
lower order having economic character.
In places where pure and healthy drinking water is present in
quantities exceeding the requirements of the population, and where this
good therefore does not exhibit economic character, requirements for
the various implements or means of transportation serving exclusively
for carrying or piping and filtering drinking water cannot arise. And
in regions in which there is a natural superabundance of firewood
(trees, to be exact), and in which, as a result, this good has
non-economic character, obviously all requirements for goods of higher
order suitable exclusively for the production of firewood are absent
from the very beginning. In regions, on the other hand, where firewood
or drinking water have economic character, requirements for the
corresponding goods of higher order will certainly exist.
But if it has now been established that human requirements for goods of
higher order are determined by the economic character of the
corresponding goods of lower order, and that requirements for goods of
higher order cannot arise at all if they are not applicable to the
production of economic goods, it follows that requirements for goods of
higher order can never, in this event, become larger than their
available quantities, however small, and hence that it is impossible
from the very beginning for them to attain economic character.
From this we derive the general principle that the economic
character of goods of higher order depends upon the economic character
of the goods of lower order for whose production they serve.
In
other words, no good of higher order can attain economic character or
maintain it unless it is suitable for the production of some economic
good of lower order.
If, therefore, goods of lower order displaying economic character are
under consideration, and if the question arises as to the ultimate
causes of their economic character, it would be a complete reversal of
the true relationship, if one were to assume that they are economic
goods because the goods employed in producing them displayed economic
character before the production process was undertaken. Such a
supposition would contradict, in the first place, all experience, which
teaches us that, from goods of higher order whose economic character is
beyond all doubt, completely useless things may be produced, and in
consequence of economic ignorance, actually are produced—things that do
not even have goods-character let alone economic character. Moreover,
cases can be conceived where, from economic goods of higher order,
things can be produced that have goods-character but not economic
character. By way of illustration, one need only imagine persons using
costly economic goods to produce timber in virgin forests, to store up
drinking water in regions abounding in freshwater springs, or to make
air, etc.!
The economic character of a good thus cannot be a consequence of the
circumstance that it has been produced from economic goods of higher
order, and this explanation would have to be rejected in any case, even
if it were not involved in a further internal contradiction. The
explanation of the economic character of goods of lower order by that
of goods of higher order is only a pseudo-explanation, and apart from
being incorrect and in contradiction with all experience, it does not
even fulfill the formal conditions for the explanation of a phenomenon.
If we explain the economic character of goods of first order by that of
goods of second order, the latter by the economic character of goods of
third order, this again by the economic character of goods of fourth
order, and so on, the solution of the problem is not advanced
fundamentally by a single step, since the question as to the last and
true cause of the economic character of goods always still remains
unanswered.
Our previous explanation, however, demonstrates that man, with his
needs and his command of the means to satisfy them, is himself the
point at which human economic life both begins and ends. Initially, man
experiences needs for goods of first order, and makes those whose
available quantities are smaller than his requirements the objects of
his economic activity (that is, he treats them as economic goods) while
he finds no practical inducement to bring the other goods into the
sphere of his economic activity.
Later, thought and experience lead men to ever deeper insights into the
causal connections between things, and especially into the relations
between things and their welfare. They learn to use goods of second,
third, and higher orders. But with these goods, as with goods of first
order, they find that some are available in quantities exceeding their
requirements while the opposite relationship prevails with others.
Hence they divide goods of higher order also into one group that they
include in the sphere of their economic activity, and another group
that they do not feel any practical necessity to treat in this way.
This is the origin of the economic character of goods of higher order.
4.
Wealth
Earlier (p. 76) we called “the entire
sum of goods at a person’s
command” his property.
The entire sum of economic
goods
at an economizing individual’s command
we
will, on the other hand, call his wealth.
The
non-economic goods at an
economizing individual’s command are not objects of his economy, and
hence must not be regarded as parts of his wealth. We saw that economic
goods are goods whose available quantities are smaller than the
requirements for them. Wealth can therefore also be defined as the
entire sum of goods at an economizing individual’s command, the
quantities of which are smaller than the requirements for them.
Hence, if there were a society where all goods were available in
amounts exceeding the requirements for them, there would be no economic
goods nor any “wealth.” Although wealth is thus a measure of the degree
of completeness with which one person can satisfy his needs in
comparison with other persons who engage in economic activity under the
same conditions, it is never an absolute measure of his welfare,
for
the highest welfare of all
individuals and of society would be attained if the quantities of goods
at the disposal of society were so large that no one would be in need
of wealth.
These remarks are intended to introduce the solution of a problem
which, because of the apparent contradictions to which it leads, is
capable of creating distrust as to the accuracy of the principles of
our science. The problem arises from the fact that a continuous
increase in the amounts of economic goods available to economizing
individuals would necessarily cause these goods eventually to lose
their economic character, and in this way cause the components of
wealth to suffer a diminution. Hence we have the queer contradiction
that a continuous increase of the objects of wealth would have, as a
necessary final consequence, a diminution of wealth.
Suppose that the quantity of a certain mineral water available to a
people is smaller than requirements for it. The various portions of
this good at the command of the several economizing persons, as well as
the mineral springs themselves, are therefore economic goods, and hence
constituent parts of wealth. Suppose now that this medicinal water
should suddenly begin to flow in several brooks in such abundant
measure as to lose its previous economic character. Nothing is more
certain, than that the quantities of mineral water that were at the
command of economizing individuals before this event, as well as the
mineral springs themselves, would now cease to be components of wealth.
Thus it would indeed be the case that a progressive increase in the
component parts of wealth would finally have caused a diminution of
wealth.
This paradox is exceedingly impressive at first sight, but upon more
exact consideration, it proves to be only an apparent one. As we saw
earlier, economic goods are goods whose available quantities are
smaller than the requirements for them. They are goods of which there
is a partial deficiency, and the wealth of economizing individuals is
nothing but the sum of these goods. If their available quantities are
progressively increased until they finally lose their economic
character, a deficiency no longer exists, and they move out of the
category of goods constituting the wealth of economizing
individuals—that is, they leave the class of goods of which there is a
partial deficiency. There is certainly no contradiction in the fact
that the progressive increase of a good of which there was previously a
deficiency finally brings about the result that the good ceases to be
in short supply.
On the contrary, that the progressive increase of economic goods must
finally lead to a reduction in the number of goods of which there was
previously a deficiency is a proposition that is as immediately evident
to everyone as the contrary proposition that a long continued
diminution of abundantly available (non-economic) goods must finally
make them scarce in some degree—and thus components of wealth, which is
thereby increased.
The above paradox, which was raised not only with regard to the extent
of objects of wealth but in an analogous manner also with regard to the
value and price of economic goods,
is
therefore only an apparent one, and is
founded upon a misinterpretation of the nature of wealth and its
components.
We have defined wealth as the entire sum of economic goods at the
command of an economizing individual. The existence of any item of
wealth presupposes, therefore, an economizing individual, or at any
rate one in whose behalf acts of economizing are performed. Quantities
of economic goods destined for a specific purpose are therefore not
wealth in the economic sense of the word. The fiction of a legal person
may be valid for purposes of legal practice or even for purposes of
juridical constructions but not for our science which decidedly rejects
all fictions. So-called “trust funds”
are
therefore quantities of economic goods
devoted to specific purposes, but they are not wealth in the economic
sense of the word.
This leads to the question of the nature of public
wealth.
States, provinces, communities, and associations generally have
quantities of economic goods at their disposal in order to satisfy their
needs, to realize their
ends. Here the fiction of a legal
person is not necessary for the political economist. Without calling
upon any fiction, he can observe an economizing unit, a social
organization, whose personnel administer certain economic goods that
are available to it for the purpose of satisfying its needs, and direct
them to this objective. Hence no-one will hesitate to admit the
existence of governmental, provincial, municipal and corporate wealth.
The situation is different with what is designated by the term “national
wealth.” Here we have to deal
not with the entire sum of economic
goods available to a nation for the satisfaction of its
needs,
administered by government employees, and devoted by them to its
purposes, but with the totality of goods at the disposal of the
separate economizing individuals and associations of a society for
their individual purposes. Thus we have to deal with a concept that
deviates in several important respects from what we term wealth.
If we employ the fiction of conceiving of the totality of economizing
persons in a society, each striving for the satisfaction of his special
needs, and driven not infrequently by interests opposed to the
interests of others, as one
great economizing unit, and if we
further assume that the quantities of economic goods at the disposal of
the separate economizing individuals are not applied to the
satisfaction of their special needs but to the satisfaction of the
needs of the totality of individuals composing the economy, then we do,
of course, arrive at the concept of a sum of economic goods at the
disposal of an economizing unit (here, at the disposal of society) that
are available for the purpose of satisfying its collective needs. Such
a concept could correctly be designated by the term national wealth.
But under our present social arrangements, the sum of economic goods at
the disposal of the individual economizing members of society for the
purpose of satisfying their special individual needs obviously does not
constitute wealth in the economic sense of the term but rather a
complex of wealths linked together by human intercourse and trade.
The need for a scientific designation for the sum of goods just
mentioned is, however, so just, and the term “national wealth” for that
concept is so generally accepted and sanctioned by usage, that we would
serve this need badly if we were to drop the existing term as we become
clearer about the correct nature of the so-called national wealth.
It is, then, only necessary that we guard against the error that must
arise if we pay no attention to the distinction discussed here. In all
questions where the issue is merely the quantitative determination of
the so-called national wealth, the sum of the wealths of the
individuals of the nation may be designated as national wealth. But
when inferences running from the magnitude of the national wealth to
the welfare of a people, or when phenomena resulting from contacts
between the various economizing individuals, are involved, the concept
of national wealth in the literal sense of the term must necessarily
lead to frequent errors. In all these cases, the national wealth must
be regarded rather as a complex composite of the wealths of the members
of society, and we must direct our attention to the different sizes of
these individual wealths.
“Bedarf.”
The reader is first
referred to Menger’s own note on this term (note 3 of this Chapter).
Since Menger uses the term Bedarf
in both of the senses
mentioned in his note, and since he uses the term “Nachfrage”
(demand) at several points, even if infrequently, we feel it best to
translate “Bedarf”
as “requirements” throughout to preserve as
exactly as possible Menger’s own terminology.—TR.
Even
some animals lay by stores and thus
ensure in advance that they will not lack food and a warm abode in
winter.
The
word “requirements” (Bedarf)
has
a double meaning in our language. It is used on the one hand to
designate the quantities of goods that are necessary to satisfy a
person’s needs completely, and on the other to designate the quantities
that a person intends to consume. In the latter meaning, a man
receiving a rent of 20,000 Thalers and accustomed to using it all for
consumption has very great requirements, whereas a rural laborer whose
income amounts to 100 Thalers has very small requirements, and a beggar
in the depths of extreme poverty no requirements whatsoever. In the
former meaning, the requirements of men also differ greatly due to
differences in their education and habits. But even a person devoid of
all means has requirements equal to the quantities of goods that would
be necessary to satisfy his needs. Merchants and industrialists
generally employ the term “requirements” in the narrower sense of the
word, and often mean by it the “expected demand” for a good. In this
sense also, one says that there are requirements for a commodity “at a
given price” but not at another price, etc.
The
term “concrete human need” recurs from
time to time in the text. Menger uses the term to refer to a need (or
rather a portion of a need) that is satisfied by consumption of a
single unit of a good. When an individual consumes successive units of
a good, Menger pictures him as satisfying successive “concrete needs”
of diminishing psychological importance. At some points he adopts a
different terminology, and speaks of the consumption of successive
units of a commodity as successive “acts of satisfaction.” See also
note 3 of Chapter III and Appendix D for some suggestions regarding the
meaning of “concrete.”—TR.
See
E.B. de Condillac, Le commerce
et le
gouvernement, in E. Daire (ed.),
Mélanges d’economie
politique, Paris, 1847, p. 248.
In
this paragraph Menger implicitly assumes
his time periods to be of equal duration. Reference to the definitions
of the second paragraph preceding will confirm that this need not be
the case.—TR.
The
next paragraph appears here as a
footnote in the original.—TR.
The
remainder of this paragraph appears here
as a footnote in the original.—TR.
See
the first five paragraphs of Appendix B
(p. 288) for the material originally appearing here as a footnote.—TR.
The
next paragraph originally appears here
as a footnote.—TR.
Using
a mode of expression already current
in our science, we could, by analogy, call the latter quasi-economic
goods (as opposed to true economic goods), and the former quasi-non-economic
goods.
A
good is at a person’s “command” in the
economic sense of the term if he is in a position to employ it for the
satisfaction of his needs. Either physical or legal obstacles can
prevent a good from being at one’s command. A minor’s wealth, for
example, is not at his guardian’s command in this sense of the word.
F.B.W.
von Hermann, Staatswirthschaftliche
Untersuchungen,
München, 1874, p. 21.
See
the last two paragraphs of Appendix B
(p. 291) for the material originally appearing here as a footnote.—TR.
Since
wealth provides only a relative
measure of the degree of completeness with which an individual can
satisfy his needs, some writers have defined wealth as a sum of economic
goods, when applying the term to the economy of a single individual,
and as the sum of all
goods when applying it to the social
economy. The main reason for doing this was that they had in mind the
relative welfare of the different individuals in the first definition
and the absolute welfare of society in the second. See especially,
James Maitland, Earl of Lauderdale, An
Inquiry into the Nature and
Origin of Public Wealth,
Edinburgh, 1804, pp. 39ff., esp. pp. 56ff.
The question recently raised by Wilhelm Roscher (System
der
Volkswirthschaft, Twentieth
edition, Stuttgart, 1892, I, 16ff.),
about whether or not social wealth is to be estimated by its use value
and private wealth by its exchange value can be traced to the same
distinction.
See
already Lauderdale, op. cit.,
p.
43.
Pierre-Joseph
Proudhon, Système
des contradictions économiques,
Third edition, Paris, 1867,
I, 59ff.
"Zweckvermögen.”—TR.
See
Carl Dietzel, Die
Volkswirthschaft
und ihr Verhältniss zu Gesellschaft und Staat,
Frankfurt am
Main, 1864, pp. 106ff.
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